Stock Options and Other Share-Based Compensation

12 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Options and Other Share-Based Compensation

Stock Options and Other Share-Based Compensation

Compensation expense for stock options for 2016, 2015 and 2014 was $271 ($176 after tax), $312 ($203 after tax) and $287 ($186 after tax), respectively. In addition, compensation expense for stock appreciation rights, restricted stock, performance shares and restricted stock units was $371 ($241 after tax), $32 ($21 after tax) and $71 ($46 after tax) for 2016, 2015 and 2014, respectively. No significant stock-based compensation cost was capitalized at December 31, 2016, or December 31, 2015.

Cash received in payment for option exercises under all share-based payment arrangements for 2016, 2015 and 2014 was $647, $195 and $527, respectively. Actual tax benefits realized for the tax deductions from option exercises were $21, $17 and $54 for 2016, 2015 and 2014, respectively.

Cash paid to settle performance shares and stock appreciation rights was $82, $104 and $204 for 2016, 2015 and 2014, respectively.

Awards under the Chevron Long-Term Incentive Plan (LTIP) may take the form of, but are not limited to, stock options, restricted stock, restricted stock units, stock appreciation rights, performance shares and nonstock grants. From April 2004 through May 2023, no more than 260 million shares may be issued under the LTIP. For awards issued on or after May 29, 2013, no more than 50 million of those shares may be in a form other than a stock option, stock appreciation right or award requiring full payment for shares by the award recipient. For the major types of awards outstanding as of December 31, 2016, the contractual terms vary between three years for the performance shares and restricted stock units, and 10 years for the stock options and stock appreciation rights. For awards that will be issued in 2017, contractual terms vary between three years for the performance shares and special restricted stock units, 5 years for standard restricted stock units and 10 years for the stock options and stock appreciation rights. Forfeitures for performance shares, restricted stock units, and stock appreciation rights are recognized as they occur. Forfeitures for stock options are estimated using historical forfeiture data dating back to 1990.

The fair market values of stock options and stock appreciation rights granted in 2016, 2015 and 2014 were measured on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions:

	Year ended December 31
	2016			2015			2014
Expected term in years1	6.3			6.1			6.0
Volatility2	21.7		%	21.9		%	30.3		%
Risk-free interest rate based on zero coupon U.S. treasury note	1.6		%	1.4		%	1.9		%
Dividend yield	4.5		%	3.6		%	3.3		%
Weighted-average fair value per option granted	$	9.53		$	13.89		$	25.86

¹    Expected term is based on historical exercise and postvesting cancellation data.

²    Volatility rate is based on historical stock prices over an appropriate period, generally equal to the expected term.

A summary of option activity during 2016 is presented below:

	Shares (Thousands)		Weighted-Average  Exercise Price			Averaged Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2016	94,292			$	96.67
Granted	30,913			$	83.31
Exercised	(8,589	)		$	75.57
Forfeited	(4,341	)		$	86.81
Outstanding at December 31, 2016	112,275			$	94.99	6.13		$	2,550
Exercisable at December 31, 2016	71,153			$	97.32	4.66		$	1,450

The total intrinsic value (i.e., the difference between the exercise price and the market price) of options exercised during 2016, 2015 and 2014 was $240, $120 and $398, respectively. During this period, the company continued its practice of issuing treasury shares upon exercise of these awards.

As of December 31, 2016, there was $169 of total unrecognized before-tax compensation cost related to nonvested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 1.7 years.

At January 1, 2016, the number of LTIP performance units outstanding was equivalent to 2,192,937 shares. During 2016, 1,019,900 units were granted, 718,472 units vested with cash proceeds distributed to recipients and 100,937 units were forfeited. At December 31, 2016, units outstanding were 2,393,428. The fair value of the liability recorded for these instruments was $381, and was measured using the Monte Carlo simulation method. In addition, outstanding stock appreciation rights and other awards that were granted under various LTIP programs totaled approximately 5.4 million equivalent shares as of December 31, 2016. A liability of $125 was recorded for these awards.