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Share-Based Compensation
 12 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation Share-Based CompensationThe Company grants share-based awards under the 2004 Employee and Director Equity-Based Compensation Plan (“2004 Plan”), which provides long-term incentive compensation to employees and directors consisting of: stock appreciation rights (“SARs”), performance-based restricted stock units, time-vested restricted stock units and other stock awards.
The fair value of share-based payments is recognized as compensation expense in net income. The amounts and location of compensation cost relating to share-based payments included in the consolidated statements of income is as follows:
(Millions of dollars)202020192018
Cost of products sold$40 $37 $36 
Selling and administrative expense150 145 136 
Research and development expense34 32 29 
Acquisitions and other restructurings20 50 130 
$245 $265 $332 
Tax benefit associated with share-based compensation costs recognized$57 $62 $79 
Upon the Company's acquisition of Bard in 2018, certain pre-acquisition equity awards of Bard were converted into either BD SARs or BD restricted stock awards, as applicable. These awards have substantially the same terms and conditions as the converted Bard awards immediately prior to the acquisition date. Compensation expense of $16 million, $40 million and $126 million associated with these replacement awards was recorded in Acquisitions and other restructurings in 2020, 2019 and 2018, respectively.
Stock Appreciation Rights
SARs represent the right to receive, upon exercise, shares of common stock having a value equal to the difference between the market price of common stock on the date of exercise and the exercise price on the date of grant. SARs vest over a period of four years and have a term of ten years. The fair value was estimated on the date of grant using a lattice-based binomial option valuation model that uses the following weighted-average assumptions:
202020192018
Risk-free interest rate1.69%3.05%2.32%
Expected volatility19.0%18.0%19.0%
Expected dividend yield1.24%1.27%1.33%
Expected life7.4 years7.2 years7.4 years
Fair value derived$48.82$51.86$46.10
     Expected volatility is based upon historical volatility for the Company’s common stock and other factors. The expected life of SARs granted is derived from the output of the lattice-based model, using assumed exercise rates based on historical exercise and termination patterns, and represents the period of time that SARs granted are expected to be outstanding. The risk-free interest rate used is based upon the published U.S. Treasury yield curve in effect at the time of grant for instruments with a similar life. The dividend yield is based upon the most recently declared quarterly dividend as of the grant date. The Company issued 0.8 million shares during 2020 to satisfy the SARs exercised.
A summary of SARs outstanding as of September 30, 2020 and changes during the year then ended is as follows:
SARs (in
thousands)		Weighted
Average
Exercise Price		Weighted
Average
Remaining
Contractual Term
(Years)		Aggregate
Intrinsic
Value
(Millions
of dollars)
Balance at October 16,899 $144.84 
Granted874 255.22 
Exercised(1,295)101.81 
Forfeited, canceled or expired(140)220.82 
Balance at September 306,337 $167.17 5.66$441 
Vested and expected to vest at September 306,152 $165.02 5.58$440 
Exercisable at September 304,483 $137.60 4.59$429 
A summary of SARs exercised 2020, 2019 and 2018 is as follows:
(Millions of dollars)202020192018
Total intrinsic value of SARs exercised$212 $260 $333 
Total fair value of SARs vested$46 $66 $107 
 
Performance-Based and Time-Vested Restricted Stock Units
Performance-based restricted stock units cliff vest three years after the date of grant. These units are tied to the Company’s performance against pre-established targets over a performance period of three years. The performance measures for fiscal year 2020 were average annual currency-neutral revenue growth and average annual return on invested capital, with the combined factor subject to adjustment based on the Company's relative total shareholder return (measures the Company’s stock performance during the performance period against that of peer companies). For fiscal years 2019 and 2018, the performance measures were relative total shareholder return and average annual return on invested capital. Under the Company’s long-term incentive program, the actual payout under these awards may vary from zero to 200% of an employee’s target payout, based on the Company’s actual performance over the performance period of three years. In fiscal year 2020, the Company also issued additional performance-based time-vested units to certain key executives, which cliff vest three years after the date of grant and are tied to the Company’s performance against average annual growth in the Company’s Adjusted EPS over a performance period of three years. No shares will be issuable if the performance targets have not been met. The fair value is based on the market price of the Company’s stock on the date of grant. Compensation cost initially recognized assumes that the target payout level will be achieved and is adjusted for subsequent changes in the expected outcome of performance-related conditions. For units for which the performance conditions are modified after the date of grant, any incremental increase in the fair value of the modified units, over the original units, is recorded as compensation expense on the date of the modification for vested units, or over the remaining performance period for units not yet vested.
Time-vested restricted stock unit awards vest on a graded basis over a period of three years, except for certain key executives of the Company, including the executive officers, for which such units generally vest one year following the employee’s retirement. The related share-based compensation expense is recorded over the requisite service period, which is the vesting period or is based on retirement eligibility. The fair value of all time-vested restricted stock units is based on the market value of the Company’s stock on the date of grant.
A summary of restricted stock units outstanding as of September 30, 2020 and changes during the year then ended is as follows:
Performance-BasedTime-Vested
Stock Units (in
thousands)		Weighted
Average Grant
Date Fair Value		Stock Units (in
thousands)		Weighted
Average Grant
Date Fair Value
Balance at October 1955 $221.73 2,068 $210.48 
Granted371 245.06 736 249.94 
Distributed(77)174.92 (676)211.19 
Forfeited or canceled(286)188.32 (431)215.56 
Balance at September 30962 (a)$244.42 1,697 $226.01 
Expected to vest at September 30241 (b)$244.82 1,622 $225.22 
(a)Based on 200% of target payout for performance based restricted units and 100% of the performance based time-vested units.
(b)Net of expected forfeited units and units in excess of the expected performance payout of 66 thousand and 655 thousand shares, respectively.
The weighted average grant date fair value of restricted stock units granted during the years 2020, 2019 and 2018 are as follows:
Performance-BasedTime-Vested
202020192018202020192018
Weighted average grant date fair value of units granted$245.06 $237.55 $251.75 $249.94 $235.50 $216.06 
The total fair value of stock units vested during 2020, 2019 and 2018 was as follows:
Performance-BasedTime-Vested
(Millions of dollars)202020192018202020192018
Total fair value of units vested$27 $33 $31 $211 $254 $362 
At September 30, 2020, the weighted average remaining vesting term of performance-based and time vested restricted stock units is 1.26 and 0.84 years, respectively.
Unrecognized Compensation Expense and Other Stock Plans
The amount of unrecognized compensation expense for all non-vested share-based awards as of September 30, 2020, is approximately $245 million, which is expected to be recognized over a weighted-average remaining life of approximately 1.89 years. At September 30, 2020, 10.2 million shares were authorized for future grants under the 2004 Plan. The Company has a policy of satisfying share-based payments through either open market purchases or shares held in treasury. At September 30, 2020, the Company has sufficient shares held in treasury to satisfy these payments.
As of September 30, 2020, 96 thousand shares were held in trust relative to a Director's Deferral plan, which provides a means to defer director compensation, from time to time, on a deferred stock or cash basis. Also as of September 30, 2020, 289 thousand shares were issuable under a Deferred Compensation Plan that allows certain highly-compensated employees, including executive officers, to defer salary, annual incentive awards and certain equity-based compensation.