Stock-Based Compensation Programs

6 Months Ended

Jun. 30, 2018

18. Stock-Based Compensation Programs

The company has shareholder-approved stock plans under which options and stock-settled appreciation rights (SSARs) have been granted to employees at the market value of the company’s stock at the date of grant. In general, options and SSARs are exercisable in four equal installments commencing one year from the date of grant and terminating 10 years from the date of grant. There were 2.1 million stock options granted in January 2018. These options and SSARs cannot be traded in any equity market. However, based on the Black-Scholes option pricing model, options granted in January 2018, and options and SSARs granted in April 2017, and January 2017 have estimated weighted average fair values at the date of grant of $9.07 per share, $7.21 per share, and $8.54 per share, respectively. The actual value an employee may realize will depend on the excess of the stock price over the exercise price on the date the option or SSAR is exercised. Consequently, there is no assurance the value realized by an employee will approximate the value estimated. The fair values were estimated using the following weighted average assumptions:


	January 2018		April 2017		January 2017

Expected dividend yield	1.03	%	1.06	%	0.68	%
Expected stock price volatility	21.98	%	18.89	%	20.49	%
Risk-free interest rate	2.47	%	1.95	%	2.07	%
Expected life of options (in years)	6.10	years	5.94	years	5.94	years

During the first quarter of 2018 and 2017, the company’s board of directors granted 261,174 and 237,452 performance-contingent restricted stock units (PCEQs), respectively, to key employees. These PCEQs vest three years from the date of grant, and the number of shares available at the vesting date is based on the company’s growth in economic value added (EVA®) dollars in excess of the EVA® dollars generated in the calendar year prior to the grant as the minimum threshold, and can range from zero to 200 percent of each participant’s assigned PCEQ award. If the minimum performance goals are not met, the PCEQ will be forfeited. Grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the most probable outcome using the closing market price of the shares at the grant date. On a quarterly and annual basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate.