Note 15 - Share-based Compensation

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

15. Share-Based Compensation

Corning maintains long-term incentive plans (the “Plans”) for key employees and non-employee members of its Board of Directors. The Plans allow Corning to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, share-based awards). At September 30, 2021, there were approximately 39 million unissued common shares available for future grants authorized under the Plans.

Share-based compensation cost is allocated to the cost of sales, selling, general and administrative, and research, development and engineering, expenses lines in the consolidated statements of income.

Stock Compensation Plans

The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values.

Total share-based compensation cost was $39 million and $62 million, respectively, and $117 million and $127 million, respectively, for the three and nine months ended September 30, 2021 and 2020. The income tax benefit realized from share-based compensation was $3 million and $31 million for the three and nine months ended September 30, 2021, respectively, and not significant during the same periods in 2020. Refer to Note 5 (Income Taxes) to the consolidated financial statements for additional information.

Stock Options

Corning’s stock option plans provide non-qualified and incentive stock options to purchase authorized but unissued common shares, or treasury shares, at the market price on the grant date and generally become exercisable in installments from one year to five years from the grant date. The maximum term of non-qualified and incentive stock options is 10 years from the grant date. An award is considered vested when the employee’s retention of the award is no longer contingent on providing subsequent service (the “non-substantive vesting period approach”).

The following table summarizes information regarding stock options outstanding, including the related transactions under the stock option plans for the nine months ended September 30, 2021:

						Weighted-
						average
				Weighted-		remaining		Aggregate
	Number			average		contractual		intrinsic
	of shares			exercise		term		value
	(in thousands)			price		(in years)		(in thousands)
Options outstanding as of December 31, 2020		17,095		$	21.60
Granted		—			—
Exercised		(4,464	)		20.17
Forfeited and expired		(324	)		21.98
Options outstanding as of September 30, 2021		12,307			22.10		6.74	$	176,960
Options expected to vest as of September 30, 2021		12,206			22.13		6.72		175,319
Options exercisable as of September 30, 2021		6,919			20.90		5.53		107,865

Corning uses a multiple-point Black-Scholes valuation model to estimate the fair value of stock option grants. Corning utilizes a blended approach for calculating the volatility assumption used in the multiple-point Black-Scholes valuation model defined as the weighted average of the short-term implied volatility, the most recent volatility for the period equal to the expected term, and the most recent 15-year historical volatility. The expected term is the period the options are expected to be outstanding and is calculated using a combination of historical exercise experience adjusted to reflect the current vesting period of options being valued, and partial life cycles of outstanding options. The risk-free rates used in the multiple-point Black-Scholes valuation model are the implied rates for a zero-coupon U.S. Treasury bond with a term equal to the option’s expected term. Ranges used reflect results from separate groups of employees exhibiting different exercise behavior.

The following inputs were used for the valuation of option grants under our stock option plans ⁽¹⁾:  

	Three months ended
	June 30,
	2020
Expected volatility		32.9	%
Weighted-average volatility		32.9	%
Expected dividends		4.48	%
Risk-free rate		0.5	%
Average risk-free rate		0.5	%
Expected term (in years)		7.4
Pre-vesting executive departure rate		0.6	%
Pre-vesting non-executive departure rate		2.5	%

⁽¹⁾ Stock options were only granted during the second quarter of 2020.  There have been no stock options granted since June 30, 2020.

Incentive Stock Plans

The Corning Incentive Stock Plans permit restricted stock and restricted stock unit grants, either determined by specific performance goals or issued directly, in most instances, subject to the possibility of forfeiture and without cash consideration. Restricted stock and restricted stock units under the Incentive Stock Plans are granted at the closing market price on the grant date, contingently vest over a period of generally one year to ten years, and generally have contractual lives of one year to ten years. The fair value is based on the grant date closing price of the Company’s stock.

Time-Based Restricted Stock and Restricted Stock Units

Time-based restricted stock and restricted stock units are issued by the Company on a discretionary basis, and are payable in shares of the Company’s common stock upon vesting. The fair value is based on the closing market price of the Company’s stock on the grant date. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting.

The following table summarizes the Company’s non-vested time-based restricted stock and restricted stock units as of  December 31, 2020 and changes which occurred during the  nine months ended September 30, 2021:

				Weighted
	Number			average
	of shares			grant-date
	(in thousands)			fair value
Non-vested shares and share units at December 31, 2020		12,943		$	22.87
Granted		1,399			42.07
Vested		(3,518	)		22.82
Forfeited		(424	)		23.74
Non-vested shares and share units at September 30, 2021		10,400		$	25.44

Performance-Based Restricted Stock Units

Performance-based restricted stock units are earned upon the achievement of certain targets, and are payable in shares of the Company’s common stock upon vesting, typically over a three year period. The fair value is based on the closing market price of the Company’s stock on the grant date and assumes that the target payout level will be achieved. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting. During the performance period, compensation cost may be adjusted based on changes in the expected outcome of the performance-related target.

The following table summarizes the Company’s non-vested performance-based restricted stock units as of December 31, 2020 and September 30, 2021:

				Weighted
	Number			average
	of shares			grant-date
	(in thousands)			fair value
Non-vested share units at December 31, 2020		1,765		$	28.06
Granted		1,222			38.82
Vested		(119	)		28.06
Forfeited		(79	)		31.83
Non-vested share units at September 30, 2021		2,789		$	32.67