Share-Based Compensation

6 Months Ended

Jun. 29, 2024

Share-Based Payment Arrangement [Abstract]

The Company issues share-based compensation awards under the Zebra Technologies 2018 Long-Term Incentive Plan (“2018 Plan”), approved by shareholders in 2018 which superseded and replaced all prior share-based incentive plans. Outstanding awards issued prior to the 2018 Plan are governed by the provisions of those plans until such awards have been exercised, forfeited, cancelled, expired, or otherwise terminated in accordance with their terms. Awards available under the 2018 Plan include stock-settled awards, including stock-settled restricted stock units, stock-settled performance stock units, restricted stock awards, performance share awards, stock appreciation rights, incentive stock options, and non-qualified stock options. Awards available under the 2018 Plan also include cash-settled awards, including cash-settled stock appreciation rights, cash-settled restricted stock units, and cash-settled performance stock units. No awards remain available for future grants under previous plans.

The Company uses treasury shares as its source for issuing shares under the share-based compensation programs. As of June 29, 2024, the Company had 1,850,705 shares of Class A Common stock remaining available to be issued under the 2018 Plan.

The compensation expense from the Company’s share-based compensation plans and associated income tax benefit, excluding the effects of excess tax benefits or shortfalls, were included in the Consolidated Statements of Operations as follows (in millions):


	Three Months Ended				Six Months Ended
Compensation costs and related income tax benefit	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Cost of sales	$	2	$	2	$	4	$	3
Selling and marketing	8		1		13		7
Research and development	12		6		18		13
General and administration	15		(6)		23		3
Total compensation expense	$	37	$	3	$	58	$	26
Income tax benefit	$	6	$	3	$	10	$	7

As of June 29, 2024, total unearned compensation cost related to the Company’s share-based compensation plans was $166 million, which will be recognized over the weighted average remaining service period of approximately 1.7 years.

The majority of the Company’s share-based compensation awards are generally issued as part of its employee and non-employee director incentive program during the second quarter of each fiscal year. The Company also issues awards associated with business acquisitions or other off-cycle events. The majority of the Company’s share-based compensation is comprised of stock-settled awards.

Stock-settled awards

Beginning in 2021, the Company began issuing stock-settled restricted stock units (“stock-settled RSUs”) and stock-settled performance share units (“stock-settled PSUs”) for the majority of its share-based compensation awards. Prior to 2021, the Company primarily awarded restricted stock awards (“RSAs”) and performance share awards (“PSAs”). The Company’s awards are typically time-vested with stock-settled RSUs and RSAs vesting ratably in three annual installments and stock-settled PSUs and PSAs vesting at the end of the three-year period. No RSAs or PSAs were issued to employees in the current year.

Vesting for each participant is subject to restrictions, such as continuous employment, except in certain cases as set forth in each stock agreement. Upon vesting, stock-settled RSUs and PSUs convert to shares of Class A Common Stock that are released to participants. RSAs and PSAs are considered participating securities, and as such, are included as part of the Company’s Class A Common Stock outstanding at the time of grant.

Compensation cost for the stock-settled RSUs, stock-settled PSUs, RSAs, and PSAs is expensed over each participant’s required service period. Compensation cost is calculated as the fair market value of the Company’s Class A Common Stock on the grant date multiplied by the number of units or awards granted, net of estimated forfeitures. The expected attainment of the performance goals for the stock-settled PSUs and PSAs is reviewed at the end of each reporting period, with adjustments recorded to compensation expense in the Consolidated Statements of Operations, as necessary.

The Company issues RSAs to non-employee directors. The number of shares granted to each non-employee director is determined by dividing the value of the annual grant by the price of a share of the Company’s Class A Common Stock. New directors in any fiscal year earn a prorated amount. During the first six months of 2024, there were 6,264 shares granted to non-employee directors compared to 6,640 shares during the first six months of 2023. The shares vest immediately upon grant.

A summary of the Company’s restricted and performance stock-settled awards for the six months ended June 29, 2024 is as follows:


	RSUs			PSUs			RSAs
	Units	Weighted-Average Grant Date Fair Value		Units	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	437,379	$	299.19	195,932	$	334.59	433	$	477.74
Granted	271,704	308.89		88,029	309.05		6,264	319.95
Released	(176,502)	323.37		(35,597)	482.42		(6,697)	330.15
Forfeited	(7,971)	296.31		(1,428)	296.59		—	—
Outstanding at end of period	524,610	$	296.14	246,936	$	304.49	—	$	—

Stock Appreciation Rights (“SARs”)

SARs were previously granted primarily as part of the Company’s annual share-based compensation incentive program. Beginning in 2021, the Company no longer included SARs in its annual share-based compensation award issuances.


	SARs	Weighted-Average Exercise Price
Outstanding at beginning of period	398,838	$	124.96

Exercised	(126,582)	100.02

Expired	(2)	86.80
Outstanding at end of period	272,254	$	136.48
Exercisable at end of period	270,999	$	135.42

The following table summarizes information about SARs outstanding as of June 29, 2024:


	Outstanding		Exercisable
Aggregate intrinsic value (in millions)	$	47	$	47
Weighted-average remaining contractual life (in years)	1.7		1.7

The intrinsic value of SARs exercised during the six months ended June 29, 2024 and July 1, 2023 was $25 million and $5 million, respectively. The total fair value of SARs that vested during the six months ended June 29, 2024 and July 1, 2023 was $1 million and $2 million, respectively.

Cash-settled awards

The Company also issues cash-settled share-based compensation awards, including cash-settled restricted stock units and cash-settled performance stock units that are classified as liability awards. These awards are expensed over the vesting period of the related award, which is typically three years. Compensation cost is calculated as the fair value on grant date multiplied by the number of share-equivalents granted. The expected attainment of the performance goals for the cash-settled performance stock units is reviewed at the end of each reporting period, with adjustments recorded to compensation expense in the Consolidated Statements of Operations, as necessary. Cash settlement is based on the fair value of share equivalents at the time of vesting, which was $11 million and $8 million for the six months ended June 29, 2024 and July 1, 2023, respectively. Share-equivalents issued under these programs totaled 57,779 and 39,407 during the six months ended June 29, 2024 and July 1, 2023, respectively.

Employee Stock Purchase Plan

Eligible Zebra employees may purchase common stock at 95% of the fair market value at the date of purchase pursuant to the Zebra Technologies Corporation 2020 Employee Stock Purchase Plan (“2020 ESPP”). Employees may make purchases by cash or payroll deductions up to certain limits. The aggregate number of shares that may be purchased under the 2020 ESPP is 1,500,000 shares. As of June 29, 2024, 1,329,399 shares remained available for future purchase.