Share-Based Compensation

3 Months Ended

Mar. 31, 2022

Share-based Payment Arrangement [Abstract]

Share-Based Compensation

SHARE-BASED COMPENSATION

We have a share-based compensation program for employees and non-employee directors. Share-based awards granted under this program include restricted stock (consisting of restricted stock units), PSUs and stock options. For accounting purposes, we consider PSUs to be a form of restricted stock.

Summary of Share-Based Compensation Expense

The following table presents the total share-based compensation expense resulting from equity awards and the 15.0% discount for the ESPP for the three months ended March 31, 2022 and 2021, which is included in compensation and benefits expense in the Condensed Consolidated Statements of Income:

	Three Months Ended March 31,
	2022		2021
	(in millions)
Share-based compensation expense before income taxes	$	25	$	19
Income tax benefit	(6)		(5)
Share-based compensation expense after income taxes	$	19	$	14

Common Shares Available Under Our Equity Plan

As of March 31, 2022, we had approximately 9.3 million shares of common stock authorized for future issuance under our Equity Plan.

Restricted Stock

We grant restricted stock to most employees. The grant date fair value of restricted stock awards is based on the closing stock price at the date of grant less the present value of future cash dividends. Restricted stock awards granted to employees below the manager level generally vest 33.3% on the first anniversary of the grant date, 33.3% on the second anniversary of the grant date, and 33.3% on the third anniversary of the grant date. Restricted stock awards granted to employees at or above the manager level generally vest 33.3% on the second anniversary of the grant date, 33.3% on the third anniversary of the grant date, and 33.3% on the fourth anniversary of the grant date.

Summary of Restricted Stock Activity

The following table summarizes our restricted stock activity for the three months ended March 31, 2022:

	Restricted Stock
	Number of Awards	Weighted-Average Grant Date Fair Value
Unvested at January 1, 2022	1,466,340	$	106.16
Granted	10,221	199.30
Vested	(150,156)	81.93
Forfeited	(15,953)	109.42
Unvested at March 31, 2022	1,310,452	$	109.62

As of March 31, 2022, $71 million of total unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted-average period of 1.7 years.

PSUs

PSUs are based on performance measures that impact the amount of shares that each recipient will receive upon vesting. Prior to April 1, 2020, we had two performance-based PSU programs for certain officers, a one-year performance-based program and a three-year cumulative performance-based program that focuses on TSR. Effective April 1, 2020, to better align the equity programs for eligible officers, the one-year performance-based program was eliminated and all eligible officers now participate in the three-year cumulative performance-based program. While the performance periods are complete for all PSUs granted under the one-year performance-based program, some shares underlying these PSUs have not vested.

One-Year PSU Program

The grant date fair value of PSUs under the one-year performance-based program was based on the closing stock price at the date of grant less the present value of future cash dividends. Under this program, an eligible employee received a target grant of PSUs, but could have received from 0.0% to 150.0% of the target amount granted, depending on the achievement of performance measures. These awards vest ratably on an annual basis over a three-year period

commencing with the end of the one-year performance period. Compensation cost is recognized over the performance period and the three-year vesting period based on the probability that such performance measures will be achieved, taking into account an estimated forfeiture rate.

Three-Year PSU Program

Under the three-year performance-based program, each eligible individual receives PSUs, subject to market conditions, with a three-year cumulative performance period that vest at the end of the performance period. Compensation cost is recognized over the three-year performance period, taking into account an estimated forfeiture rate, regardless of whether the market condition is satisfied, provided that the requisite service period has been completed. Performance will be determined by comparing Nasdaq’s TSR to two peer groups, each weighted 50.0%. The first peer group consists of exchange companies, and the second peer group consists of all companies in the S&P 500. Nasdaq’s relative performance ranking against each of these groups will determine the final number of shares delivered to each individual under the program. The award issuance under this program will be between 0.0% and 200.0% of the number of PSUs granted and will be determined by Nasdaq’s overall performance against both peer groups. However, if Nasdaq’s TSR is negative for the three-year performance period, regardless of TSR ranking, the award issuance will not exceed 100.0% of the number of PSUs granted. We estimate the fair value of PSUs granted under the three-year PSU program using the Monte Carlo simulation model, as these awards contain a market condition.

Grants of PSUs that were issued in 2019 with a three-year performance period exceeded the applicable performance parameters. As a result, an additional 289,307 units above the original target were granted in the first quarter of 2022 and were fully vested upon issuance.

Summary of PSU Activity

The following table summarizes our PSU activity for the three months ended March 31, 2022:

	PSUs
	One-Year Program			Three-Year Program
	Number of Awards	Weighted-Average Grant Date Fair Value		Number of Awards	Weighted-Average Grant Date Fair Value
Unvested at January 1, 2022	49,734	$	84.03	764,124	$	135.04
Granted	—	—		296,912	100.28
Vested	—	—		(578,614)	97.70
Forfeited	(259)	84.18		(399)	148.47
Unvested at March 31, 2022	49,475	$	84.03	482,023	$	158.45

In the preceding table, the granted amount under the three year program reflects additional awards granted based on overachievement of performance parameters.

As of March 31, 2022, $1 million of total unrecognized compensation cost related to the one-year PSU program is expected to be recognized over a weighted-average period of 1.0 year. For the three-year PSU program, $36 million of total unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.3 years.

Stock Options

In January 2022, in connection with a new five year employment agreement, our President and Chief Executive Officer received an aggregate of 204,624 performance-based non-qualified stock options, which will vest as follows:

•50% will vest contingent upon the achievement of certain performance conditions; and

•50% will vest five years after the grant date, subject to continued employment through such date.

The fair value of stock options are estimated using the Black-Scholes option-pricing model. These options expire 10 years after the date of grant. There were no stock option awards granted for the three months ended March 31, 2021.

A summary of stock option activity for the three months ended March 31, 2022 is as follows:

	Number of Stock Options	Weighted-Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2021	268,817	$	66.68	5.0	$	39
Granted	204,624	202.46
Outstanding at March 31, 2022	473,441	$	125.36	6.9	$	30
Exercisable at March 31, 2022	268,817	$	66.68	4.8	$	30

The net cash proceeds from the exercise of 24,409 stock options for the three months ended March 31, 2021 was $1 million.

As of March 31, 2022, the aggregate pre-tax intrinsic value of the outstanding and exercisable stock options in the above table was $30 million and represents the difference between our closing stock price on March 31, 2022 of $178.20 and the exercise price, times the number of shares that would have been received by the option holders had the option holders exercised their stock options on that date. This amount can change based on the fair market value of our common stock. As of March 31, 2021, 0.3 million outstanding stock options were exercisable and the weighted-average exercise price was $66.68. 

The total pre-tax intrinsic value of stock options exercised was $3 million for the three months ended March 31, 2021. 

ESPP

We have an ESPP under which approximately 4.2 million shares of our common stock were available for future issuance as of March 31, 2022. Under our ESPP, employees may purchase shares having a value not exceeding 10.0% of their annual compensation, subject to applicable annual Internal Revenue Service limitations. We record compensation expense related to the 15.0% discount that is given to our employees which totaled to $3 million for the three months ended March 31, 2022 and $2 million for the three months ended March 31, 2021.