Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

We grant various types of stock-based compensation awards to directors, officers and key employees under our 2016 incentive plan. These awards include stock options, restricted stock units, performance-based units, cash incentive awards and other equity-related awards (collectively, “Awards”).

The 2016 plan authorizes the issuance of up to 5.4 million shares of our common stock as Awards. Shares awarded may consist of authorized and unissued shares or treasury shares. The 2016 plan will terminate on May 15, 2029, unless terminated earlier by our board of directors. As of December 31, 2019, 1.8 million shares of our common stock were available for the grant of Awards under the 2016 plan.

Our employee stock purchase plan offers eligible U.S. and some non-U.S. employees, excluding our executive officers and directors, the right to purchase our common stock through payroll deductions up to 10% of each employee’s compensation. Shares are purchased at 5% below fair market value on the last trading day of each six-month offering period. Employees must hold the stock for a minimum of three months from the date of purchase. The plan authorizes the purchase of up to two million shares of our common stock. The plan will terminate in October 2027, unless terminated earlier by our board of directors. We do not recognize stock-based compensation expense as the plan is non-compensatory. At December 31, 2019, two million shares of our common stock were available for purchase under the plan.

Our stock-based compensation expense is recorded in SG&A on our Consolidated Statements of Income:



	Years ended December 31,
(In millions)	2019			2018			2017
Restricted stock units	$	30		$	21		$	12
Performance-based restricted stock units	6			9			10
Cash-settled performance-based restricted stock units	31			19			55
Other	—			—			2
Total stock-based compensation expense	$	67		$	49		$	79
Tax benefit on stock-based compensation	(2		)	(22		)	(8		)

Stock Options

Our stock options typically vest over three to five years after the grant date for our employees and officers and one year after the grant date for our board of directors. The stock options have a 10-year contractual term and the exercise price equals our stock price on the grant date. We have not granted stock options since 2016.

A summary of stock option award activity for the year ended December 31, 2019 is presented below:



	Stock Options
	Number of Stock Options		Weighted-Average Exercise Price		Weighted-Average Remaining Term
Outstanding as of December 31, 2018	702,318		$	12.70	3.05
Granted	—		—
Exercised	(125,125	)	14.46
Forfeited	(1,438	)	22.83
Outstanding as of December 31, 2019	575,755		$	12.29	2.47
Options exercisable as of December 31, 2019	575,755		$	12.29	2.47

The intrinsic value of options outstanding and exercisable as of December 31, 2019 was $39 million, respectively.

The total intrinsic value of options exercised during 2019, 2018 and 2017 was $6 million, $11 million and $9 million, respectively. The total cash received from options exercised during 2019, 2018 and 2017 was $1 million, respectively.

Restricted Stock Units and Performance-Based Restricted Stock Units

We grant RSUs and PRSUs to our key employees, officers and directors with various vesting requirements. RSUs generally vest based on the passage of time (service conditions) and PRSUs generally vest based on the achievement of our financial targets (performance conditions). PRSUs may also be subject to stock price (market conditions) and employment conditions. The holders of the RSUs and PRSUs do not have the rights of a stockholder and do not have voting rights until the shares are issued and delivered in settlement of the awards.

The number of RSUs and PRSUs vested includes shares of our common stock that we withheld on behalf of our employees to satisfy the minimum tax withholdings. We estimate the fair value of PRSUs subject to market-based vesting conditions using a Monte Carlo simulation lattice model.

A summary of RSU and PRSU award activity for the year ended December 31, 2019 is presented below:



	RSUs				PRSUs
	Number of RSUs		Weighted-Average Grant Date Fair Value		Number of PRSUs		Weighted-Average Grant Date Fair Value
Outstanding as of December 31, 2018	1,085,628		$	68.24	1,036,925		$	43.51
Granted	1,148,380		50.85		1,030,368		15.93
Vested	(195,609	)	65.62		(407,245	)	30.40
Forfeited and canceled	(308,984	)	72.90		(75,783	)	35.21
Outstanding as of December 31, 2019	1,729,415		$	56.17	1,584,265		$	29.35

The total fair value of RSUs that vested during 2019, 2018 and 2017 was $13 million, $30 million and $23 million, respectively, measured at the weighted-average grant date fair value. All of the outstanding RSUs as of December 31, 2019 vest subject to service conditions.

The total fair value of PRSUs that vested during 2019, 2018 and 2017 was $23 million, $96 million and $8 million, respectively, measured at the weighted-average grant date fair value. Of the outstanding PRSUs as of December 31, 2019, 418,342 vest subject to service and a combination of market and performance conditions and 1,165,923 vest subject to service and performance conditions.

As of December 31, 2019, unrecognized compensation cost related to non-vested RSUs and PRSUs of $63 million is anticipated to be recognized over a weighted-average period of approximately 2.65 years.

Cash-Settled Performance-Based Restricted Stock Units

We grant cash-settled PRSUs to some key employees and executive officers. The PRSUs vest based on the passage

of time and are settled in cash either ratably over a two to four year period or cliff vest at the end of three to four years. The awards may also be subject to the achievement of performance targets and employment conditions. The awards are classified as liabilities and the fair value is based on the closing price of our common stock at grant date and is re-measured each reporting date until settlement. We recognize compensation expense for cash-settled PRSUs over the performance periods based on the probability of achieving the performance conditions and the closing price of our common stock. As of December 31, 2019 and 2018, we had recognized accrued liabilities of $30 million and $18 million, respectively, using a fair value per PRSU of $79.70 and $57.04, respectively.

A summary of cash-settled PRSU award activity for the year ended December 31, 2019 is presented below:



	Number of Cash-Settled PRSUs
Outstanding as of December 31, 2018	753,276
Granted	—
Vested	(317,949	)
Forfeited and canceled	—
Outstanding as of December 31, 2019	435,327

As of December 31, 2019, we had $4 million of unrecognized compensation cost related to non-vested cash-settled PRSU compensation that is anticipated to be recognized in 2020; this will vary based on changes in our common stock price and the probability of achieving performance targets in future periods.