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Share-Based Payments | 12 Months Ended
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Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] |
Share-Based Payments | Share-Based Payments Our compensation programs can include share-based payments. The award value is determined by reference to the fair value of share-based awards to similar employees in competitive survey data or industry peer groups used for compensation purposes; and is allocated between different long-term incentive vehicles, in the form of RSUs, PPSs, TSRUs, stock options, PSAs, PTSRUs and PTUs, as determined by the Compensation Committee. The 2014 Stock Plan (2014 Plan) replaced and superseded the 2004 Plan, as amended and restated. The 2014 Plan provides for 520 million shares to be authorized for grants, plus any shares remaining available for grant under the 2004 Plan as of April 24, 2014 (the carryforward shares). In addition, the 2014 Plan provides that the number of stock options, Stock Appreciation Rights (known as TSRUs and PTSRUs), RSUs, or other performance-based awards that may be granted to any one individual during any 36-month period is limited to 20 million shares, and that RSUs, PPSs and PSAs count as three shares, while TSRUs, PTSRUs and stock options count as one share, toward the maximum shares available under the 2014 plan. The 2004 Plan provided that the number of stock options, TSRUs or other performance-based awards granted to any one individual during any 36-month period was limited to 8 million shares. As of December 31, 2018, 195 million shares were available for award. Although not required to do so, we have used authorized and unissued shares and, to a lesser extent, treasury stock to satisfy our obligations under these programs. A. Impact on Net Income
The following table provides the components of share-based compensation expense and the associated tax benefit:
|  | Year Ended December 31,
(MILLIONS OF DOLLARS) |  | 2018 |  |  | 2017 |  |  | 2016 |
TSRUs(a) |  | $ | 302 |  |  | $ | 221 |  |  | $ | 134 |
RSUs |  | 286 |  |  | 301 |  |  | 299 |
PPSs |  | 276 |  |  | 209 |  |  | 135 |
PSAs |  | 62 |  |  | 47 |  |  | 13 |
Stock options |  | 12 |  |  | 55 |  |  | 106 |
Directors’ compensation |  | 10 |  |  | 7 |  |  | 4 |
Share-based payment expense |  | 949 |  |  | 840 |  |  | 691 |
Tax benefit for share-based compensation expense(b) |  | (180 | ) |  | (163 | ) |  | (205 | )
Share-based payment expense, net of tax |  | $ | 769 |  |  | $ | 677 |  |  | $ | 486 |
(a) | Includes $7.0 million of expense for PTSRUs.
(b) | 2018 and 2017 include the impact of the TCJA on income taxes.
Amounts capitalized as part of inventory cost were not significant for any period presented. B. Total Shareholder Return Units TSRUs are awarded to senior and other key management, and, beginning in 2016, to certain other employees. TSRUs entitle the holders to receive a number of shares of our common stock with a value equal to the difference between the defined settlement price and the grant price, plus the dividends accumulated during the five-year or seven-year term, if and to the extent the total value is positive. The settlement price is the average closing price of our common stock during the 20 trading days ending on the fifth or seventh anniversary of the grant, as applicable; the grant price is the closing price of our common stock on the date of the grant. The TSRUs are automatically settled on the fifth or seventh anniversary of the grant but vest on the third anniversary of the grant, after which time there is no longer a substantial risk of forfeiture. On October 26, 2016, the Compensation Committee approved the modification of current outstanding grants of TSRU awards, effective November 1, 2016, to permit a holder who is "retiree eligible" (at least age 55 with at least 10 years of service), to elect to exercise and convert his/her TSRUs when vested, into PTUs. The value received upon the election and conversion is calculated by taking the change in stock price (20 trading day average ending on the exercise date (Election Price) less the grant price) plus accumulated dividends from the grant date, times the number of TSRUs exercised. This value is divided by the Election Price to determine the number of PTUs. The PTUs will be entitled to earn Dividend Equivalent Units (DEUs), and the PTUs and DEUs will be settled in our common stock on the TSRUs original settlement date (i.e., the fifth or seventh anniversary of grant), and will be subject to all of the terms and conditions of the original grant including forfeiture provisions. This modification applied to approximately 2,900 employees, including members of senior management. There was no incremental compensation cost resulting from the modification. Beginning in 2017, TSRUs were granted with the right for retirement-eligible employees to elect to exercise and convert their TSRUs, when vested, into PTUs. We measure the value of TSRU grants as of the grant date using a Monte Carlo simulation model. The values determined through this fair value methodology generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate.
