The Company grants stock-based compensation to employees and non-employee directors in the form of stock incentive plans, which include stock options, RSUs and restricted stock. The Company also provides stock-based compensation in the form of PSUs. The Company previously provided the Employee Stock Purchase Plan (“ESPP”), which granted eligible employees the right to purchase shares of the Company's common stock at a discounted price.

In connection with the Merger, on August 31, 2017 ("Conversion Date"), all outstanding TDCC stock options and RSU awards were converted into stock options and RSU awards with respect to DowDuPont common stock. The stock options and RSU awards had the same terms and conditions under the applicable plans and award agreements prior to the Merger. All outstanding and nonvested PSU awards were converted into RSU awards with respect to DowDuPont common stock at the greater of the applicable performance target or the actual performance as of the effective time of the Merger. Changes in the fair value of liability instruments are recognized as compensation expense each quarter. TDCC and Historical DuPont did not merge their stock-based compensation plans as a result of the Merger. TDCC and Historical DuPont stock-based compensation plans were assumed by DowDuPont and continued in place with the ability to grant and issue DowDuPont common stock until separation.

In connection with the separation on April 1, 2019, outstanding stock options, RSU and PSU awards were converted to Dow Inc. denominated awards under the “Employer Method,” or DowDuPont denominated awards under the “Shareholder Method,” and adjusted to maintain the intrinsic value of those awards before and after the date of the separation. In connection with the Corteva separation transaction on June 3, 2019, the outstanding DowDuPont denominated stock options, RSU and PSU awards were converted to Corteva and DuPont denominated awards and adjusted to maintain the intrinsic value of those awards before and after the date of the Corteva separation. The awards have the same terms and conditions under the applicable plans and award agreements prior to the separation transactions.

The conversions of stock awards resulted in no incremental compensation expense. Approximately 5,000 employees were impacted by the conversion on April 1, 2019 in connection with Dow Inc.'s separation from DowDuPont. Approximately 4,000 employees were impacted by the conversion on June 3, 2019 in connection with the Corteva separation transaction.

The total stock-based compensation expense included in continuing operations in the consolidated statements of income was $158 million, $188 million and $310 million in 2019, 2018 and 2017, respectively. The income tax benefits related to stock-based compensation arrangements were $36 million, $42 million and $115 million in 2019, 2018 and 2017, respectively. Amounts disclosed throughout the remainder of this footnote are inclusive of activity attributable to both continuing operations and discontinued operations, as the impact of discontinued operations is not significant.

The Company grants stock-based compensation awards that vest over a specified period or upon employees meeting certain performance and/or retirement eligibility criteria. The fair value of equity instruments issued to employees is measured on the grant date. The fair value of liability instruments (granted to executive employees subject to stock ownership requirements, that provide the recipient the option to elect to receive a cash payment equal to the value of the stock award on the date of delivery) is measured at the end of each quarter. The fair value of equity and liability instruments is expensed over the vesting period or, in the case of retirement, from the grant date to the date on which retirement eligibility provisions have been met and additional service is no longer required. The Company estimates expected forfeitures.

The Company historically used a lattice-based option valuation model to estimate the fair value of stock options and used a Monte Carlo simulation for the market portion of PSU awards. Effective with the first quarter of 2018 grant, the Company began using the Black-Scholes option valuation model to estimate the fair value of stock options. This valuation methodology was adopted as a result of the Merger to align valuation methodologies with Historical DuPont and better align with industry practice. The Company used the Black-Scholes option valuation model for subscriptions to purchase shares under the ESPP. The weighted-average assumptions used to calculate total stock-based compensation are included in the following table:



Weighted-Average Assumptions	2019		2018		2017
Dividend yield	5.10	%	2.13	%	3.01	%
Expected volatility	26.10	%	23.34	%	23.71	%
Risk-free interest rate	2.43	%	2.83	%	1.28	%
Expected life of stock options granted during period (years)	6.1		6.2		7.5
Life of Employee Stock Purchase Plan (months)	0		0		3

