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Stock-Based Compensation | 3 Months Ended
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Mar. 31, 2025
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation | Stock-Based Compensation We have several stock-based compensation plans where employees receive nonvested stock options, nonvested retention shares, and nonvested stock units. We refer to the nonvested shares and stock units collectively as “retention awards”. Employees may also participate in our employee stock purchase plan (ESPP). Information regarding stock-based compensation expense appears in the table below:
Millions, for the three months ended March 31, | 2025 |  | 2024 |  |  |
Stock-based compensation, before tax: |  |  |  |  |  |
Stock options | $ | 6 |  |  | $ | 4 |  |  |  |
Retention awards | 22 |  |  | 17 |  |  |  |
ESPP | 6 |  |  | 5 |  |  |  |
Total stock-based compensation, before tax | $ | 34 |  |  | $ | 26 |  |  |  |
Excess income tax benefits from equity compensation plans | $ | 7 |  |  | $ | 9 |  |  |  |
Stock options – Stock options are granted at the closing price on the date of grant, have 10-year contractual terms, and vest no later than 3 years from the date of grant. None of the stock options outstanding at March 31, 2025, is subject to performance or market-based vesting conditions. The table below shows the annual weighted-average assumptions used for Black-Scholes valuation purposes:
Weighted-average assumptions | 2025 |  | 2024 |
Risk-free interest rate | 4.3% | 4.2%
Dividend yield | 2.2% | 2.1%
Expected life (years) | 4.3 |  | 4.4 |
Volatility | 22.4% | 28.7%
Weighted-average grant-date fair value of options granted | $ | 48.70 |  |  | $ | 61.75 |  |
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the expected dividend yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date of grant; the expected life is based on historical and expected exercise behavior; and expected volatility is based on the historical volatility of our stock price over the expected life of the stock option. A summary of stock option activity during the three months ended March 31, 2025, is presented below:
| Options (thous.) | Weighted-average exercise price | Weighted-average remaining contractual term (in yrs.) | Aggregate intrinsic value (millions)
Outstanding at January 1, 2025 | 1,981 | $ | 195.81 |  | 5.8 | $ | 74 |
Granted | 423 | 243.51 |  | N/A | N/A
Exercised | (223) | 164.76 |  | N/A | N/A
Forfeited or expired | - | - |  | N/A | N/A
Outstanding at March 31, 2025 | 2,181 | $ | 208.24 |  | 6.3 | $ | 70 |
Vested or expected to vest at March 31, 2025 | 2,160 | $ | 207.96 |  | 6.3 | $ | 70 |
Options exercisable at March 31, 2025 | 1,462 | $ | 193.18 |  | 4.9 | $ | 66 |
At March 31, 2025, there was $30 million of unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.3 years. Additional information regarding stock option exercises appears in the following table:
Millions, for the three months ended March 31, | 2025 | 2024 |  |  |
Intrinsic value of stock options exercised | $ | 20 |  | $ | 12 |  |  |  |
Cash received from option exercises | 41 |  | 15 |  |  |  |
Treasury shares repurchased for employee payroll taxes | (6) |  | (4) |  |  |  |
Income tax benefit realized from option exercises | 2 |  | 3 |  |  |  |
Aggregate grant-date fair value of stock options vested | 16 |  | 15 |  |  |  |
Retention awards – Retention awards are granted at no cost to the employee, vest over periods lasting up to 4 years, and have dividends and dividend equivalents paid to participants during the vesting periods. Changes in our retention awards during the three months ended March 31, 2025, were as follows:
| Shares (thous.) | Weighted-average grant-date fair value
Nonvested at January 1, 2025 | 915 | $ | 222.50 |
Granted | 228 | 243.51 |
Vested | (223) | 204.69 |
Forfeited | (7) | 227.18 |
Nonvested at March 31, 2025 | 913 | $ | 232.06 |
At March 31, 2025, there was $108 million of total unrecognized compensation expense related to nonvested retention awards, which is expected to be recognized over a weighted-average period of 1.5 years Performance stock unit awards – In February 2025, our Board of Directors approved performance stock unit grants. This plan is based on performance targets for annual return on invested capital (ROIC) and operating income growth (OIG) compared to companies in the S&P 100 Industrials Index plus the Class I railroads. We define ROIC as net operating profit adjusted for interest expense (including interest on average operating lease liabilities) and taxes on interest divided by average invested capital adjusted for average operating lease liabilities. The February 2025 stock units awarded to executives are subject to continued employment for 37 months, the attainment of certain levels of ROIC, and the relative three-year OIG. We expense two-thirds of the fair value of the units that are probable of being earned based on our forecasted ROIC over the three-year performance period, and with respect to the third year of the plan, we expense the remaining one-third of the fair value subject to the relative three-year OIG. We measure the fair value of performance stock units based upon the closing price of the underlying common stock as of the date of grant. Dividend equivalents are accumulated during the service period and paid to participants only after the units are earned. Changes in our performance stock unit awards during the three months ended March 31, 2025, were as follows:
| Shares (thous.) | Weighted-average grant-date fair value
Nonvested at January 1, 2025 | 607 | $ | 219.08 |
Granted | 254 | 243.51 |
Vested | (68) | 246.21 |
Unearned | (83) | 244.35 |
Forfeited | (67) | 214.99 |
Nonvested at March 31, 2025 | 643 | $ | 223.03 |
At March 31, 2025, there was $29 million of total unrecognized compensation expense related to nonvested performance stock unit awards, which is expected to be recognized over a weighted-average period of 2.1 years. This expense is subject to achievement of the performance measures established for the performance stock unit grants.

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