Share-Based Compensation

6 Months Ended

Jun. 30, 2022

We currently sponsor employee and director stock option, restricted stock and employee stock purchase plans. Stock options and restricted stock are granted at the discretion of the Compensation Committee of our Board of Directors, or Board, based on the estimated fair value on the date of grant. The fair value of the stock options and restricted stock on the date of grant is recognized as expense over the vesting period, net of forfeitures. The non-cash compensation expenses recognized in our consolidated statements of income for stock options, restricted stock and under our employee stock purchase plan, net of amounts classified as capitalized software, were $76 million and $73 million for the six months ended June 30, 2022 and 2021, respectively, and $38 million and $37 million during the three months ended June 30, 2022 and 2021, respectively.

Stock Option Plans

We use the Black-Scholes option pricing model to value our stock option awards. During the six months ended June 30, 2022 and 2021, we used the assumptions in the table below to compute the value:


	Six Months Ended June 30,
Assumptions:	2022	2021
Risk-free interest rate	1.72%	0.64%
Expected life in years	6.0	5.7
Expected volatility	23%	24%
Expected dividend yield	1.17%	1.16%
Estimated weighted-average fair value of options granted per share	$28.18	$22.70

The risk-free interest rate is based on the zero-coupon U.S. Treasury yield curve in effect at the date of grant. The expected life is derived from historical and anticipated future exercise patterns. Expected volatility is based on historical volatility data of our stock.

Restricted Stock Plans

Restricted shares are used as an incentive to attract and retain qualified employees and to align our and our stockholders' interests by linking actual performance to both short and long-term stockholder return. We issue awards that may contain a combination of time, performance and/or market conditions. The grant date fair value of each award is based on the closing stock price of our stock at the date of grant. For time-based restricted stock, we recognize expense ratably over the vesting period, which is typically three or four years, net of forfeitures.

In February 2022, we reserved a maximum of 0.7 million restricted shares for potential issuance as performance-based restricted shares to certain of our employees. The number of shares ultimately granted under this award will be based on our actual financial performance as compared to financial performance targets set by our Board and the Compensation Committee for the year ending December 31, 2022, and will also be subject to a market condition reduction based on how our 2022 total stockholder return, or TSR, compares to that of the S&P 500 Index. The maximum compensation expense to be recognized under these performance-based restricted shares is $84 million if the maximum financial performance target is met and all 0.7 million shares vest. The compensation expense to be recognized under these performance-based restricted shares will be $42 million if the target financial performance is met, which would result in 0.3 million shares vesting. For these awards with performance conditions, we recognize expense on an accelerated basis over the three-year vesting period based on our quarterly assessment of the probable 2022 actual financial performance as compared to the 2022 financial performance targets. As of June 30, 2022, our best estimate is that the financial performance level will be at target for 2022. Based on this assessment, we recorded non-cash compensation expense of $10 million and $6 million for the six months and three months ended June 30, 2022, respectively, related to these awards and the remaining $32 million in non-cash compensation expense will be recorded on an accelerated basis over the remaining vesting period, including $13 million which will be recorded over the remainder of 2022.

We also issue awards with a market condition but no performance condition. The fair value of these awards is estimated based on a simulation of various outcomes and includes inputs such as our stock price on the grant date, the valuation of historical awards with market conditions, the relatively low likelihood that the market condition will affect the number of shares granted (as the market condition only affects shares granted in excess of certain financial performance targets), and our expectation of achieving the financial performance targets.