The dividend yield assumption was equal to the dividend yield on the grant date, which reflected the Company's quarterly dividend payments of $0.70 per share in 2019 on Dow Inc. Common Stock ($0.38 per share in 2018 on DowDuPont Common Stock and $0.46 per share in 2017 on TDCC Common Stock). The expected volatility assumptions for the 2017 stock options and ESPP were based on an equal weighting of the historical daily volatility for the contractual term of the awards and current implied volatility from exchange-traded options. The expected volatility assumptions for the 2018 and 2019 stock options were based on an equal weighting of the historical daily volatility for the expected term of the awards and current implied volatility from exchange-traded options. The expected volatility assumption for the market portion of the 2017 and 2019 PSU awards were based on historical daily volatility for the term of the award. The risk-free interest rate was based on the weighted-average of U.S. Treasury strip rates over the contractual term of the 2017 options. The risk-free interest rate was based on the U.S. Treasury strip rates over the expected life of the 2018 and 2019 options. The expected life of stock options granted was based on an analysis of historical exercise patterns.

The Company has historically granted equity awards under various plans (the "Prior Plans"). On February 9, 2012, the Board authorized The Dow Chemical Company 2012 Stock Incentive Plan (the "2012 Plan"), which was approved by stockholders at TDCC's annual meeting on May 10, 2012 ("2012 Plan Effective Date") and became effective on that date. On February 13, 2014, the Board adopted The Dow Chemical Company Amended and Restated 2012 Stock Incentive Plan (the "2012 Restated Plan"). The 2012 Restated Plan was approved by stockholders at TDCC's annual meeting on May 15, 2014, and became effective on that date. The Prior Plans were superseded by the 2012 Plan and the 2012 Restated Plan (collectively, the "2012 Plan"). Under the 2012 Plan, the Company may grant options, RSUs, PSUs, restricted stock, stock appreciation rights and stock units to employees and non-employee directors until the tenth anniversary of the 2012 Plan Effective Date, subject to an aggregate limit and annual individual limits. The terms of the grants are fixed at the grant date. TDCC's stock-based compensation programs were assumed by DowDuPont and continued in place with the ability to grant and issue DowDuPont common stock until separation.

On April 1, 2019 ("Original Effective Date"), in connection with the separation, the Company adopted the 2019 Stock Incentive Plan (the "2019 Plan"). Under the 2019 Plan, the Company may grant stock options, RSUs, PSUs, stock appreciation rights and stock units to employees and non-employee directors until the tenth anniversary of the Original Effective Date, subject to an aggregate limit and annual individual limits. The terms of the grants are fixed at the grant date. At December 31, 2019, there were approximately 25 million shares of common stock available for grant under the 2019 Plan.

The Company grants stock options to certain employees, subject to certain annual and individual limits, with terms of the grants fixed at the grant date. The exercise price of each stock option equals the market price of the common stock on the grant date. Options vest from one to three years and have a maximum term of ten years.



Stock Options	2019
Shares in thousands	Shares			Exercise Price ¹
Outstanding at Jan 1, 2019	28,846			$	46.70
Granted	1,588			$	54.89
Exercised	(3,196		)	$	30.02
Forfeited/Expired	(239		)	$	60.77
Conversion impact ²	(5,734		)	$	59.62
Outstanding at Dec 31, 2019	21,265			$	45.96
Remaining contractual life in years				4.62
Aggregate intrinsic value in millions	$	237
Exercisable at Dec 31, 2019	18,248			$	43.34
Remaining contractual life in years				3.99
Aggregate intrinsic value in millions	$	237



Additional Information about Stock Options
In millions, except per share amounts	2019		2018		2017
Weighted-average fair value per share of options granted	$	7.99	$	15.38	$	14.44
Total compensation expense for stock option plans	$	23	$	68	$	37
Related tax benefit	$	5	$	15	$	14
Total amount of cash received from the exercise of options	$	93	$	112	$	310
Total intrinsic value of options exercised ¹	$	77	$	160	$	286
Related tax benefit	$	17	$	36	$	106



