Share-Based Compensation and Other Compensation Arrangements
Share-Based Compensation
Our 2003 Incentive Stock Plan, as amended and restated effective February 21, 2011, permits awards of incentive stock options, non-qualified stock options, restricted stock, stock units, performance shares, performance units and other incentives to our employees, officers, consultants and independent contractors. The aggregate number of shares of our stock available for issuance under the amended plan will not exceed 80,000,000 and no more than an aggregate of 16,000,000 shares are available for issuance as restricted stock awards.
Shares issued as a result of stock option exercises or conversion of stock unit awards will be funded out of treasury shares, except to the extent there are insufficient treasury shares, in which case new shares will be issued. We believe we currently have adequate treasury shares to meet any requirements to issue shares during 2014.
Share-based plans expense is primarily included in General and administrative expense since it is incentive compensation issued primarily to our executives. The share-based plans expense and related income tax benefit were as follows:
|
| | | | | | | | | | | |
Years ended December 31, | 2013 |
| | 2012 |
| | 2011 |
|
Stock options |
| $93 |
| |
| $85 |
| |
| $88 |
|
Restricted stock units and other awards | 113 |
| | 108 |
| | 98 |
|
Share-based plans expense |
| $206 |
| |
| $193 |
| |
| $186 |
|
Income tax benefit |
| $76 |
| |
| $75 |
| |
| $73 |
|
Stock Options
In February 2013, 2012 and 2011, we granted to our executives 6,591,968, 6,114,922 and 5,426,910 options, respectively. The options have been granted with an exercise price equal to the fair market value of our stock on the date of grant and expire ten years after the date of grant. The stock options vest over a period of three years, with 34% vesting after the first year, 33% vesting after the second year and the remaining 33% vesting after the third year. If an executive terminates employment for any reason, the non-vested portion of the stock option will not vest and all rights to the non-vested portion will terminate completely.
Stock option activity for the year ended December 31, 2013 is as follows:
|
| | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price Per Share |
| | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
|
Number of shares under option: | | | | | | | |
Outstanding at beginning of year | 33,664,018 | |
| $71.81 |
| | | | |
Granted | 6,698,861 | | 76.35 |
| | | | |
Exercised | (15,605,753) | | 70.31 |
| | | | |
Forfeited | (926,233) | | 74.74 |
| | | | |
Expired | (63,150) | | 68.30 |
| | | | |
Outstanding at end of year | 23,767,743 | |
| $73.97 |
| | 6.81 | |
| $1,486 |
|
Exercisable at end of year | 12,552,449 | |
| $72.70 |
| | 5.11 | |
| $801 |
|
The total intrinsic value of options exercised was $546, $89 and $67 during the years ended December 31, 2013, 2012 and 2011, respectively. Cash received from options exercised for the years ended December 31, 2013, 2012 and 2011 was $1,097, $120 and $114 with a related tax benefit of $190, $29 and $23, respectively, derived from the compensation deductions resulting from these option exercises. At December 31, 2013, there was $95 of total unrecognized compensation cost related to our stock option plan which is expected to be recognized over a weighted average period of 1.8 years. The grant date fair value of stock options vested during the years ended December 31, 2013, 2012 and 2011 was $89, $83 and $92, respectively.
The fair values of options were estimated using the Black-Scholes option-pricing model with the following assumptions:
|
| | | | | | | | | | | | | | | | |
Grant Year | Grant Date | | Expected Life | | Expected Volatility |
| | Expected Dividend Yield |
| | Risk Free Interest Rate |
| | Weighted-Average Grant Date Fair Value Per Share |
|
2013 | 2/25/2013 | | 6 years | | 29.0 | % | | 2.6 | % | | 1.0 | % | |
| $15.85 |
|
2012 | 2/27/2012 | | 6 years | | 29.9 | % | | 2.4 | % | | 1.1 | % | |
| $16.89 |
|
2011 | 2/22/2011 | | 6 years | | 29.8 | % | | 2.3 | % | | 2.5 | % | |
| $17.96 |
|
The expected volatility of the stock options is based on a combination of our historical stock volatility and the volatility levels implied on the grant date by actively traded option contracts on our common stock. We determined the expected term of the stock option grants to be six years, calculated using the “simplified” method in accordance with the SEC Staff Accounting Bulletin 110. We use the “simplified” method since we changed the vesting terms, tax treatment and the recipients of our stock options beginning in 2006 such that we believe our historical data prior to 2006 does not provide a reasonable basis upon which to estimate expected term and we do not have enough option exercise data from our grants issued subsequent to 2006 to support our own estimate as a result of vesting terms and changes in the stock price.
Restricted Stock Units
In February 2013, 2012 and 2011, we granted to our executives 1,375,414, 1,369,810 and 1,364,440 restricted stock units (RSUs) as part of our long-term incentive program with grant date fair values of $75.97, $75.40 and $71.44 per share, respectively. The RSUs granted under this program will vest and settle in common stock (on a one-for-one basis) on the third anniversary of the grant date. If an executive terminates employment because of retirement, involuntary layoff, disability, or death, the employee (or beneficiary) will immediately vest on a proration of stock units based on active employment during the three-year service period. In all other cases, the RSUs will not vest and all rights to the stock units will terminate completely. In addition to RSUs awarded under our long-term incentive program, we grant RSUs to certain executives and employees to encourage retention or to reward various achievements. These RSUs are labeled other restricted stock units in the table below. The fair values of all RSUs are estimated using the average stock price on the date of grant. Stock units settle in common stock on a one-for-one basis and are not contingent upon stock price.
Stock unit activity for the year ended December 31, 2013 is as follows:
|
| | | | | | | |
| Incentive Program Restricted Stock Units |
| | Other Restricted Stock Units |
|
Number of units: | | | |
Outstanding at beginning of year | 3,897,449 |
| | 1,251,189 |
|
Granted | 1,398,286 |
| | 225,815 |
|
Dividends | 72,405 |
| | 21,573 |
|
Forfeited | (201,030 | ) | | (15,614 | ) |
Distributed | (1,444,793 | ) | | (350,033 | ) |
Outstanding at end of year | 3,722,317 |
| | 1,132,930 |
|
Unrecognized compensation cost |
| $104 |
| |
| $28 |
|
Weighted average remaining contractual life (years) | 1.8 |
| | 2.2 |
|
Other Compensation Arrangements
Performance Awards
Performance Awards are cash units that pay out based on the achievement of long-term financial goals at the end of a three-year period. Each unit has an initial value of $100 dollars. The amount payable at the end of the three-year performance period may be anywhere from $0 to $200 dollars per unit, depending on the Company’s performance against plan for a three-year period. The Compensation Committee has the discretion to pay these awards in cash, stock, or a combination of both after the three-year performance period. Compensation expense, based on the estimated performance payout, is recognized ratably over the performance period.
During 2013, 2012 and 2011, we granted Performance Awards to our executives with the payout based on the achievement of financial goals for each three-year period following the grant date. The minimum payout amount is $0 and the maximum amount we could be required to pay out for the 2013, 2012 and 2011 Performance Awards is $275, $259 and $248, respectively. The 2011 grant is expected to be paid out in cash in March 2014.
Deferred Compensation
The Company has a deferred compensation plan which permits executives to defer receipt of a portion of their salary, bonus, and certain other incentive awards. Participants can diversify deferred compensation among 23 investment funds including a Boeing stock unit account.
Total expense related to deferred compensation was $238, $75 and $59 in 2013, 2012 and 2011, respectively. As of December 31, 2013 and 2012, the deferred compensation liability which is being marked to market was $1,258 and $1,104.
