Stock-Based Compensation (As Restated)

The Company’s stock-based compensation includes stock options, restricted stock units (“RSUs”) and grants of contingent shares that are earned based on achieving targeted levels of total shareholder return. All current grants of stock options, RSUs and contingent shares are made under the PPG Industries, Inc. Amended and Restated Omnibus Incentive Plan (“PPG Amended Omnibus Plan”), which was amended and restated effective April 21, 2016. Shares available for future grants under the PPG Amended Omnibus Plan were 8.0 million as of December 31, 2017.



($ in millions)	2017		2016		2015
	As Restated		As Restated
Total stock-based compensation		$35		$45		$54
Income tax benefit recognized		$12		$17		$18

Stock Options

PPG has outstanding stock option awards that have been granted under the PPG Amended Omnibus Plan. Under the PPG Amended Omnibus Plan, certain employees of the Company have been granted options to purchase shares of common stock at prices equal to the fair market value of the shares on the date the options were granted. The options are generally exercisable 36 months after being granted and have a maximum term of 10 years. Upon exercise of a stock option, shares of Company stock are issued from treasury stock.

The fair value of stock options issued to employees is measured on the date of grant and is recognized as expense over the requisite service period. PPG estimates the fair value of stock options using the Black-Scholes option pricing model. The risk-free interest rate is determined by using the U.S. Treasury yield curve at the date of the grant and using a maturity equal to the expected life of the option. The expected life of options is calculated using the average of the vesting term and the maximum term, as prescribed by accounting guidance on the use of the simplified method for determining the expected term of an employee share option. The expected dividend yield and volatility are based on historical stock prices and dividend amounts over past time periods equal in length to the expected life of the options.

The following weighted average assumptions were used to calculate the fair values of stock option grants in each year:



	2017			2016			2015
Weighted average exercise price		$101.53			$95.29			$118.02
Risk free interest rate	2.4		%	1.6		%	1.9		%
Expected life of option in years	6.5			6.5			6.5
Expected dividend yield	1.8		%	2.1		%	2.7		%
Expected volatility	22.0		%	22.8		%	29.2		%

The weighted average fair value of options granted was $21.15 per share, $17.94 per share and $26.94 per share for the years ended December 31, 2017, 2016, and 2015, respectively.



Stock Options Outstanding and Exercisable	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Intrinsic Value (in millions)
Outstanding, January 1, 2016	3,881,566			$75.84	6.5		$86
Granted	642,037			$101.53
Exercised	(856,900	)		$61.10
Forfeited/Expired	(91,078	)		$101.36
Outstanding, December 31, 2017	3,575,625			$83.34	6.4		$120
Vested or expected to vest, December 31, 2017	3,530,023			$83.05	6.4		$120
Exercisable, December 31, 2017	1,677,087			$60.13	4.4		$95

At December 31, 2017, unrecognized compensation cost related to outstanding stock options that have not yet vested totaled $7 million. This cost is expected to be recognized as expense over a weighted average period of 1.5 years.

The following table presents stock option activity for the years ended December 31, 2017, 2016 and 2015:



($ in millions)	2017		2016		2015
Total intrinsic value of stock options exercised		$40		$34		$92
Cash received from stock option exercises		$52		$32		$53
Income tax benefit from the exercise of stock options		$15		$12		$31
Total fair value of stock options vested		$13		$16		$13

Restricted Stock Units (“RSUs”)

Long-term incentive value is delivered to selected key management employees by granting RSUs, which have either time or performance-based vesting features. The fair value of an RSU is equal to the market value of a share of PPG stock on the date of grant. Time-based RSUs vest over the three-year period following the date of grant, unless forfeited, and will be paid out in the form of stock, cash or a combination of both at the Company’s discretion at the end of the three year vesting period. Performance-based RSUs vest based on achieving specific annual performance targets for earnings per share growth and cash flow return on capital over the three calendar year-end periods following the date of grant. Unless forfeited, the performance-based RSUs will be paid out in the form of stock, cash or a combination of both at the Company’s discretion at the end of the three-year performance period if PPG meets the performance targets. The amount paid for performance-based awards may range from 0% to 180% of the original grant, based upon the frequency with which the annual earnings per share growth and cash flow return on capital performance targets are met over the three calendar year periods comprising the vesting period. For the purposes of expense recognition, PPG has assumed that performance-based RSUs granted in 2015 will vest at the 150% level and those granted in 2016 and 2017 will vest at the 100% level. As of December 31, 2017, four of the six possible performance targets had been met for the 2015 grant, two of the four possible performance targets had been met for the 2016 grant, and one of two possible performance targets had been met for the 2017 grant.



RSU Activity	Number of Shares		Weighted Average Fair Value		Intrinsic Value (in millions)
Outstanding, January 1, 2017	721,924			$95.65		$69
Granted	229,667			$102.71
Additional shares vested	70,525			$114.08
Released from restrictions	(349,871	)		$103.09
Forfeited	(56,638	)		$89.16
Outstanding, December 31, 2017	615,607			$101.73		$63
Vested or expected to vest, December 31, 2017	595,462			$101.89		$60

There was $14 million of total unrecognized compensation cost related to unvested RSUs outstanding as of December 31, 2017. This cost is expected to be recognized as expense over a weighted average period of 1.7 years.

Contingent Share Grants

The Company also provides grants of contingent shares to selected key executives that may be earned based on PPG total shareholder return (“TSR”) over the three-year period following the date of grant. Contingent share grants (referred to as “TSR awards”) are made annually and are paid out at the end of each three-year period based on the Company’s performance. Performance is measured by determining the percentile rank of the total shareholder return of PPG common stock in relation to the total shareholder return of the S&P 500 for the three-year period following the date of grant. This comparison group represents the entire S&P 500 Index as it existed at the beginning of the performance period, excluding any companies that have been removed from the index because they ceased to be publicly traded. The payment of awards following the three-year award period will be based on performance achieved in accordance with the scale set forth in the plan agreement and may range from 0% to 220% of the initial grant. A payout of 100% is earned if the target performance is achieved. Contingent share awards for the 2015-2017, 2016-2018, and 2017-2019 periods earn dividend equivalents for the award period, which will be paid to participants or credited to the participants’ deferred compensation plan accounts with the award payout at the end of the period based on the actual number of contingent shares that are earned. Any payments made at the end of the award period may be in the form of stock, cash or a combination of both. The TSR awards qualify as liability awards, and compensation expense is recognized over the three-year award period based on the fair value of the awards (giving consideration to the Company’s percentile rank of total shareholder return) remeasured in each reporting period until settlement of the awards.

As of December 31, 2017, there was $3 million of total unrecognized compensation cost related to outstanding TSR awards based on the current estimate of fair value. This cost is expected to be recognized as expense over a weighted average period of 1.7 years.