The Zoetis 2013 Equity and Incentive Plan (Equity Plan) provides long-term incentives to our employees and non-employee directors. The principal types of share-based awards available under the Equity Plan may include, but are not limited to, stock options, restricted stock and restricted stock units (RSUs), deferred stock units (DSUs), performance-vesting restricted stock units (PSUs), and other equity-based or cash-based awards.

Twenty-five million shares of stock were approved and registered with the Securities and Exchange Commission for grants to participants under the Equity Plan. The shares reserved may be used for any type of award under the Equity Plan. At December 31, 2021, the aggregate number of remaining shares available for future grant under the Equity Plan was approximately 10 million shares.

The components of share-based compensation expense follow:


	Year Ended December 31,
(MILLIONS OF DOLLARS)	2021		2020		2019
Stock options / stock appreciation rights	$	9	$	9	$	10
RSUs / DSUs	33		31		43
PSUs	16		19		14
Share-based compensation expense—total(a)	$	58	$	59	$	67
Tax benefit for share-based compensation expense	(7)		(7)		(10)
Share-based compensation expense, net of tax	$	51	$	52	$	57

Stock options represent the right to purchase shares of our common stock within a specified period of time at a specified price. The exercise price for a stock option will be not less than 100% of the fair market value of the common stock on the date of grant. Stock options granted may include those intended to be “incentive stock options” within the meaning of Section 422 of the U.S. Internal Revenue Code of 1986 (the Code).

Stock options are accounted for using a fair-value-based method at the date of grant in the Consolidated Statements of Income. The values determined through this fair-value-based method generally are amortized on a straight-line basis over the vesting term.

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,
	2021		2020		2019
Expected dividend yield(a)	0.62	%	0.55	%	0.75	%
Risk-free interest rate(b)	0.53	%	1.41	%	2.56	%
Expected stock price volatility(c)	27.94	%	24.33	%	23.08	%
Expected term(d) (years)	5.0		5.5		5.7

(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.

The following table provides an analysis of stock option activity for the year ended December 31, 2021:


				Weighted-Average
				Remaining	Aggregate
		Weighted-Average		Contractual Term	Intrinsic Value(a)
	Shares	Exercise Price		(Years)	(MILLIONS)
Outstanding, December 31, 2020	2,554,451	$	64.43
Granted	284,198	160.73
Exercised	(680,970)	52.88
Forfeited	(25,112)	80.72
Outstanding, December 31, 2021	2,132,567	$	80.19	5.4	$	349

Exercisable, December 31, 2021	1,176,959	$	42.78	3.3	$	237

As of December 31, 2021, there was approximately $9 million of unrecognized compensation costs related to nonvested stock options, which will be recognized over an expected remaining weighted-average period of one 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)	2021		2020		2019
Weighted-average grant date fair value per stock option	$	37.81	$	34.22	$	21.84
Aggregate intrinsic value on exercise	87		114		76
Cash received upon exercise	36		57		39
Tax benefits realized related to exercise	34		39		31

Restricted stock units represent the right to receive a share of our common stock that is subject to a risk of forfeiture until the restrictions lapse at the end of the vesting period subject to the recipient's continued employment. RSUs accrue dividend equivalent units and are paid in shares of our common stock upon vesting (or cash determined by reference to the value of our common stock).

RSUs are accounted for using a fair-value-based method that utilizes the closing price of Zoetis common stock on the date of grant. Zoetis RSUs generally vest after three years of continuous service from the grant date and the values are amortized on a straight-line basis over the vesting term.

The following table provides an analysis of RSU activity for the year ended December 31, 2021:


		Weighted-Average
	RSUs	Grant Date Fair Value
Nonvested, December 31, 2020	983,466	$	95.82
Granted	261,182	164.14

Vested	(393,575)	78.29
Reinvested dividend equivalents	4,528	116.78
Forfeited	(45,717)	115.19
Nonvested, December 31, 2021	809,884	$	125.71

As of December 31, 2021, there was approximately $43 million of unrecognized compensation costs related to nonvested RSUs, which will be recognized over an expected remaining weighted-average period of one year.

Deferred stock units, which were granted to non-employee compensated Directors in 2013 and 2014, represent the right to receive shares of our common stock at a future date. The DSU awards will be automatically settled and paid in shares within 60 days following the Director’s separation from service on the Board of Directors.

DSUs are accounted for using a fair-value-based method that utilizes the closing price of Zoetis common stock on the date of grant. DSUs vested immediately as of the grant date and the values were expensed at the time of grant into Selling, general and administrative expenses.

Performance-vesting restricted stock units, which are granted to eligible senior management, represent the right to receive a share of our common stock that is subject to a risk of forfeiture until the restrictions lapse, which include continued employment through the end of the vesting period and the attainment of performance goals. PSUs represent the right to receive shares of our common stock in the future (or cash determined by reference to the value of our common stock).

PSUs are accounted for using a Monte Carlo simulation model. The units underlying the PSUs will be earned and vested over a three-year performance period, based upon the total shareholder return of the company in comparison to the total shareholder return of the companies comprising the S&P 500 index at the start of the performance period, excluding companies that during the performance period are acquired or are no longer publicly traded (Relative TSR). The weighted-average fair value was estimated based on volatility assumptions of Zoetis common stock and an average of peer companies, which were 28.9% and 38.1%, respectively, in 2021, and 20.2% and 24.8%, respectively, in 2020. Depending on the company’s Relative TSR performance at the end of the performance period, the recipient may earn between 0% and 200% of the target number of units. Vested units, including dividend equivalent units, are paid in shares of the company’s common stock. PSU values are amortized on a straight-line basis over the vesting term.

On October 3, 2019, the Company announced the retirement of Juan Ramón Alaix as Chief Executive Officer (“CEO”) effective December 31, 2019. As a result of Mr. Alaix’s retirement as CEO, a transition services letter agreement was entered into between the Company and Mr. Alaix. The letter agreement stipulates that any nonvested equity awards as of his retirement date would continue to vest according to their original vesting schedule. As a result of this change, 37,265 of nonvested PSUs granted as part of his 2018 and 2019 equity grants were modified resulting in $8 million to be recognized through December 31, 2020. During the years ended December 31, 2020 and 2019, the company recognized $6 million and $2 million, respectively, of expense related to share-based compensation in connection with Mr. Alaix's retirement.

The following table provides an analysis of PSU activity for the year ended December 31, 2021:



		Weighted-Average
	PSUs	Grant Date Fair Value
Nonvested, December 31, 2020	344,271	$	129.38
Granted	103,759	208.81
Vested	(98,088)	101.24
Reinvested dividend equivalents	1,945	150.26
Forfeited	(9,501)	163.67
Nonvested, December 31, 2021	342,386	$	160.68
Shares issued, December 31, 2021	422,315	$	80.55

As of December 31, 2021, there was approximately $23 million of unrecognized compensation costs related to nonvested PSUs, which will be recognized over an expected remaining weighted-average period of 0.9 years.