Stock-based Compensation

The following table summarizes stock-based compensation costs for the years ended December 31, 2014, 2013, and 2012.



	Year Ended December 31
Millions of dollars	2014			2013			2012
Stock-based compensation cost	$	298		$	264		$	217
Tax benefit	(90		)	(81		)	(67		)
Stock-based compensation cost, net of tax	$	208		$	183		$	150

Our Stock and Incentive Plan, as amended (Stock Plan), provides for the grant of any or all of the following types of stock-based awards:


-	stock options, including incentive stock options and nonqualified stock options;


-	restricted stock awards;


-	restricted stock unit awards;


-	stock appreciation rights; and


-	stock value equivalent awards.

There are currently no stock appreciation rights, stock value equivalent awards, or incentive stock options outstanding.

Under the terms of the Stock Plan, approximately 172 million shares of common stock have been reserved for issuance to employees and non-employee directors. At December 31, 2014, approximately 15 million shares were available for future grants under the Stock Plan. The stock to be offered pursuant to the grant of an award under the Stock Plan may be authorized but unissued common shares or treasury shares.

In addition to the provisions of the Stock Plan, we also have stock-based compensation provisions under our Restricted Stock Plan for Non-Employee Directors and our Employee Stock Purchase Plan (ESPP).

Each of the active stock-based compensation arrangements is discussed below.

Stock options

The majority of our options are generally issued during the second quarter of the year. All stock options under the Stock Plan are granted at the fair market value of our common stock at the grant date. Employee stock options vest ratably over a three- or four-year period and generally expire 10 years from the grant date. Compensation expense for stock options is generally recognized on a straight line basis over the entire vesting period. No further stock option grants are being made under the stock plans of acquired companies.

The following table represents our stock options activity during 2014.



	Number of Shares (in millions)		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2014	18.1		$	36.57
Granted	5.2		59.43
Exercised	(5.4	)	34.62
Forfeited/expired	(0.5	)	44.17
Outstanding at December 31, 2014	17.4		$	43.74	7.3	$	56
Exercisable at December 31, 2014	7.7		$	35.83	5.6	$	45

The total intrinsic value of options exercised was $151 million in 2014, $93 million in 2013, and $12 million in 2012. As of December 31, 2014, there was $109 million of unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock options, which is expected to be recognized over a weighted average period of approximately two years.

Cash received from option exercises was $332 million during 2014, $277 million during 2013, and $107 million during 2012.

The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility of options granted was a blended rate based upon implied volatility calculated on actively traded options on our common stock and upon the historical volatility of our common stock. The expected term of options granted was based upon historical observation of actual time elapsed between date of grant and exercise of options for all employees. The assumptions and resulting fair values of options granted were as follows:



	Year Ended December 31
	2014	2013	2012
Expected term (in years)	5.23	5.27	5.21
Expected volatility	37%	40%	46%
Expected dividend yield	0.94 - 1.77%	0.94 - 1.33%	0.99 – 1.24%
Risk-free interest rate	1.57 - 1.86%	0.77 - 1.73%	0.65 – 1.15%
Weighted average grant-date fair value per share	$19.26	$14.34	$11.99

Restricted stock

Restricted shares issued under the Stock Plan are restricted as to sale or disposition. These restrictions lapse periodically over an extended period of time not exceeding 10 years. Restrictions may also lapse for early retirement and other conditions in accordance with our established policies. Upon termination of employment, shares on which restrictions have not lapsed must be returned to us, resulting in restricted stock forfeitures. The fair market value of the stock on the date of grant is amortized and charged to income on a straight-line basis over the requisite service period for the entire award.

The following table represents our restricted stock awards and restricted stock units granted, vested, and forfeited during 2014.



	Number of Shares (in millions)		Weighted Average Grant-Date Fair Value per Share
Nonvested shares at January 1, 2014	15.7		$	37.43
Granted	6.2		58.21
Vested	(4.7	)	35.10
Forfeited	(1.1	)	41.63
Nonvested shares at December 31, 2014	16.1		$	45.88

The weighted average grant-date fair value of shares granted during 2013 was $42.93 and during 2012 was $32.17. The total fair value of shares vested during 2014 was $278 million, during 2013 was $208 million, and during 2012 was $126 million. As of December 31, 2014, there was $530 million of unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted stock, which is expected to be recognized over a weighted average period of four years.

Employee Stock Purchase Plan

Under the ESPP, eligible employees may have up to 10% of their earnings withheld, subject to some limitations, to be used to purchase shares of our common stock. For the year ended December 31, 2012, the ESPP contained two six-month offering periods commencing on January 1 and July 1. Beginning in 2013, the ESPP contained four three-month offering periods commencing on January 1, April 1, July 1, and October 1 of each year. The price at which common stock may be purchased under the ESPP is equal to 85% of the lower of the fair market value of the common stock on the commencement date or last trading day of each offering period. Under this plan, 44 million shares of common stock have been reserved for issuance. The stock to be offered may be authorized but unissued common shares or treasury shares. As of December 31, 2014, 35 million shares have been sold through the ESPP since the inception of the plan and 9 million shares are available for future issuance.

The fair value of ESPP shares was estimated using the Black-Scholes option pricing model. The expected volatility was a one-year historical volatility of our common stock. The assumptions and resulting fair values were as follows:



	Year Ended December 31
	2014			2013			2012
Expected volatility	23		%	27		%	49		%
Expected dividend yield	1.07		%	1.12		%	1.16		%
Risk-free interest rate	0.04		%	0.06		%	0.11		%
Weighted average grant-date fair value per share	$	11.80		$	8.40		$	8.93