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Share-Based Compensation
 12 Months Ended
Dec. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation
NOTE 2 — SHARE-BASED COMPENSATION
Stock Incentive Plan
Our stock incentive plan is designed to promote the long term financial interests and growth of the Company by attracting and retaining management and other personnel, motivating them to achieve long range goals and aligning their interests with those of our stockholders through opportunities for stock-based compensation and stock ownership in the Company. Stock option, stock appreciation right (“SARs”) and restricted share unit (“RSUs”) grants vest solely based upon continued employment over a specific period of time, and performance share unit (“PSUs”) grants vest based upon both continued employment over a specific period of time and the achievement of predetermined financial targets over time. At December 31, 2019, there were 20.328 million shares available for future grants under the stock incentive plan.
Employee Stock Purchase Plan
Our employee stock purchase plan (“ESPP”) provides our participating employees an opportunity to obtain shares of our common stock at a discount (through payroll deductions over three-month periods). At December 31, 2019, 6.883 million shares of common stock were reserved for issuance under the ESPP provisions. During 2019, 2018 and 2017, the Company recognized $12 million, $10 million and $9 million, respectively, of compensation expense related to the ESPP.
Stock Option, SAR, RSU and PSU Activity
The fair value of each stock option and SAR award is estimated on the grant date, using valuation models and the weighted average assumptions indicated in the following table. Awards under our stock incentive plan generally vest based on continued employment (“Time Stock Options and SARs” and “Time RSUs”) and based upon continued employment and the achievement of certain financial targets (“Performance Stock Options and SARs”, “Performance RSUs” and “PSUs”). PSUs have a three-year cumulative earnings per share target, and the number of PSUs earned can vary from zero (for actual performance of less than
9
0% of target for 2019 grants and 80% of target for 2018 and prior grants) to two times the original PSU grant (for actual performance of 110% or more of target for 2019 grants and 120% or more of target for 2018 and prior grants). Each grant is valued as a single award with an expected term equal to the average expected term of the component vesting tranches. The expected term of the share-based award is limited by the contractual term. We use historical exercise behavior data and other factors to estimate the expected term of the options and SARs.
Compensation cost is recognized on the straight-line attribution method. The straight-line attribution method requires that total compensation expense recognized must at least equal the vested portion of the grant-date fair value. The expected volatility is derived using historical stock price information for our common stock and the volatility implied by the trading of options to purchase our stock on open-market exchanges. The risk-free interest rate is the approximate yield on United States Treasury Strips having a life equal to the expected share-based award life on the date of grant. The expected life is an estimate of the number of years a share-based award will be held before it is exercised. The expected dividend yield is estimated based on the assumption that the dividend yield at date of grant will be maintained over the expected life of the grant.
 
2019
 
  
2018
 
  
2017
 
Risk-free interest rate
 
 
2.50
%
   
2.62
 %    
2.13
 %
Expected volatility
 
 
27
%
   
29
 %    
31
 %
Expected life, in years
 
 
6.18
 
    
6.15
      
6.17
  
Expected dividend yield
 
 
1.16
%
   
1.37
 %    
—
  
Information regarding Time Stock Options and SARs and Performance Stock Options and SARs activity during 2019, 2018 and 2017 is summarized below (share amounts in thousands):
 
Time
Stock
Options
and
SARs
 
  
Performance
Stock
Options and
SARs
 
  
Total
Stock
Options
and
SARs
 
  
Weighted
Average
Exercise
Price
 
  
Weighted
Average
Remaining
Contractual Term
 
  
Aggregate
Intrinsic Value
(dollars in millions)
 
Options and SARs outstanding, December 31, 2016
   
10,936
     
6,130
     
17,066
    $
35.65
     
     
 
Granted
   
1,879
     
—
      
1,879
     
81.83
     
     
 
Exercised
   
(1,549
 )    
(1,366
 )    
(2,915
 )    
21.49
     
     
 
Cancelled
   
(110
 )    
(178
 )    
(288
 )    
52.92
     
     
 
                                                 
Options and SARs outstanding, December 31, 2017
   
11,156
     
4,586
     
15,742
     
43.47
     
     
 
