Share-Based Compensation

3 Months Ended

Mar. 31, 2024

We currently have employee and non-employee director incentive plans from which we grant stock options, restricted shares, and restricted stock units with various service, performance, and/or market conditions. We also have an Employee Stock Purchase Plan available to our employees. Stock options and restricted stock are granted at the discretion of the Compensation Committee of our Board of Directors, or Board, based on the estimated fair value on the date of grant. The fair value of the stock options and restricted stock on the date of grant is recognized as expense over the vesting period, net of forfeitures. The non-cash compensation expenses recognized in our consolidated statements of income for stock options, restricted stock and under our employee stock purchase plan, net of amounts classified as capitalized software, were $57 million and $40 million for the three months ended March 31, 2024 and 2023, respectively. For the three months ended March 31, 2024, $6 million of the total non-cash compensation expense was recorded within acquisition-related transaction and integration costs in the consolidated statement of income.

Stock Option Plans

We use the Black-Scholes option pricing model to value our stock option awards. During the three months ended March 31, 2024 and 2023, we used the assumptions in the table below to compute the value:


	Three Months Ended March 31,
Assumptions:	2024	2023
Risk-free interest rate	4.14%	3.47%
Expected life in years	6.0	6.1
Expected volatility	24%	24%
Expected dividend yield	1.33%	1.56%
Estimated weighted-average fair value of options granted per share	$37.56	$27.39

The risk-free interest rate is based on the zero-coupon U.S. Treasury yield curve in effect at the date of grant. The expected life is derived from historical and anticipated future exercise patterns. Expected volatility is based on historical volatility data of our stock.

Restricted Stock Plans

Restricted shares are used as an incentive to attract and retain qualified employees and to align our and our stockholders' interests by linking actual performance to both short and long-term stockholder return. We issue awards that may contain a combination of time, performance and/or market conditions. The grant date fair value of each award is based on the

closing stock price of our stock at the date of grant. The grant date fair value of time-based restricted stock is recognized as expense ratably over the vesting period, which is typically three or four years, net of forfeitures.

In February 2024, we reserved a maximum of 0.9 million restricted shares for potential issuance as performance-based restricted shares to certain of our employees. The number of shares ultimately granted under this award will be based on our actual financial performance as compared to financial performance targets set by our Board and the Compensation Committee for the year ending December 31, 2024. The maximum compensation expense to be recognized under these performance-based restricted shares is $112 million if the maximum financial performance target is met and all 0.9 million shares vest. The compensation expense to be recognized under these performance-based restricted shares will be $56 million if the target financial performance is met, which would result in 0.4 million shares vesting. For these awards with performance conditions, we recognize expense on an accelerated basis over the three-year vesting period based on our quarterly assessment of the probable 2024 actual financial performance as compared to the 2024 financial performance targets. As of March 31, 2024, our best estimate is that the financial performance level will be at target for 2024. Based on this assessment, we recorded non-cash compensation expense of $4 million for the three months ended March 31, 2024, related to these awards and the remaining $52 million in non-cash compensation expense will be recorded on an accelerated basis over the remaining vesting period, including $30 million which will be recorded over the remainder of 2024.

We also issue awards with a market condition but no performance condition. The fair value of these awards is estimated based on a simulation of various outcomes and includes inputs such as our stock price on the grant date, the valuation of historical awards with market conditions, the relatively low likelihood that the market condition will affect the number of shares granted (as the market condition only affects shares granted in excess of certain financial performance targets), and our expectation of achieving the financial performance targets.