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Incentive Stock Programs

12 Months Ended

Dec. 31, 2020

Note 9 — Incentive Stock Program

The 2017 Incentive Stock Program authorizes the granting of nonqualified stock options, restricted stock awards, restricted stock units, performance awards, foreign benefits and other share-based awards. Stock options and restricted stock awards and units comprise the majority of benefits that have been granted and are currently outstanding under this program and a prior program. In 2020, Abbott granted 4,015,420 stock options, 569,961 restricted stock awards and 5,239,575 restricted stock units under this program.

Note 9 — Incentive Stock Program (Continued)

Under Abbott’s stock incentive programs, the purchase price of shares under option must be at least equal to the fair market value of the common stock on the date of grant, and the maximum term of an option is 10 years. Options generally vest equally over three years. Restricted stock awards generally vest over 3 years, with no more than one-third of the award vesting in any one year upon Abbott reaching a minimum return on equity target. Restricted stock units vest over three years and upon vesting, the recipient receives one share of Abbott stock for each vested restricted stock unit. The aggregate fair market value of options and restricted stock awards and units is recognized as expense over the requisite service period, which may be shorter than the vesting period if an employee is retirement eligible. Forfeitures are estimated at the time of grant. Restricted stock awards and settlement of vested restricted stock units are issued out of treasury shares. Abbott generally issues new shares for exercises of stock options. As a policy, Abbott does not purchase its shares relating to its share-based programs.

In April 2017, Abbott’s shareholders authorized the 2017 Incentive Stock Program under which a maximum of 170 million shares were available for issuance. At December 31, 2020, approximately 113 million shares remained available for future issuance.

The following table summarizes stock option activity for the year ended December 31, 2020 and the outstanding stock options as of December 31, 2020.


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
(intrinsic values in millions)	Options	Exercise Price		Life (Years)	Intrinsic Value
Outstanding at December 31, 2019	29,877,915	$	48.78	6.2	$	1,138
Granted	4,015,420		87.84
Exercised	(4,872,830)		39.62
Lapsed	(100,619)		75.22
Outstanding at December 31, 2020	28,919,886	$	55.65	6.0	$	1,557
Exercisable at December 31, 2020	20,390,745	$	46.16	5.0	$	1,291

The following table summarizes restricted stock awards and units activity for the year ended December 31, 2020.


		Weighted
		Average
		Grant-Date
	Share Units	Fair Value
Outstanding at December 31, 2019	14,463,314	$	65.51
Granted	5,809,536		87.83
Vested	(7,167,631)		60.67
Forfeited	(612,351)		75.16
Outstanding at December 31, 2020	12,492,868	$	78.19

The fair market value of restricted stock awards and units vested in 2020, 2019 and 2018 was $631 million, $588 million and $458 million, respectively.

The total intrinsic value of options exercised in 2020, 2019 and 2018 was $279 million, $315 million and $249 million, respectively. The total unrecognized compensation cost related to all share-based compensation plans at December 31, 2020 amounted to approximately $407 million, which is expected to be recognized over the next three years.

Note 9 — Incentive Stock Program (Continued)

Total non-cash stock compensation expense charged against income from continuing operations in 2020, 2019 and 2018 for share-based plans totaled approximately $546 million, $519 million and $477 million, respectively, and the tax benefit recognized was approximately $200 million, $197 million and $185 million, respectively. Stock compensation cost capitalized as part of inventory is not significant.

The table below summarizes the fair value of an option granted in 2020, 2019 and 2018 and the assumptions included in the Black-Scholes option-pricing model used to estimate the fair value:


	2020			2019			2018
Fair value	$	14.39		$	14.50		$	10.93
Risk-free interest rate		1.3	%		2.5	%		2.7	%
Average life of options (years)		6.0			6.0			6.0
Volatility		19.4	%		19.8	%		19.0	%
Dividend yield		1.6	%		1.7	%		1.9	%

The risk-free interest rate is based on the rates available at the time of the grant for zero-coupon U.S. government issues with a remaining term equal to the option’s expected life. The average life of an option is based on both historical and projected exercise and lapsing data. Expected volatility is based on implied volatilities from traded options on Abbott’s stock and historical volatility of Abbott’s stock over the expected life of the option. Dividend yield is based on the option’s exercise price and annual dividend rate at the time of grant.