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Share-Based Payments (Tables)
 12 Months Ended
Dec. 31, 2020
Share-based Payment Arrangement [Abstract]  
Components of Share-based Compensation Expense
The components of share-based compensation expense follow:
Year Ended December 31,
(MILLIONS OF DOLLARS)202020192018
Stock options / stock appreciation rights$9 $10 $10 
RSUs / DSUs(a)
31 43 34 
PSUs19 14 9 
Share-based compensation expense—total(b)
$59 $67 $53 
Tax benefit for share-based compensation expense(7)(10)(7)
Share-based compensation expense, net of tax$52 $57 $46 
(a)     For the year ended December 31, 2018, includes share-based compensation expense of $7 million related to the acquisition of Abaxis, for the post-merger service period. For additional details see Note 5. Acquisitions and Divestitures.
(b)    For each of the years ended December 31, 2020, 2019 and 2018, we capitalized approximately $1 million of share-based compensation expense to inventory.
Share-based Payment Awards, Stock Options, Valuation Assumptions
The fair-value-based method for valuing each Zoetis stock option grant on the grant date uses the Black-Scholes-Merton option-pricing model, which incorporates a number of valuation assumptions noted in the following table, shown at their weighted-average values:
Year Ended December 31,
202020192018
Expected dividend yield(a)
0.55 %0.75 %0.69 %
Risk-free interest rate(b)
1.41 %2.56 %2.74 %
Expected stock price volatility(c)
24.33 %23.08 %23.61 %
Expected term(d) (years)
5.55.76.5
(a)    Determined using a constant dividend yield during the expected term of the Zoetis stock option.
(b)     Determined using the interpolated yield on U.S. Treasury zero-coupon issues.
(c)     Determined using an equal weighting between historical volatility of the Zoetis stock price and implied volatility. The selection of the blended historical and implied volatility approach was based on our assessment that this calculation of expected volatility is more representative of future stock price trends.
(d)     Determined using expected exercise and post-vesting termination patterns.
Stock Option Activity
The following table provides an analysis of stock option activity for the year ended December 31, 2020:
Weighted-Average
RemainingAggregate
Weighted-AverageContractual Term
Intrinsic Value(a)
SharesExercise Price(Years)(MILLIONS)
Outstanding, December 31, 20193,463,624 $51.64 
Granted309,974 144.13 
Exercised(1,201,072)47.80 
Forfeited(18,075)65.81 
Outstanding, December 31, 20202,554,451 $64.43 5.7$258 
Exercisable, December 31, 20201,378,614 $37.05 3.7$177 
(a)    Market price of underlying Zoetis common stock less exercise price.
As of December 31, 2020, there was approximately $8 million of unrecognized compensation costs related to nonvested stock options, which will be recognized over an expected remaining weighted-average period of 1 year.
The following table summarizes data related to stock option activity:
Year Ended/As of December 31,
(MILLIONS OF DOLLARS, EXCEPT PER STOCK OPTION AMOUNTS)202020192018
Weighted-average grant date fair value per stock option$34.22 $21.84 $20.30 
Aggregate intrinsic value on exercise114 76 66 
Cash received upon exercise57 39 36 
Tax benefits realized related to exercise 39 31 23 
Restricted Stock Units (RSUs)
The following table provides an analysis of RSU activity for the year ended December 31, 2020:
Weighted-Average
RSUsGrant Date Fair Value
Nonvested, December 31, 20191,460,535 $72.93 
Granted
239,745 144.06 
Vested
(627,818)61.94 
Reinvested dividend equivalents
6,511 83.26 
Forfeited
(95,507)88.69 
Nonvested, December 31, 2020983,466 $95.82 
Performance-based Units Activity (PSUs)
The following table provides an analysis of PSU activity for the year ended December 31, 2020:
Weighted-Average
PSUsGrant Date Fair Value
Nonvested, December 31, 2019419,396 $93.19 
Granted
85,279 217.49 
Vested
(141,594)77.69 
Reinvested dividend equivalents
2,671 106.27 
Forfeited
(21,481)110.43 
Nonvested, December 31, 2020344,271 $129.38 
Shares issued, December 31, 2020276,199 $74.32