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Employee Stock-based Compensation Plans
 12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Employee Stock-based Compensation Plans Employee Stock-based Compensation Plans
The Company recorded stock-based compensation expense for the years ended December 31 as follows: 
In millions
2019
 
2018
 
2017
Stock options
$
3

 
$
6

 
$
9

Restricted shares
77

 
56

 
56

Employee share repurchase program
3

 
3

 
3

Total stock-based compensation before income taxes
83

 
65

 
68

Tax benefit
(10
)
 
(11
)
 
(21
)
Total stock-based compensation, net of tax
$
73

 
$
54

 
$
47


The Teradata Corporation 2007 Stock Incentive Plan (the "2007 SIP"), as amended, and the Teradata 2012 Stock Incentive Plan (the "2012 SIP") provide for the grant of several different forms of stock-based compensation. The 2012 SIP was adopted and approved by stockholders in April 2012 and no further awards may be made under the 2007 SIP after that time. A total of approximately 17.5 million shares were authorized to be issued under the 2012 SIP. New shares of the Company’s common stock are issued as a result of the vesting of restricted share units and stock option exercises and at the time of grant for restricted shares, for awards under both plans.
As of December 31, 2019, the Company’s primary types of stock-based compensation were stock options, restricted shares, restricted share units and the employee stock purchase program (the "ESPP").
Stock Options
The Compensation and Human Resource Committee of Teradata’s Board of Directors has discretion to determine the material terms and conditions of option awards under both the 2007 SIP and the 2012 SIP (collectively, the "Teradata SIP"), provided that (i) the exercise price must be no less than the fair market value of Teradata common stock (as defined in both plans) on the date of grant, and (ii) the term must be no longer than ten years. Option grants generally have a four-year vesting period.
No options were granted in 2019 and 2018. The weighted-average fair value of options granted for Teradata equity awards was $11.08 in in 2017. The fair value of each option award on the grant date was estimated using the Black-Scholes option-pricing model with the following assumptions:
 
 
2017
 
Dividend yield
 
—
%
 
Risk-free interest rate
 
1.99
%
 
Expected volatility
 
35.0
%
 
Expected term (years)
 
6.3

 
The following table summarizes the Company’s stock option activity for the year ended December 31, 2019: 
Shares in thousands
Shares
Under
Option
 
Weighted-
Average
Exercise
Price per
Share
 
Weighted-
Average
Remaining
Contractual
Term (in
years)
 
Aggregate
Intrinsic
Value (in
millions)
Outstanding at January 1, 2019
4,148

 
$
40.34

 
3.8
 
$
15

Granted
—

 
$
—

 
 
 
 
Exercised
(916
)
 
$
35.50

 
 
 
 
Canceled
(660
)
 
$
47.71

 
 
 
 
Forfeited
(68
)
 
$
28.78

 
 
 
 
Outstanding at December 31, 2019
2,504

 
$
40.49

 
3.7
 
$
—

Fully vested and expected to vest at December 31, 2019
2,504

 
$
40.49

 
3.7
 
$
—

Exercisable at December 31, 2019
2,352

 
$
41.28

 
3.5
 
$
—


The following table summarizes the total intrinsic value of options exercised and the cash received by the Company from option exercises under all share-based payment arrangements at December 31:
In millions
2019
 
