Stock-Based Compensation

12 Months Ended

Dec. 31, 2024

Share-Based Payment Arrangement [Abstract]

NOTE 21. Stock-Based Compensation

At the May 2021 Annual Meeting, the shareholders approved the Amended and Restated 3M Company 2016 Long-Term Incentive Plan (LTIP), which included an increase of 26,633,508 in the number of shares available for issuance. Awards may be issued in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock awards, and performance units and performance shares. As of December 31, 2024, the remaining shares available for grant under the LTIP Program are 21 million and there were approximately 7,100 participants with outstanding options, restricted stock, or restricted stock units.

The Company’s annual stock option and restricted stock unit grant is typically made in February to provide a strong and immediate link between the performance of individuals during the preceding year and the size of their annual stock compensation grants. The grant to eligible employees uses the closing stock price on the grant date. Accounting rules require recognition of expense under a non-substantive vesting period approach, requiring compensation expense recognition when an employee is eligible to retire. Employees are considered eligible to retire at age 55 and after having completed ten years of service. This retiree-eligible population represents 34 percent of the annual grant stock-based compensation expense; therefore, higher stock-based compensation expense is typically recognized in the first quarter. However, due to the spin-off of Solventum (see Note 2), the 2024 annual grant was made in May, after the April 1, 2024 separation.

In addition to the annual grants, the Company makes other minor grants of stock options, restricted stock units and other stock-based grants. The Company issues cash settled restricted stock units and stock appreciation rights in certain countries. The cash settled grants do not result in the issuance of common stock and are considered immaterial by the Company, and not included in the tables below.

In connection with the Solventum separation on April 1, 2024 (see Note 2), all outstanding stock-based compensation awards associated with Solventum employees converted into Solventum awards, became Solventum’s responsibility and were cancelled from 3M plans. The conversion into Solventum awards was made with the intent to preserve the intrinsic value of each award immediately before and after the Separation. In addition, for awards associated with remaining 3M employees, the number of shares underlying unvested stock awards was adjusted along with the exercise price and the number of shares underlying outstanding stock options. These adjustments were made with the intent to preserve the intrinsic value of each award immediately before and after the Separation and were determined using a ratio calculated using the 3M share price based on the market closing price before and the average of the closing price from the first three days of trading after the Separation. The terms of the outstanding awards remain the same and if unvested, continue to vest over the original vesting periods. The adjustments to shares underlying unvested stock awards and outstanding stock options did not result in a material stock-based compensation cost.

Stock-Based Compensation Expense: Amounts recognized in the financial statements with respect to stock-based compensation programs, which include stock options, restricted stock, restricted stock units, performance shares and the General Employees’ Stock Purchase Plan (GESPP), are provided in the following table. Capitalized stock-based compensation amounts were not material.



(Millions)	2024		2023		2022
Cost of sales	$	39	$	38	$	42
Selling, general and administrative expenses	185		165		153
Research, development and related expenses	44		38		39
Stock-based compensation expenses	268		241		234
Income tax benefits	(31)		(41)		(58)
Stock-based compensation expenses (benefits), net of tax	$	237	$	200	$	176

Stock Option Program: The following table summarizes stock option activity:



(Options in thousands)	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (months)	Aggregate Intrinsic Value (millions)
Under option —
As of January 1, 2024	34,683	$	167.38
Expired	(3,689)	130.83
Solventum exits	(2,558)	169.45
Share conversion	3,942	151.08
Granted	528	97.15
Exercised	(218)	120.80
Forfeited	(165)	123.91
As of December 31, 2024	32,523	150.50		43	$	55
Options exercisable
As of December 31, 2024	29,959	$	153.29	39	$	12

Stock options generally vest over a period from one to three years with the expiration date at ten years from date of grant. As of December 31, 2024, there was $8 million of compensation expense that has yet to be recognized related to non-vested stock option based awards. This expense is expected to be recognized over the remaining weighted-average vesting period of 17 months.

The following table summarizes additional information relative to stock options exercised during the respective years:



(in millions)	2024		2023		2022
Cash received from options exercised	$	26	$	147	$	205
Intrinsic value of options exercised	3		29		116
Tax benefit realized related to options exercised	1		6		24

For the primary annual stock option grant, the weighted average fair value at the date of grant was calculated using the Black-Scholes option-pricing model and the assumptions that follow.


