Stock Plans

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

Stock Plans:

In May 2017, PMI’s shareholders approved the Philip Morris International Inc. 2017 Performance Incentive Plan (the “2017 Plan”). Under the 2017 Plan, PMI may grant to eligible employees restricted shares and restricted share units, performance-based cash incentive awards and performance-based equity awards. Up to 25 million shares of PMI’s common stock may be issued under the 2017 Plan. At March 31, 2020, shares available for grant under the 2017 Plan were 17,384,530.

In May 2017, PMI’s shareholders also approved the Philip Morris International Inc. 2017 Stock Compensation Plan for Non-Employee Directors (the “2017 Non-Employee Directors Plan”). A non-employee director is defined as a member of the PMI Board of Directors who is not a full-time employee of PMI or of any corporation in which PMI owns, directly or indirectly, stock possessing at least 50% of the total combined voting power of all classes of stock entitled to vote in the election of directors in such corporation. Up to 1 million shares of PMI common stock may be awarded under the 2017 Non-Employee Directors Plan. At March 31, 2020, shares available for grant under the plan were 954,084.

Restricted share unit (RSU) awards

During the three months ended March 31, 2020 and 2019, shares granted to eligible employees, the weighted-average grant date fair value per share related to RSU awards and the recorded compensation expense related to RSU awards were as follows:



	Number of Shares Granted	Weighted-Average Grant Date Fair Value Per RSU Award Granted		Compensation Expense Related to RSU Awards (in millions)
2020	1,599,380	$ 86.62		$	39
2019	1,621,070		$ 77.13	$	36

As of March 31, 2020, PMI had $218 million of total unrecognized compensation cost related to non-vested RSU awards. The cost is recognized over the original restriction period of the awards, which is typically three years after the date of the award, or upon death, disability or reaching the age of 58.

During the three months ended March 31, 2020, 1,011,318 RSU awards vested. The grant date fair value of all the vested awards was approximately $99 million. The total fair value of RSU awards that vested during the three months ended March 31, 2020 was approximately $88 million.

Performance share unit (PSU) awards

During the three months ended March 31, 2020 and 2019, PMI granted PSU awards to certain executives. The PSU awards require the achievement of certain performance factors, which are predetermined at the time of grant, typically over a three-year performance cycle. The performance metrics for such PSU's granted during the three months ended March 31, 2020 consisted of PMI's Total Shareholder Return ("TSR") relative to a predetermined peer group and on an absolute basis (40% weight), PMI’s currency-neutral compound annual adjusted diluted earnings per share growth rate (30% weight), and PMI’s performance against specific measures of PMI’s transformation, defined as net revenues from PMI's RRPs and any other non-combustible products as a percentage of PMI's total net revenues in the last year of the performance cycle (30% weight). The performance metrics for such PSUs granted during the three months ended March 31, 2019 consisted of PMI’s TSR relative to a predetermined peer group and on an absolute basis (50% weight), PMI’s currency-neutral compound annual adjusted operating income growth rate, excluding acquisitions (30% weight), and PMI’s performance against specific measures of PMI’s transformation (20% weight).

The aggregate of the weighted performance factors for the three metrics in each such PSU award determines the percentage of PSUs that will vest at the end of the three-year performance cycle. The minimum percentage of such PSUs that can vest is zero, with a target percentage of 100 and a maximum percentage of 200. Each such vested PSU entitles the participant to one share of common stock. An aggregate weighted PSU performance factor of 100 will result in the targeted number of PSUs being vested. At the end of the performance cycle, participants are entitled to an amount equivalent to the accumulated dividends paid on common stock during the performance cycle for the number of shares earned.

During the three months ended March 31, 2020 and 2019, shares granted to eligible employees, the grant date fair value per share and the recorded compensation expense related to PSU awards were as follows:



	Number of Shares Granted	PSU Grant Date Fair Value Subject to Other Performance Factors Per Share		PSU Grant Date Fair Value Subject to TSR Performance Factor Per Share		Compensation Expense Related to PSU Awards (in millions)
2020	643,640	$ 86.69		$ 79.76		$	23
2019	625,200		$ 77.20		$ 83.59	$	18

The grant date fair value of the PSU awards subject to the other performance factors was determined by using the average of the high and low market price of PMI’s stock at the date of the grant. The grant date fair value of the PSU market based awards subject to the TSR performance factor was determined by using the Monte Carlo simulation model. The following assumptions were used to determine the grant date fair value of the PSU awards subject to the TSR performance factor:



	2020		2019
Risk-free interest rate ^(a)	1.4	%	2.4	%
Expected volatility ^(b)	23.5	%	21.4	%

^(a) Based on the U.S. Treasury yield curve.

^(b) Determined using the observed historical volatility.

As of March 31, 2020, PMI had $60 million of total unrecognized compensation cost related to non-vested PSU awards. The cost is recognized over the performance cycle of the awards, or upon death, disability or reaching the age of 58.

During the three months ended March 31, 2020, 343,806 PSU awards vested. The grant date fair value of all the vested awards was approximately $35 million. The total fair value of PSU awards that vested during the three months ended March 31, 2020 was approximately $30 million.