Stock-based Compensation Expense

12 Months Ended

Dec. 31, 2024

Share-Based Payment Arrangement [Abstract]

Stock-based Compensation Expense

Stock-based Compensation Expense

We recognize share-based payments to employees as compensation expense using the fair value method. The fair value of restricted stock units, including PSUs, is based on the intrinsic value on the date of grant. The fair value of shares purchased pursuant to the ESPP and stock options is calculated using the Black-Scholes option pricing model. Stock-based compensation expense, measured at the grant date based on the fair value of the award, is typically recognized ratably over the requisite service period.

During the three years ended December 31, 2024, we recognized the following stock-based compensation expense:

	Year ended December 31,
	2024		2023		2022
	(in millions)
Stock-based compensation expense by type of award:
Restricted stock units (including PSUs)	$	689.1	$	563.7	$	456.1
ESPP share issuances	18.2		15.8		16.7
Stock options	1.8		4.0		17.6
Stock-based compensation expense related to inventories	(10.6)		(2.3)		0.9
Total stock-based compensation expense included in “Total costs and expenses”	$	698.5	$	581.2	$	491.3
Stock-based compensation expense by line item:
Cost of sales	$	7.5	$	7.5	$	9.4
Research and development expenses	425.8		354.9		297.9
Selling, general and administrative expenses	265.2		218.8		184.0
Total stock-based compensation expense included in “Total costs and expenses”	698.5		581.2		491.3
Income tax effect	(251.6)		(167.5)		(144.1)
Total stock-based compensation expense, net of tax	$	446.9	$	413.7	$	347.2

We capitalize a portion of our stock-based compensation expense to inventories, all of which is attributable to employees who support the manufacturing of our products.

The following table sets forth our unrecognized stock-based compensation expense as of December 31, 2024, by type of award and the weighted-average period we expect to recognize the expense:

	As of December 31, 2024
	Unrecognized Expense		Weighted-average Recognition Period
	(in millions)		(in years)
Type of award:
Restricted stock units (including PSUs)	$	716.6	1.93
ESPP share issuances	11.9		0.62
Total unrecognized stock-based compensation expense	$	728.5

Restricted Stock Units and Performance-based Restricted Stock Units

We award restricted stock units with service conditions, which are generally the vesting periods of the awards.

As described in Note M, “Common Stock, Preferred Stock and Equity Plans,” we grant the majority of our PSUs to certain members of senior management. Our financial-based PSUs to senior management vest in three equal installments over a three-year period and are expensed ratably over that same period based upon an assessment of the likely level of achievement. Our non-financial based PSUs to senior management cliff vest at the end of approximately a three-year performance period and are expensed on a straight-line basis over that same period based upon an assessment of the likely level of achievement.

Employee Stock Purchase Plan

The weighted-average fair value of each purchase right granted during 2024, 2023 and 2022 was $117.89, $90.91 and $79.36, respectively. The following table reflects the weighted-average assumptions used in our Black-Scholes option pricing model:

	Year ended December 31,
	2024	2023	2022
Expected stock price volatility	29.37%	28.52%	33.55%
Risk-free interest rate	4.63%	5.13%	4.05%
Expected term (in years)	0.73	0.71	0.71
Expected annual dividends	—	—	—

Stock Options

We issued stock options to our non-employee directors with total grant date fair values of $2.0 million or less in each of the three years ended December 31, 2024.