The following table provides the weighted-average assumptions used in the valuation of TSRUs:
|  | Year Ended December 31,
2018 |  |  | 2017 |  |  | 2016 |
Expected dividend yield(a) |  | 3.73 | % |  | 3.69 | % |  | 3.85 | %
Risk-free interest rate(b) |  | 2.60 | % |  | 1.98 | % |  | 1.31 | %
Expected stock price volatility(c) |  | 20.00 | % |  | 18.39 | % |  | 21.64 | %
Contractual term (years) |  | 5.12 |  |  | 5.11 |  |  | 5.12 |
(a) | Determined using a constant dividend yield during the expected term of the TSRU.
(b) | Determined using the interpolated yield on U.S. Treasury zero-coupon issues.
(c) | Determined using implied volatility, after consideration of historical volatility.
The following table summarizes all TSRU activity during 2018:
|  | TSRUs (Thousands) |  |  | Weighted-Average Grant-Date Fair Value Per TSRU |  |  | Weighted-Average Grant Price Per TSRU |
Nonvested, December 31, 2017 |  | 103,906 |  |  | $ | 6.07 |  |  | $ | 32.47 |
Granted |  | 47,755 |  |  | 7.42 |  |  | 35.75 |
Vested(a) |  | (7,203 | ) |  | 6.67 |  |  | 34.49 |
Forfeited |  | (5,512 | ) |  | 6.55 |  |  | 33.88 |
Nonvested, December 31, 2018 |  | 138,945 |  |  | $ | 6.48 |  |  | $ | 33.44 |
(a) | Includes the modification of approximately 1.7 million TSRUs to approximately 260 employees, including management employees, in connection with our Organizing for Growth initiative. The terms were modified to permit the vesting upon termination. The impact to compensation expense was immaterial.
The following table summarizes TSRU and PTU information as of December 31, 2018(a), (b):
|  | TSRUs (Thousands) |  |  | PTUs (Thousands) |  |  | Weighted-Average Grant Price Per TSRU |  |  | Weighted-Average Remaining Contractual Term (Years) |  | Aggregate Intrinsic Value (Millions) |
TSRUs Outstanding |  | 156,534 |  |  | — |  |  | $ | 33.09 |  |  | 3.1 |  | $ | 2,073 |
TSRUs Vested(c) |  | 17,588 |  |  | — |  |  | 30.30 |  |  | 1.5 |  | 332 |
TSRUs Expected to vest(d) |  | 133,878 |  |  | — |  |  | 33.38 |  |  | 3.2 |  | 1,688 |
TSRUs exercised and converted to PTUs |  | — |  |  | 1,385 |  |  | $ | — |  |  | 0.5 |  | $ | 60 |
(a) | In 2018, we settled 7,643,846 TSRUs with a weighted-average grant price of $23.13 per unit.
(b) | In 2018, 2,809,652 TSRUs with a weighted-average grant price of $27.86 per unit were converted into 1,408,622 PTUs.
(c) | Includes the modification of approximately 1.7 million TSRUs to approximately 260 employees, including management employees, in connection with our Organizing for Growth initiative. The terms were modified to permit the vesting upon termination. The impact to compensation expense was immaterial.
(d) | The number of TSRUs expected to vest takes into account an estimate of expected forfeitures.
