Stock-based Compensation

The following table summarizes stock-based compensation costs for the years ended December 31, 2016, 2015 and 2014.



	Year Ended December 31
Millions of dollars	2016			2015			2014
Stock-based compensation cost	$	262		$	294		$	298
Tax benefit	(77		)	(99		)	(90		)
Stock-based compensation cost, net of tax	$	185		$	195		$	208

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 187 million shares of common stock have been reserved for issuance to employees and non-employee directors. At December 31, 2016, approximately 10 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-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.

The following table represents our stock options activity during 2016.



	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, 2016	20.0		$	43.90
Granted	3.8		41.18
Exercised	(2.2	)	35.93
Forfeited/expired	(1.0	)	49.06
Outstanding at December 31, 2016	20.6		$	44.01	6.8	$	239
Exercisable at December 31, 2016	13.0		$	43.26	5.7	$	161

The total intrinsic value of options exercised was $25 million in 2016, $9 million in 2015 and $151 million in 2014. As of December 31, 2016, there was $64 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 issuance of common stock was $186 million during 2016, $167 million during 2015 and $332 million during 2014, of which $80 million, $23 million and $186 million related to proceeds from exercises of stock options in 2016, 2015 and 2014, respectively. The remainder relates to cash proceeds from the issuance of shares related to our employee stock purchase plan.

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
	2016	2015	2014
Expected term (in years)	5.21	5.16	5.23
Expected volatility	37%	39%	37%
Expected dividend yield	1.35 - 2.46%	1.51 - 1.85%	0.94 - 1.77%
Risk-free interest rate	1.13 - 1.84%	1.43 - 1.72%	1.57 - 1.86%
Weighted average grant-date fair value per share	$12.33	$13.47	$19.26

Restricted stock

Restricted shares issued under the Stock Plan are restricted as to sale or disposition. These restrictions lapse periodically generally over a period of five 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 2016.



	Number of Shares (in millions)		Weighted Average Grant-Date Fair Value per Share
Nonvested shares at January 1, 2016	16.5		$	45.59
Granted	5.5		42.87
Vested	(5.3	)	44.43
Forfeited	(1.6	)	46.05
Nonvested shares at December 31, 2016	15.1		$	44.96

The weighted average grant-date fair value of shares granted during 2015 was $43.24 and during 2014 was $58.21. The total fair value of shares vested during 2016 was $223 million, during 2015 was $211 million and during 2014 was $278 million. As of December 31, 2016, there was $468 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 three 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. The ESPP contains 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, 74 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, 2016, 43 million shares have been sold through the ESPP since the inception of the plan and 31 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
	2016			2015			2014
Expected volatility	36		%	35		%	23		%
Expected dividend yield	1.87		%	1.82		%	1.07		%
Risk-free interest rate	0.25		%	0.01		%	0.04		%
Weighted average grant-date fair value per share	$	8.61		$	8.62		$	11.80