	2024			2023			2022
Exercise price	$	97.15		$	116.90		$	162.41
Risk-free interest rate	4.4		%	3.8		%	1.9		%
Dividend yield	3.8		%	3.3		%	2.9		%
Expected volatility	24.6		%	22.8		%	21.8		%
Expected life (months)	95			84			83
Black-Scholes fair value	$	20.53		$	22.22		$	25.34

Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period. Expected volatility is based upon three volatilities of 3M stock: the median of the term of the expected life rolling volatility; the median of the most recent term of the expected life volatility; and the implied volatility on the grant date. The expected term assumption is based on the weighted average of historical grants.

Restricted Stock Units: The following table summarizes restricted stock unit activity:



(Units in thousands)	Number of Units	Weighted Average Grant Date Fair Value
Nonvested balance —
As of January 1, 2024	3,798	$	136.55
Vested	(737)	163.69
Solventum exits	(815)	122.38
Share conversion	328	115.54
Granted	4,001	98.01
Forfeited	(425)	109.27
As of December 31, 2024	6,150	104.83

Restricted stock units granted generally vest three years following the grant date assuming continued employment. Dividend equivalents equal to the dividends payable on the same number of shares of 3M common stock accrue on these restricted stock units during the vesting period, although no dividend equivalents are paid on any of these restricted stock units that are forfeited prior to the vesting date. Dividends are paid out in cash at the vest date on restricted stock units. Since the rights to dividends are forfeitable, there is no impact on basic earnings per share calculations. Weighted average restricted stock unit shares outstanding are included in the computation of diluted earnings per share.

As of December 31, 2024, there was $251 million of compensation expense that has yet to be recognized related to non-vested restricted stock and restricted stock units. This expense is expected to be recognized over the remaining weighted-average vesting period of 24 months.

The following table summarizes additional information relative to restricted stock units for the respective years:



(in millions, except per-unit amounts)	2024		2023		2022
Weighted-average grant-date fair value of restricted stock units (per unit) that were granted	$	98.01	$	114.71	$	160.24
Intrinsic value of restricted stock units that vested	73		81		88
Tax benefit realized related to restricted stock units that vested	14		16		17

Performance Shares: Instead of restricted stock units, the Company makes annual grants of performance shares to members of its executive management. The 2024 performance criteria for these performance shares (organic sales growth, free cash flow growth, and earnings per share growth) were selected because the Company believes that they are important drivers of long-term stockholder value. The number of shares of 3M common stock that could actually be distributed at the end of the three-year performance period may be anywhere from 0% to 200% of each performance share granted, depending on the performance of the Company during such performance period. When granted, these performance shares are awarded at 100% of the estimated number of shares at the end of the three-year performance period and are reflected under “Granted” in the table below. Non-substantive vesting requires that expense for the performance shares be recognized over one or three years depending on when each individual became a 3M executive. The performance share grants accrue dividends; therefore, the grant date fair value is equal to the closing stock price on the date of grant. Since the rights to dividends are forfeitable, there is no impact on basic earnings per share calculations. Weighted average performance shares whose performance period is complete are included in computation of diluted earnings per share.

The following table summarizes performance share activity:



(Shares in thousands)	Number of Shares	Weighted Average Grant Date Fair Value
Undistributed balance —
As of January 1, 2024	360	$	136.95
Vested	(101)	176.72
Solventum Exits	(3)	144.75
Share conversion	51	113.35
Granted	338	97.82

Performance change	240	100.86
Forfeited	(103)	102.67
As of December 31, 2024	782	101.99

As of December 31, 2024, there was $27 million of compensation expense that has yet to be recognized related to performance shares. This expense is expected to be recognized over the remaining weighted-average earnings period of 23 months.

The following table summarizes additional information relative to performance shares for the respective years:



(in millions, except per-share amounts)	2024		2023		2022
Weighted average grant date fair value per performance share that were granted	$	97.82	$	110.21	$	144.77
Intrinsic value of performance shares that were distributed	9		19		21
Tax benefit realized related to performance shares that were distributed	2		5		4

General Employees’ Stock Purchase Plan (GESPP): As of December 31, 2024, shareholders have approved 60 million shares for issuance under the Company’s GESPP. Substantially all employees are eligible to participate in the plan. Participants are granted options at 85% of market value at the date of grant. There are no GESPP shares under option at the beginning or end of each year because options are granted on the first business day and exercised on the last business day of the same month.

The weighted-average fair value per option granted during 2024, 2023 and 2022 was $16.76, $15.77 and $21.20, respectively. The fair value of GESPP options was based on the 15% purchase price discount. The Company recognized compensation expense for GESPP options of $12 million, $21 million, and $31 million in 2024, 2023 and 2022, respectively.