Share-Based Payments (Tables)

12 Months Ended

Dec. 31, 2021

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)	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

(a)    For each of the years ended December 31, 2021, 2020 and 2019, we capitalized less than $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,
	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

(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, 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

(a)    Market price of underlying Zoetis common stock less exercise price.

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 (RSUs)

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

Performance-based Units Activity (PSUs)

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