Granted
   
2,342
     
—
      
2,342
     
101.96
     
     
 
Exercised
   
(3,917
 )    
(1,774
 )    
(5,691
 )    
27.86
     
     
 
Cancelled
   
(221
 )    
(145
 )    
(366
 )    
68.43
     
     
 
                                                 
Options and SARs outstanding, December 31, 2018
   
9,360
     
2,667
     
12,027
     
61.49
     
     
 
Granted
 
 
1,349
 
  
 
—
 
  
 
1,349
 
  
 
138.31
 
  
 
 
  
 
 
Exercised
 
 
(1,137
)
 
 
(523
)
 
 
(1,660
)
 
 
44.45
 
  
 
 
  
 
 
Cancelled
 
 
(522
)
 
 
—
 
  
 
(522
)
 
 
93.26
 
  
 
 
  
 
 
                                                 
Options and SARs outstanding, December 31, 2019
 
 
9,050
 
  
 
2,144
 
  
 
11,194
 
  
$
71.79
 
  
 
5.7
 
y
ears
 
  
$
851
 
                                                 
Options and SARs exercisable, December 31, 2019
 
 
5,273
 
  
 
2,144
 
  
 
7,417
 
  
$
53.09
 
  
 
4.4
 years
 
  
$
703
 
The weighted average fair values of stock options and SARs granted during 2019, 2018 and 2017 were $38.21, $28.90 and $28.47 per share, respectively. The total intrinsic value of stock options and SARs exercised during 2019, 2018 and 2017 was $153 million, $456 million and $177 million, respectively. The total fair value of RSUs and PSUs that vested during 2019, 2018 and 2017 was $346 million, $413 million and $188 million, respectively. As of December 31, 2019, the unrecognized compensation cost related to nonvested stock options and SARs was $73 million.
Information regarding Time RSUs, Performance RSUs and PSUs activity during 2019, 2018 and 2017 is summarized below (share amounts in thousands):
 
Time RSUs
 
  
Performance
RSUs
 
  
PSUs
 
  
Total RSUs
and PSUs
 
  
Weighted
Average
Grant
Date Fair
Value
 
RSUs and PSUs outstanding, December 31, 2016
   
4,111
     
790
     
2,386
     
7,287
    $
61.21
 
Granted
   
1,484
     
—
      
1,304
     
2,788
     
81.90
 
Vested
   
(1,824
 )    
(430
 )    
—
      
(2,254
 )    
51.20
 
Cancelled
   
(306
 )    
(133
 )    
(128
 )    
(567
 )    
64.06
 
                                         
RSUs and PSUs outstanding, December 31, 2017
   
3,465
     
227
     
3,562
     
7,254
     
72.05
 
Granted
   
1,464
     
—
      
1,261
     
2,725
     
101.85
 
Performance adjustment
   
—
      
—
      
1,250
     
1,250
     
69.27
 
Vested
   
(1,487
 )    
(136
 )    
(2,500
 )    
(4,123
 )    
67.33
 
Cancelled
   
(319
 )    
(91
 )    
(151
 )    
(561
 )    
78.82
 
                                         
RSUs and PSUs outstanding, December 31, 2018
   
3,123
     
—
      
3,422
     
6,545
     
86.32
 
Granted
 
 
973
 
  
 
—
 
  
 
796
 
  
 
1,769
 
  
 
138.45
 
Performance adjustment
 
 
—
 
  
 
—
 
  
 
227
 
  
 
227
 
  
 
69.94
 
Vested
 
 
(1,216
)
 
 
—
 
  
 
(1,251
)
 
 
(2,467
)
 
 
75.97
 
Cancelled
 
 
(260
)
 
 
—
 
  
 
(159
)
 
 
(419
)
 
 
103.27
 
                                         
RSUs and PSUs outstanding, December 31, 2019
 
 
2,620
 
  
 
—
 
  
 
3,035
 
  
 
5,655
 
  
$
105.23
 
                                         
As of December 31, 2019, the unrecognized compensation cost related to RSUs and PSUs was $338 million.