RSU Awards	2019
Shares in thousands	Shares		Grant Date Fair Value ¹
Nonvested at Jan 1, 2019	9,735		$	57.41
Granted	1,821		$	54.78
Vested	(7,045	)	$	53.22
Canceled	(156	)	$	60.84
Conversion impact ²	(1,901	)	$	65.87
Nonvested at Dec 31, 2019	2,454		$	59.98



Additional Information about RSUs
In millions, except per share amounts	2019		2018		2017
Weighted-average fair value per share of RSUs granted	$	54.78	$	71.46	$	61.29
Total fair value of RSUs vested ¹	$	375	$	382	$	179
Related tax benefit	$	84	$	86	$	66
Total compensation expense for RSU awards	$	110	$	144	$	178
Related tax benefit	$	25	$	32	$	66

In 2019, the Company paid $17 million in cash, equal to the value of the stock award on the date of delivery, to certain executive employees to settle approximately 341,000 RSUs (625,000 RSUs settled in cash for $45 million in 2018 and no RSUs settled in cash in 2017). Total unrecognized compensation cost related to RSU awards of $80 million at December 31, 2019 is expected to be recognized over a weighted-average period of 1.83 years. At December 31, 2019, approximately 2.2 million RSUs with a grant date weighted-average fair value per share of $60.79 had previously vested, but were not issued. These shares are scheduled to be issued to employees within six months to three years or upon retirement.

Total incremental pretax compensation expense resulting from the conversion of PSU awards into RSU awards was $25 million ($20 million was recognized in the second half of 2017 and $5 million was recognized over the remaining service period). Approximately 5,000 employees were impacted by the conversion.

The Company grants PSUs to certain employees. The grants vest when the Company attains specified performance targets, such as return on capital and relative total shareholder return, over a predetermined period, generally one to three years. In November 2017, the Company granted PSUs to senior leadership measured on the realization of cost savings in connection with cost synergy commitments, as well as the Company’s ability to complete the business separations. Performance and payouts are determined independently for each metric. Compensation expense related to PSU awards is recognized over the lesser of the service or performance period. Changes in the fair value of liability instruments are recognized as compensation expense each quarter.



Additional Information about PSUs
In millions, except share amounts	2019		2018		2017
Total fair value of PSUs vested and delivered ¹	$	18	$	—	$	202
Related tax benefit	$	4	$	—	$	75
Total compensation expense for PSU awards	$	25	$	12	$	106
Related tax benefit	$	6	$	3	$	39
Shares of PSUs settled in cash (in thousands) ²	162		—		616
Total cash paid to settle PSUs ³	$	13	$	—	$	38

Under the 2012 Plan, the Company granted shares (including options, stock appreciation rights, stock units and restricted stock) to non-employee directors over the 10-year duration of the program, subject to the plan's aggregate limit as well as annual individual limits. The restricted stock issued under this plan cannot be sold, assigned, pledged or otherwise transferred by the non-employee director, until retirement or termination of service to the Company. The following table shows the restricted stock issued under this plan:

On February 9, 2012, the Board authorized The Dow Chemical Company 2012 Employee Stock Purchase Plan (the "2012 ESPP") which was approved by stockholders at TDCC’s annual meeting on May 10, 2012. When offered, most employees are eligible to purchase shares of common stock of TDCC valued at up to 10 percent of their annual base salary. The value is determined using the plan price multiplied by the number of shares subscribed to by the employee. The plan price of the stock is set at an amount equal to at least 85 percent of the fair market value (closing price) of the common stock on a date during the fourth quarter of the year prior to the offering, or the average fair market value (closing price) of the common stock over a period during the fourth quarter of the year prior to the offering, in each case, specified by the Chief Human Resources Officer. The most recent offering of the 2012 ESPP closed on July 15, 2017. The ESPP was not offered in 2018 and 2019 and no current offerings remain outstanding.



Additional Information about Employee Stock Purchase Plan
In millions, except per share amounts	2017
Weighted-average fair value per share of purchase rights granted	$	10.70
Total compensation expense for ESPP	$	38
Related tax benefit	$	14
Total amount of cash received from the exercise of purchase rights	$	179
Total intrinsic value of purchase rights exercised ¹	$	48
Related tax benefit	$	18