NOTE 20
Stock Plans
Stock Option and Award Programs
Under the 2007 Incentive Compensation Plan and previously under the 1998 Incentive Compensation Plan, awards may be granted to employees and other key individuals who perform services for the Company and its participating subsidiaries. These awards may be in the form of stock options, restricted stock awards or units (RSAs), portfolio grants (PGs) or other incentives, and similar awards designed to meet the requirements of non-U.S. jurisdictions.
For the Company's Incentive Compensation Plans, there were a total of 35 million, 36 million and 38 million common shares unissued and available for grant as of December 31, 2013, 2012 and 2011, respectively, as authorized by the Company's Board of Directors and shareholders.
The Company granted stock option awards to its Chief Executive Officer (CEO) in November 2007 and January 2008 that have performance-based and market-based conditions. These option awards are separately disclosed and are excluded from the information and tables presented in the following paragraphs.
A summary of stock option and RSA activity as of December 31, 2013, and changes during the year is presented below:
| Stock Options | RSAs | |||||||||||
| (Shares in thousands) | Shares | Weighted-Average Exercise Price | Shares | Weighted- Average Grant Price | ||||||||
| Outstanding as of | ||||||||||||
| December 31, 2012 | 31,861 | $ | 43.62 | 11,800 | $ | 40.31 | ||||||
| Granted | 463 | 61.76 | 3,867 | 60.13 | ||||||||
| Exercised/vested | (13,672) | 42.39 | (5,559) | 33.24 | ||||||||
| Forfeited | (22) | 39.25 | (530) | 50.31 | ||||||||
| Expired | (15) | 45.61 | ― | ― | ||||||||
| Outstanding as of | ||||||||||||
| December 31, 2013 | 18,615 | 44.98 | 9,578 | $ | 51.88 | |||||||
| Options vested and | ||||||||||||
| expected to vest as of | ||||||||||||
| December 31, 2013 | 18,600 | 44.98 | ― | ― | ||||||||
| Options exercisable as of | ||||||||||||
| December 31, 2013 | 16,842 | $ | 44.51 | ― | ― | |||||||
The Company recognizes the cost of employee stock awards granted in exchange for employee services based on the grant-date fair value of the award, net of expected forfeitures. Those costs are recognized ratably over the vesting period.
Stock Options
Each stock option has an exercise price equal to the market price of the Company's common stock on the date of grant and a contractual term of 10 years from the date of grant. Stock options generally vest 25 percent per year beginning with the first anniversary of the grant date.
The weighted-average remaining contractual life and the aggregate intrinsic value (the amount by which the fair value of the Company's stock exceeds the exercise price of the option) of the stock options outstanding, exercisable, and vested and expected to vest as of December 31, 2013 are as follows:
| Outstanding | Exercisable | Vested and Expected to Vest | ||||||||
| Weighted-average remaining | ||||||||||
| contractual life (in years) | 4.4 | 4.0 | 4.4 | |||||||
| Aggregate intrinsic value (millions) | $ | 852 | $ | 778 | $ | 851 | ||||
The intrinsic value for options exercised during 2013, 2012 and 2011 was $374 million, $209 million and $206 million, respectively (based upon the fair value of the Company's stock price at the date of exercise). Cash received from the exercise of stock options in 2013, 2012 and 2011 was $580 million, $368 million and $503 million, respectively. The tax benefit realized from income tax deductions from stock option exercises, which was recorded in additional paid-in capital, in 2013, 2012 and 2011 was $84 million, $45 million and $60 million, respectively.
The fair value of each option is estimated on the date of grant using a Black-Scholes-Merton option-pricing model. The following weighted-average assumptions were used for grants issued in 2013, 2012 and 2011, the majority of which were granted in the beginning of each year:
| 2013 | 2012 | 2011 | ||||||||
| Dividend yield | 1.4 | % | 1.5 | % | 1.6 | % | ||||
| Expected volatility(a) | 39 | % | 41 | % | 40 | % | ||||
| Risk-free interest rate | 1.3 | % | 1.3 | % | 2.3 | % | ||||
| Expected life of stock option (in years)(b) | 6.3 | 6.3 | 6.2 | |||||||
| Weighted-average fair value per option | $ | 21.11 | $ | 17.48 | $ | 16.21 | ||||
Stock Options with Performance-based and Market-based Conditions
On November 30, 2007 and January 31, 2008, the Company's CEO was granted in the aggregate 2,750,000 of non-qualified stock option awards with performance-based and market-based conditions. Both awards have a contractual term of 10 years and a vesting period of 6 years.
The aggregate grant date fair value of options with performance-based conditions was approximately $33.8 million. Compensation expense for these awards will be recognized over the vesting period when it is determined it is probable that the performance metrics will be achieved. No compensation expense for these awards was recorded in 2013, 2012 and 2011.
The aggregate grant date fair value of options with market-based conditions was approximately $10.5 million. Compensation expense for these awards is recognized ratably over the vesting period irrespective of the probability of the market metric being achieved. Total compensation expense of approximately $0.3 million, $0.5 million and $2.4 million was recorded in 2013, 2012 and 2011, respectively.
Restricted Stock Awards
RSAs are valued based on the stock price on the date of grant and generally vest 25 percent per year, beginning with the first anniversary of the grant date. RSA holders receive non-forfeitable dividends or dividend equivalents. The total fair value of shares vested during 2013, 2012 and 2011 was $336 million, $296 million and $221 million, respectively (based upon the Company's stock price at the vesting date).
The weighted-average grant date fair value of RSAs granted in 2013, 2012 and 2011, is $60.13, $49.80 and $45.11, respectively.
Liability-based Awards
Certain employees are awarded PGs and other incentive awards that can be settled with cash or equity shares at the Company's discretion and final Compensation and Benefits Committee payout approval. These awards earn value based on performance, market and service conditions and vest over periods of one to three years.
PGs and other incentive awards are generally settled with cash and thus are classified as liabilities and, therefore, the fair value is determined at the date of grant and remeasured quarterly as part of compensation expense over the vesting period. Cash paid upon vesting of these awards in 2013, 2012 and 2011 was $45 million, $66 million and $58 million, respectively.
Summary of Stock Plan Expense
The components of the Company's total stock-based compensation expense (net of forfeitures) for the years ended December 31 are as follows:
| (Millions) | 2013 | 2012 | 2011 | |||||||
| Restricted stock awards(a) | $ | 208 | $ | 197 | $ | 176 | ||||
| Stock options(a) | 23 | 29 | 40 | |||||||
| Liability-based awards | 119 | 70 | 83 | |||||||
| Performance/market-based | ||||||||||
| stock options | ― | 1 | 2 | |||||||
| Total stock-based | ||||||||||
| compensation expense(b) | $ | 350 | $ | 297 | $ | 301 | ||||