Share-Based Compensation

12 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

SHARE-BASED COMPENSATION

Our outstanding share-based compensation programs include deferred stock units and stock options. During the fiscal year ended 30 September 2023, we granted market-based and time-based deferred stock units. We have not issued stock option awards since fiscal year 2015. Under all programs, the terms of the awards are fixed at the grant date. We issue shares from treasury stock upon the payout of deferred stock units and the exercise of stock options. As of 30 September 2023, there were 1.3 million shares available for future grant under our Long-Term Incentive Plan ("LTIP"), which is shareholder approved.

Share-based compensation cost recognized on the consolidated income statements is summarized below:


	2023	2022	2021
Before-tax share-based compensation cost	$60.7	$49.5	$44.5


Income tax benefit	(14.6)	(12.1)	(11.0)
After-tax share-based compensation cost	$46.1	$37.4	$33.5

Before-tax share-based compensation cost is primarily included in "Selling and administrative expense" on our consolidated income statements. The amount of share-based compensation cost capitalized in fiscal years 2023, 2022, and 2021 was not material.

Deferred Stock Units

We have granted deferred stock units to executives, selected employees, and outside directors. These deferred stock units entitle the recipient to one share of common stock upon vesting, which is conditioned, for employee recipients, on continued employment during the deferral period and may be conditioned on achieving certain performance targets. We grant deferred stock unit awards with a two- to five-year deferral period that are subject to payout upon death, disability, or retirement. Deferred stock units issued to outside directors are paid after service on the Board of Directors ends at the time elected by the director (not to exceed ten years after service ends). We generally expense the grant-date fair value of these awards on a straight-line basis over the vesting period; however, expense recognition is accelerated for retirement eligible individuals who meet the requirements for vesting upon retirement. We have elected to account for forfeitures as they occur, rather than to estimate them. Forfeitures have not been significant historically.

Market-based deferred stock units vest as long as the employee continues to be employed by the Company and upon the achievement of the performance target. The performance target, which is approved by the Compensation Committee, is our share price appreciation and dividends paid, or "total shareholder return," in relation to the S&P 500 Index (for fiscal year 2022 and 2023 awards) or a defined peer group (for awards granted prior to fiscal year 2022) over a three-year performance period beginning 1 October of the fiscal year of grant. We granted 85,612, 74,364, and 77,251 market-based deferred stock units in fiscal years 2023, 2022, and 2021, respectively.

The fair value of market-based deferred stock units was estimated using a Monte Carlo simulation model as these equity awards are tied to a market condition. The model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the grant and calculates the fair value of the awards. We generally expense the grant-date fair value of these awards on a straight-line basis over the vesting period. The estimated grant-date fair value of market-based deferred stock units was $502.03, $427.23, and $235.48 per unit in fiscal years 2023, 2022, and 2021, respectively. The calculation of the fair value of market-based deferred stock units used the following assumptions:


	2023		2022		2021
Expected volatility	32.5	%	30.5	%	29.9	%
Risk-free interest rate	4.0	%	0.8	%	0.2	%
Expected dividend yield	2.4	%	2.1	%	2.1	%

In addition, in fiscal year 2023, we granted 119,954 time-based deferred stock units at a weighted average grant-date fair value of $308.91. In fiscal years 2022 and 2021, we granted 120,996 and 110,555 time-based deferred stock units at a weighted average grant-date fair value of $278.67 and $282.48, respectively.

A summary of deferred stock unit activity in fiscal year 2023 is presented below:


	Shares (000)	Weighted Average Grant-Date Fair Value
Deferred stock units outstanding at 30 September 2022	730	$222.13


Granted	206	389.34
Paid out	(159)	164.08
Forfeited	(87)	248.26
Adjusted	10	315.33
Deferred stock units outstanding at 30 September 2023	700	$282.60

Cash payments made for deferred stock units totaled $3.6, $5.5, and $5.2 in fiscal years 2023, 2022, and 2021, respectively. As of 30 September 2023, there was $75.3 of unrecognized compensation cost related to deferred stock units. This cost is expected to be recognized over a weighted average period of 1.6 years. The total fair value of deferred stock units paid out during fiscal years 2023, 2022, and 2021, including shares vested in prior periods, was $45.3, $92.9, and $88.0, respectively.

Stock Options

We have granted awards of options to purchase common stock to executives and selected employees. The exercise price of stock options equals the market price of our stock on the date of the grant. As of 30 September 2023, there was no unrecognized compensation cost as all stock option awards were fully vested.

A summary of stock option activity in fiscal year 2023 is presented below:


	Shares (000)	Weighted Average Exercise Price
Stock options outstanding and exercisable at 30 September 2022	564	$106.13



Exercised	(270)	90.57

Stock options outstanding and exercisable at 30 September 2023	294	$120.42

The weighted average remaining contractual term of stock options outstanding and exercisable at 30 September 2023 was 0.7 years. The aggregate intrinsic value of these stock options was $47.9, which represents the amount by which our closing stock price of $283.40 per share as of 30 September 2023 exceeds the exercise price multiplied by the number of in-the-money options outstanding or exercisable. The intrinsic value of stock options exercised during fiscal years 2023, 2022, and 2021 was $53.5, $20.2, and $29.0, respectively.

Compensation cost is generally recognized over the stated vesting period consistent with the terms of the arrangement, which is either on a straight-line or graded-vesting basis. Expense recognition is accelerated for retirement-eligible individuals who would meet the requirements for vesting of awards upon their retirement.

Cash received from option exercises during fiscal year 2023 was $24.0. The total tax benefit realized from stock option exercises in fiscal year 2023 was $12.5, of which $11.7 was the excess tax benefit.