The following table provides data related to all TSRU activity:
|  | Year Ended December 31,
(MILLIONS OF DOLLARS, EXCEPT PER TSRU AMOUNTS) |  | 2018 |  |  | 2017 |  |  | 2016 |
Weighted-average grant-date fair value per TSRU |  | $ | 7.42 |  |  | $ | 6.23 |  |  | $ | 5.83 |
Total compensation cost related to nonvested TSRU grants not yet recognized, pre-tax |  | $ | 246 |  |  | $ | 232 |  |  | $ | 164 |
Weighted-average period over which TSRU cost is expected to be recognized (years) |  | 1.6 |  |  | 1.7 |  |  | 1.9 |
C. Performance Total Shareholder Return Units In December 2017, PTSRUs were awarded to the then Chairman and Chief Executive Officer and the then Group President, Pfizer Essential Health. These awards were granted in connection with our Board’s succession planning for the Chairman and Chief Executive Officer and our announcement on November 13, 2017 that our then Group President, Pfizer Innovative Health had been appointed Chief Operating Officer of Pfizer effective January 1, 2018. We also announced that effective January 1, 2018, the then Group President, Pfizer Essential Health, had been appointed Group President, Pfizer Innovative Health. In addition to having the same characteristics of TSRUs, PTSRUs require special service and performance conditions. On December 29, 2017, 1,372,213 PTSRUs were granted to the Chairman and Chief Executive Officer and 343,053 PTSRUs were granted to the new head of Innovative Health at a grant price of $36.22 and a grant-date fair value of $5.83. We measure the value of PTSRU grants as of the grant date using a Monte Carlo simulation model. The values determined through this fair value methodology generally are amortized on a straight-line basis over the vesting term into Selling, informational and administrative expenses as appropriate. D. Restricted Stock Units RSUs are awarded to select employees and, when vested, entitle the holder to receive a specified number of shares of our common stock, including shares resulting from dividend equivalents paid on such RSUs. For RSUs granted during the periods presented, in virtually all instances, the units vest after three years of continuous service from the grant date. We measure the value of RSU grants as of the grant date using the closing price of our common stock. The values determined through this fair value methodology generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate.
The following table summarizes all RSU activity during 2018:
|  | Shares (Thousands) |  |  | Weighted-Average Grant-Date Fair Value Per Share |
Nonvested, December 31, 2017 |  | 22,241 |  |  | $ | 32.64 |
Granted |  | 9,083 |  |  | 35.90 |
Vested(a) |  | (3,701 | ) |  | 34.02 |
Reinvested dividend equivalents |  | 974 |  |  | 38.96 |
Forfeited |  | (1,321 | ) |  | 33.85 |
Nonvested, December 31, 2018 |  | 27,276 |  |  | $ | 33.70 |
(a) | Includes the modification of approximately 150 thousand RSUs to approximately 140 employees, including management employees, in connection with our Organizing for Growth initiative. The terms were modified to permit vesting upon termination. The impact to the compensation expense was immaterial.
The following table provides data related to all RSU activity:
(MILLIONS OF DOLLARS) |  | Year Ended December 31,
2018 |  |  | 2017 |  |  | 2016 |
Total fair value of shares vested(a) |  | $ | 146 |  |  | $ | 584 |  |  | $ | 293 |
Total compensation cost related to nonvested RSU awards not yet recognized, pre-tax |  | $ | 256 |  |  | $ | 254 |  |  | $ | 262 |
Weighted-average period over which RSU cost is expected to be recognized (years) |  | 1.7 |  |  | 1.7 |  |  | 1.7 |
(a) | 2018 includes modification of approximately 150 thousand RSUs to approximately 140 employees, including management employees, in connection with our Organizing for Growth initiative. The terms were modified to permit vesting upon termination. The impact to the compensation expense was immaterial. 2017 includes the modification for a commitment to pay approximately 6.4 million RSUs to approximately 9,900 employees, including senior and key management employees, for 6.6 million RSUs. These shares were paid in the first quarter of 2018.
E. Portfolio Performance Shares PPSs are awards granted to select employees which, when vested, entitle the holder to receive, at the end of the performance period, a number of shares within a possible range of shares of our common stock, including shares resulting from dividend equivalents paid on such shares. For PPSs granted during the period presented, the awards vest after three years of continuous service from the grant date and the number of shares paid, if any, depends on the achievement of predetermined goals related to Pfizer’s long-term product portfolio during a five-year performance period from the year of the grant date. The number of shares that may be earned over the performance period ranges from 0% to 200% of the initial award. We measure the value of PPS grants as of the grant date using the intrinsic value method, for which we use the closing price of our common stock. The values are amortized on a straight-line basis over the probable vesting term into Cost of sales, Selling, informational and administrative expenses and/or Research and development expenses, as appropriate, and adjusted each reporting period, as necessary, to reflect changes in the price of Pfizer’s common stock, changes in the number of shares that are probable of being earned and changes in management’s assessment of the probability that the specified performance criteria will be achieved and/or changes in management’s assessment of the probable vesting term.
