Stock-Based Compensation Programs

12 Months Ended

Dec. 31, 2021

Stock-Based Compensation Programs

Stock-Based Compensation Programs

19. 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 on 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. A summary of outstanding stock option and SSAR activity for the year ended December 31, 2021, follows:

	Number of	Weighted Average
	Shares	Exercise Price
Beginning of year	10,113,396	$	40.40
Granted	1,193,934		85.52
Exercised	(1,441,190)		33.07
Canceled/forfeited	(100,044)		73.65
End of period	9,766,096		46.66
Vested and exercisable, end of year	6,500,576	$	36.04
Reserved for future grants	14,793,877

The weighted average remaining contractual term for all options and SSARs outstanding at December 31, 2021, was 5.5 years and the aggregate intrinsic value (difference in exercise price and closing price at that date) was $485 million. The weighted average remaining contractual term for options and SSARs vested and exercisable at December 31, 2021, was 4.3 years and the aggregate intrinsic value was $392 million. The company received $33 million, $38 million and $41 million from options and SSARs exercised during 2021, 2020 and 2019, respectively, and the intrinsic value associated with these exercises was $84 million, $230 million and $61 million for the same periods, respectively. The excess tax benefit associated with the company’s stock compensation programs was $19 million for 2021, and was reported as a discrete item in the consolidated tax provision. The total fair value of options and SSARs vested during 2021, 2020 and 2019 was $18 million, $17 million and $16 million, respectively.

Based on the Black-Scholes option pricing model, options and SSARs granted in 2021, 2020 and 2019 have estimated weighted average fair values at the date of grant of $19.86 per share, $15.36 per share and $12.26 per share, respectively. The fair values were estimated using the following weighted average assumptions:

	2021 Grants		2020 Grants		2019 Grants
Expected dividend yield	0.70	%	0.83	%	0.79	%
Expected stock price volatility	25.08	%	20.84	%	20.36	%
Risk-free interest rate	0.61	%	1.47	%	2.59	%
Expected life of options (in years)	6.25	years	6.40	years	6.40	years

In addition to stock options and SSARs, the company issues to certain employees restricted shares and restricted stock units, which vest over various periods. Such restricted shares and restricted stock units generally vest in equal installments over five years.

Following is a summary of restricted stock activity for the year ended December 31, 2021:

		Weighted
	Number of	Average
	Shares/Units	Grant Price
Beginning of year	1,267,952	$	42.78
Granted	376,035		88.53
Vested	(380,103)		41.37
Canceled/forfeited	(17,480)		69.10
End of year	1,246,404	$	56.64

For the years ended December 31, 2021, 2020 and 2019, the company recognized pretax expense of $40 million ($35 million after tax), $43 million ($37 million after tax) and $37 million ($33 million after tax), respectively, for all of its share-based compensation arrangements. At December 31, 2021, there was $64 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. This cost is expected to be recognized in earnings over a weighted average period of 2.4 years.