2018
 
2017
Intrinsic value of options exercised
$
9

 
$
15

 
$
6

Cash received from option exercises
$
32

 
$
21

 
$
19

Tax benefit realized from option exercises
$
2

 
$
3

 
$
2


As of December 31, 2019, there was $2 million of total unrecognized compensation cost related to unvested stock option grants. That cost is expected to be recognized over a weighted-average period of 0.5 years.
Restricted Shares and Restricted Share Units
The Teradata SIP provides for the issuance of restricted shares, as well as restricted share units. These grants consist of both service-based and performance-based awards. Service-based awards typically vest over a three-year period beginning on the effective date of grant. These grants are not subject to future performance measures. The cost of these awards, determined to be the fair market value at the date of grant, is expensed ratably over the vesting period. For substantially all restricted share grants, at the date of grant, the recipient has all rights of a stockholder, subject to certain restrictions on transferability and a risk of forfeiture. A recipient of restricted share units does not have the rights of a stockholder and is subject to restrictions on transferability and risk of forfeiture. For both restricted share grants and restricted share units, any potential dividend rights would be subject to the same vesting requirements as the underlying equity award. As a result, such rights are considered a contingent transfer of value and consequently these equity awards are not considered participating securities. Performance-based grants are subject to future performance measurements over a one-to three-year period. All performance-based shares that are earned in respect of an award will become vested at the end of the performance and/or service period provided the employee is continuously employed by the Company and applicable performance measures and other vesting conditions are met. The fair value of each performance-based award is determined on the grant date, based on the Company’s stock price, and assumes that performance targets will be achieved. Over the performance period, the number of shares of stock that will be issued is adjusted upward or downward based upon management’s assessment of the probability of achievement of performance targets. The ultimate number of shares issued and the related compensation cost recognized as expense will be based on a comparison of the final achievement of performance metrics to the specified targets.
The following table reports restricted shares and restricted share unit activity during the year ended December 31, 2019:
Shares in thousands
Number of
Shares
 
Weighted-
Average 
Grant
Date Fair
 Value
per Share
Unvested shares at January 1, 2019
3,231

 
$
34.27

Granted
3,634

 
$
44.13

Vested
(1,218
)
 
$
33.52

Forfeited/canceled
(478
)
 
$
38.57

Unvested shares at December 31, 2019
5,169

 
$
40.95


The following table summarizes the weighted-average fair value of restricted share units granted for Teradata equity awards and the total fair value of shares vested.
 
2019
 
2018
 
2017
Weighted-average fair value of restricted share units granted
$
44.13

 
$
37.98

 
$
34.88

Total fair value of shares vested (in millions)
$
41

 
$
53

 
$
50


As of December 31, 2019, there was $137 million of unrecognized compensation cost related to unvested restricted share grants. The unrecognized compensation cost is expected to be recognized over a remaining weighted-average period of 1.1 years.
The following table represents the composition of Teradata restricted share unit grants in 2019: 
Shares in thousands
Number of
Shares
 
Weighted-
Average 
Grant
Date Fair 
Value
Service-based shares
3,103

 
$
44.21

Performance-based shares
531

 
$
43.65

Total stock grants
3,634

 
$
44.13


In 2017, performance-based share units granted as part of our long-term incentive program for certain corporate officers and key executives will be earned based on Teradata's total shareholder return ("TSR") over a three-year performance period relative to the other companies in the S&P 1500 Information Technology Index. The number of shares issued, as a percentage of the amount subject to the performance share award, could range from 0% to 200%. The grant date fair value of the non-vested performance-based awards was determined using a Monte Carlo simulation model, which utilized multiple input variables that determined the probability of satisfying the market condition requirements applicable to each award. The compensation expense for the award will be recognized if the requisite service is rendered, regardless of whether the market conditions are achieved.
Employee Stock Purchase Program
The Company’s ESPP, effective on October 1, 2007, and as amended effective as of January 1, 2013, provides eligible employees of Teradata and its designated subsidiaries an opportunity to purchase the Company’s common stock at a discount to the average of the highest and lowest sale prices on the last trading day of each month. The ESPP discount is 15% of the average market price and is considered compensatory.
Employees may authorize payroll deductions of up to 10% of eligible compensation for common stock purchases. A total of 7 million shares were authorized to be issued under the ESPP, with approximately 2.1 million shares remaining under that authorization at December 31, 2019. The shares of Teradata common stock purchased by a participant on an exercise date (the last day of each month), for all purposes, are deemed to have been issued and sold at the close of business on such exercise date. Prior to that time, none of the rights or privileges of a stockholder exists with respect to such shares. Employee purchases and aggregate cost were as follows at December 31:
In millions
2019
 
2018
 
2017
Employee share purchases
0.6

 
0.5

 
0.6

Aggregate cost
$
20

 
$
17

 
$
15