The following table summarizes all PPS activity during 2018, with the shares representing the maximum award that could be achieved:
|  | Shares (Thousands) |  |  | Weighted-Average Intrinsic Value Per Share |
Nonvested, December 31, 2017 |  | 20,973 |  |  | $ | 36.22 |
Granted |  | 6,769 |  |  | 35.74 |
Vested(a) |  | (7,483 | ) |  | 37.31 |
Forfeited |  | (998 | ) |  | 38.23 |
Nonvested, December 31, 2018(b) |  | 19,261 |  |  | $ | 43.65 |
(a) | Includes the modification of approximately 200 thousand PPSs to approximately 140 employees, including management employees, in connection with our Organizing for Growth initiative. The terms were modified to permit the vesting upon termination. The impact to compensation expense was immaterial.
(b) | Vested and non-vested shares outstanding, but not paid as of December 31, 2018 were 33.9 million.
The following table provides data related to all PPS activity:
(MILLIONS OF DOLLARS) |  | Year Ended December 31,
2018 |  |  | 2017 |  |  | 2016 |
Total fair value of shares vested(a) |  | $ | 169 |  |  | $ | 131 |  |  | $ | 118 |
Total compensation cost related to nonvested PPS awards not yet recognized, pre-tax |  | $ | 102 |  |  | $ | 94 |  |  | $ | 93 |
Weighted-average period over which PPS cost is expected to be recognized (years) |  | 1.8 |  |  | 1.7 |  |  | 1.8 |
(a) | Includes the modification of approximately 200 thousand PPSs to approximately 140 employees, including management employees, in connection with our Organizing for Growth initiative. The terms were modified to permit the vesting upon termination. The impact to compensation expense was immaterial.
F. Performance Share Awards PSAs are awarded to senior and other key management. PSAs vest after three years of continuous service from the grant date. The number of shares paid, if any, including shares resulting from dividend equivalents, for awards granted in 2015 and later, depends upon the achievement of predetermined goals related to two measures: (i) operating income (for performance years through 2018) or net income (for 2019 and later years) over three one-year periods; and (ii) TSR as compared to the NYSE ARCA Pharmaceutical Index (DRG Index) over the three-year performance period. The number of shares paid from awards granted in 2014 depends upon the achievement of predetermined goals related to Pfizer's TSR as compared to an industry peer group, for the three-year performance period from the year of the grant date. The number of shares that are earned over the performance period ranges from 0% to 200% of the initial award. We measure the value of PSA grants as of the grant date using the intrinsic value method, for which we use the closing price of our common stock. The values are amortized on a straight-line basis over the probable vesting term into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate, and adjusted each reporting period, as necessary, to reflect changes in the price of Pfizer’s common stock, changes in the number of shares that are probable of being earned and changes in management’s assessment of the probability that the specified performance criteria will be achieved.
The following table summarizes all PSA activity during 2018, with the shares granted representing the maximum award that could be achieved:
|  | Shares (Thousands) |  |  | Weighted-Average Intrinsic Value Per Share |
Nonvested, December 31, 2017 |  | 4,024 |  |  | $ | 36.22 |
Granted |  | 1,833 |  |  | 35.74 |
Vested(a) |  | (112 | ) |  | 39.58 |
Forfeited |  | (463 | ) |  | 37.12 |
Nonvested, December 31, 2018 |  | 5,282 |  |  | $ | 43.65 |
(a) | Includes the modification of a few PSAs to a few employees, including management employees, in connection with our Organizing for Growth initiative. The terms were modified to permit the vesting upon termination. The impact to compensation expense was immaterial.
The following table provides data related to all PSA activity:
|  | Year Ended December 31,
(MILLIONS OF DOLLARS) |  | 2018 |  | 2017 |  | 2016
Total fair value of shares vested(a) |  | $ | 4 |  |  | $ | 58 |  |  | $ | 9 |
Total compensation cost related to nonvested PSA grants not yet recognized, pre-tax |  | $ | 41 |  |  | $ | 34 |  |  | $ | 30 |
Weighted-average period over which PSA cost is expected to be recognized (years) |  | 1.8 |  |  | 1.8 |  |  | 1.8 |
(a) | Includes the 2018 modification of a few PSAs to a few employees, including management employees, in connection with our Organizing for Growth initiative. The terms were modified to permit the vesting upon termination. The impact to compensation expense was immaterial. Includes the 2017 modification for a commitment to pay 1.1 million PSAs to approximately 90 employees, including senior and key management employees, for 1.1 million PSAs. These shares were paid in the first quarter of 2018.
