Share-Based Payments

6 Months Ended

Jun. 30, 2021

Share-based Payment Arrangement [Abstract]

Fair Value Assumptions

Valuation of Stock Options

The fair value of stock options granted are principally estimated using a binomial-lattice model. The inputs in our binomial-lattice model include expected stock price volatility, risk-free interest rate, dividend yield, contractual term, and vesting schedule, as well as measures of employees’ cancellations, exercise, and post-vesting termination behavior.

Valuation of Restricted Stock Units (“RSUs”)

The fair value of the Company’s RSU awards granted are generally based upon the closing price of the Company’s stock on the date of grant reduced by the present value of dividends expected to be paid on our common stock prior to vesting. We also grant market-based RSU awards, from time to time, whose fair value is determined using a Monte Carlo simulation. Such market-based RSU awards include performance conditions based on our own stock price, and may also include performance conditions that compare our stock price performance to an index, such as the S&P 500 Total Shareholder Return index. The valuation assumptions utilized in the Monte Carlo model are generally consistent with those discussed in the valuation of stock options above.

Accuracy of Fair Value Estimates

We developed the assumptions used in the models above, including measures of employees’ exercise and post-vesting termination behavior. Our ability to accurately estimate the fair value of share-based payment awards at the grant date depends upon the accuracy of the model and our ability to accurately forecast model inputs for as long as 10 years into the future. Although the fair value of employee stock options is determined using an option-pricing model, the estimates that are produced by this model may not be indicative of the fair value observed between a willing buyer and a willing seller as there are not current active markets for the trading of employee stock options and other share-based instruments.

Stock Option Activity

Stock option activity is as follows:


	Number of shares (in thousands)	Weighted-average exercise price per stock option		Weighted-average remaining contractual term (in years)	Aggregate intrinsic value (in millions)
Outstanding stock options at December 31, 2020	11,297	$	53.84
Granted	709	93.35
Exercised	(1,412)	46.55
Forfeited	(486)	64.65
Expired	(17)	56.39
Outstanding stock options at June 30, 2021	10,091	$	57.11	7.42	$	387
Vested and expected to vest at June 30, 2021	9,596	$	56.17	7.34	$	377
Exercisable at June 30, 2021	2,898	$	41.43	5.16	$	157

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between our closing stock price on the last trading day of the period and the exercise price, times the number of shares for options where the closing stock price is greater than the exercise price) that would have been received by the option holders had all option holders exercised their options on that date. This amount changes based on the market value of our stock.

At June 30, 2021, $56 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.28 years.

RSU Activity

We grant RSUs, which represent the right to receive shares of our common stock. Vesting for RSUs is contingent upon the holders’ continued employment with us and may be subject to other conditions (which may include the satisfaction of a performance measure). Also, certain of our performance-based RSUs, including those that are market-based, include a range of shares that may be released at vesting which are above or below the targeted number of RSUs based on actual performance relative to the performance measure. If the vesting conditions are not met, unvested RSUs will be forfeited. Upon vesting of the RSUs, we may withhold shares otherwise deliverable to satisfy tax withholding requirements.

The following table summarizes our RSU activity with performance-based RSUs, including those with market conditions, presented at 100% of the target level shares that may potentially vest (amounts in thousands, except per share data):


	Number of shares	Weighted- average grant date fair value per RSU
Unvested RSUs at December 31, 2020	7,102	$	82.50
Granted	4,215	96.57
Vested	(2,360)	104.79
Forfeited	(632)	70.59
Unvested RSUs at June 30, 2021	8,325	$	84.96

At June 30, 2021, approximately $411 million of total unrecognized compensation cost was related to RSUs and is expected to be recognized over a weighted-average period of 1.63 years. Of the total unrecognized compensation cost, $140 million was related to performance-based RSUs, which is expected to be recognized over a weighted-average period of 1.25 years.