G. Stock Options Stock options are awarded to select employees and, when vested, entitle the holder to purchase a specified number of shares of our common stock at a price per share equal to the closing market price of our common stock on the date of grant. Beginning in 2016, only a limited set of overseas employees received stock option grants. No stock options were awarded to senior and other key management in any period presented; however, stock options were awarded to certain other employees. In virtually all instances, stock options granted vest after three years of continuous service from the grant date and have a contractual term of 10 years. In most cases, stock options must be held for at least one year from the grant date before any vesting may occur. In the event of a sale of business or plant closing or restructuring, options held by employees are immediately vested and are exercisable for a period of three months following the date employment is terminated or through their remaining term, depending on various conditions. We measure the value of stock option grants as of the grant date using the Black-Scholes-Merton option-pricing model. The values determined through this fair value methodology generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate.
The following table provides the weighted-average assumptions used in the valuation of stock options:
|  | Year Ended December 31,
|  | 2018 |  |  | 2017 |  |  | 2016 |
Expected dividend yield(a) |  | 3.73 | % |  | 3.69 | % |  | 3.85 | %
Risk-free interest rate(b) |  | 2.85 | % |  | 2.23 | % |  | 1.55 | %
Expected stock price volatility(c) |  | 20.02 | % |  | 18.39 | % |  | 21.64 | %
Expected term (years)(d) |  | 6.75 |  |  | 6.75 |  |  | 6.75 |
(a) | Determined using a constant dividend yield during the expected term of the option.
(b) | Determined using the interpolated yield on U.S. Treasury zero-coupon issues.
(c) | Determined using implied volatility, after consideration of historical volatility.
(d) | Determined using historical exercise and post-vesting termination patterns.
The following table summarizes all stock option activity during 2018:
|  | Shares (Thousands) |  |  | Weighted-Average Exercise Price Per Share |  |  | Weighted-Average Remaining Contractual Term (Years) |  | Aggregate Intrinsic Value(a) (Millions) |
Outstanding, December 31, 2017 |  | 150,757 |  |  | $ | 27.27 |  |  |  |  |
Granted |  | 1,372 |  |  | 35.74 |  |  |  |  |
Exercised |  | (47,740 | ) |  | 26.59 |  |  |  |  |
Forfeited |  | (219 | ) |  | 33.96 |  |  |  |  |
Expired |  | (379 | ) |  | 24.69 |  |  |  |  |
Outstanding, December 31, 2018(b) |  | 103,791 |  |  | 27.69 |  |  | 4.4 |  | $ | 1,657 |
Vested and expected to vest, December 31, 2018(c) |  | 103,621 |  |  | 27.68 |  |  | 4.4 |  | 1,655 |
Exercisable, December 31, 2018 |  | 100,078 |  |  | $ | 27.47 |  |  | 4.2 |  | $ | 1,619 |
(a) | Market price of our underlying common stock less exercise price.
(b) | Includes the modification of approximately 190 thousand stock options to a few employees, including management employees, in connection with our Organizing for Growth initiative. The terms were modified to permit a longer exercise term after termination.
(c) | The number of options expected to vest takes into account an estimate of expected forfeitures.
The following table summarizes data related to all stock option activity:
|  | Year Ended December 31,
(MILLIONS OF DOLLARS, EXCEPT PER STOCK OPTION AMOUNTS) |  | 2018 |  |  | 2017 |  |  | 2016 |
Weighted-average grant-date fair value per stock option |  | $ | 5.06 |  |  | $ | 4.01 |  |  | $ | 3.89 |
Aggregate intrinsic value on exercise |  | $ | 625 |  |  | $ | 331 |  |  | $ | 389 |
Cash received upon exercise |  | $ | 1,259 |  |  | $ | 862 |  |  | $ | 1,019 |
Tax benefits realized related to exercise |  | $ | 115 |  |  | $ | 95 |  |  | $ | 112 |
Total compensation cost related to nonvested stock options not yet recognized, pre-tax |  | $ | 5 |  |  | $ | 10 |  |  | $ | 58 |
Weighted-average period over which stock option compensation cost is expected to be recognized (years) |  | 1.7 |  |  | 0.8 |  |  | 1.1 |

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -URI http://asc.fasb.org/subtopic&trid=2208855 + Details
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