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Share-Based Compensation | 12 Months Ended
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Mar. 31, 2023
Share-Based Payment Arrangement [Abstract] |
Share-Based Compensation | Share-Based CompensationThe Company provides share-based compensation to its employees, officers, and non-employee directors, including restricted stock units (“RSUs”), performance-based stock units (“PSUs”), stock options, and an employee stock purchase plan (“ESPP”) (collectively, “share-based awards”). Most of the share-based awards are granted in the first quarter of each fiscal year. Compensation expense for the share-based awards is recognized for the portion of awards ultimately expected to vest. The Company estimates the number of share-based awards that will ultimately vest primarily based on historical experience. The estimated forfeiture rate established upon grant is re-assessed throughout the requisite service period and is adjusted when actual forfeitures occur. The actual forfeitures in future reporting periods could be higher or lower than current estimates. Compensation expense is classified in the Consolidated Statements of Operations in the same manner as cash compensation paid to the Company’s employees. Impact on Net Income The components of share-based compensation expense and related tax benefits were as follows:
| Years Ended March 31,
(In millions) | 2023 |  | 2022 |  | 2021
Restricted stock unit awards (1) | $ | 149 |  |  | $ | 148 |  |  | $ | 137 |
Stock options | — |  |  | 2 |  |  | 4 |
Employee stock purchase plan | 13 |  |  | 11 |  |  | 10 |
Share-based compensation expense | 162 |  |  | 161 |  |  | 151 |
Tax benefit for share-based compensation expense (2) | (87) |  |  | (35) |  |  | (23) |
Share-based compensation expense, net of tax | $ | 75 |  |  | $ | 126 |  |  | $ | 128 |
(1)Includes compensation expense recognized for RSUs and PSUs. (2)Income tax benefit is computed using the tax rates of applicable tax jurisdictions. Additionally, a portion of compensation expense is not tax-deductible. Income tax benefit for fiscal 2023, fiscal 2022, and fiscal 2021 included discrete income tax benefit of $58 million and $10 million, and discrete income tax expense of $1 million, respectively. Stock Plans In April 2022, the Company’s stockholders approved the McKesson Corporation 2022 Stock Plan (the “2022 Stock Plan”), to replace the McKesson Corporation 2013 Stock Plan (the “2013 Stock Plan”), which expired in 2023. The 2022 Stock Plan permits the grant of awards in the form of restricted stock, RSUs, PSUs, stock options, and other share-based awards to selected employees, officers, and non-employee directors. The shares previously reserved under the 2013 Stock Plan described below are no longer available for issuance pursuant to the 2022 Stock Plan. As of March 31, 2023, 4.9 million shares remain available for future grant under the 2022 Stock Plan. In July 2013, the Company’s stockholders approved the 2013 Stock Plan to replace the McKesson Corporation 2005 Stock Plan (the “2005 Stock Plan”), which expired in 2013. Under these stock plans, the Company issued restricted stock, RSUs, PSUs, stock options, and other share-based awards to selected employees, officers, and non-employee directors. The 2013 Stock Plan reserved 30.0 million shares plus unused reserved shares under the 2005 Stock Plan. As of March 31, 2023, no shares remain available for future grant under the 2013 Stock Plan. Restricted Stock Unit Awards RSUs entitle the holder to receive a specified number of shares of the Company’s common stock which vest over a period of generally three to four years as determined by the Compensation Committee at the time of grant. The fair value of the award is determined based on the price of the Company’s common stock on the grant date and the related compensation expense is recognized over the vesting period on a straight-line basis. Non-employee directors receive an annual grant of RSUs, which vest immediately and are expensed upon grant. The director may elect to receive the underlying shares immediately or defer receipt of the shares if they meet director stock ownership guidelines. The shares will be automatically deferred for those directors who do not meet the director stock ownership guidelines. At March 31, 2023, approximately 37,000 RSUs for the Company’s directors were vested. PSUs are conditional upon the attainment of market and performance objectives over a specified period. The number of vested PSUs is assessed at the end of a three-year performance period upon attainment of meeting certain earnings per share targets, average return on invested capital, and for certain participants, total shareholder return relative to a peer group of companies and, for special PSUs granted in 2019, meeting certain cumulative operating profit metrics. The Company uses the Monte Carlo simulation model to measure the fair value of the total shareholder return portion of the PSUs. The earnings per share portion of the PSUs is measured at the grant date market price. PSUs have a requisite service period of generally three years. Expense is attributed to the requisite service period on a straight-line basis based on the fair value of the PSUs, adjusted for the performance modifier at the end of each reporting period. For PSUs that are designated as equity awards, the fair value is measured at the grant date. The weighted-average assumptions used in the Monte Carlo valuations were as follows:
| Years Ended March 31,
| 2023 |  | 2022 |  | 2021
Expected stock price volatility | 34 | % |  | 35 | % |  | 36 | %
Expected dividend yield | 0.6 | % |  | 0.9 | % |  | 1.1 | %
Risk-free interest rate | 2.7 | % |  | 0.3 | % |  | 0.2 | %
Expected life (in years) | 3 |  | 3 |  | 3
The following table summarizes activity for restricted stock unit awards (RSUs and PSUs) during fiscal 2023:
(In millions, except per share data) | Shares (1) |  | Weighted- Average Grant Date Fair Value Per Share
Nonvested, March 31, 2022 | 3 |  |  | $ | 160.47 |
Granted | — |  |  | 332.86 |
Cancelled | — |  |  | 201.79 |
Vested | (1) |  |  | 149.11 |
Nonvested, March 31, 2023 | 2 |  |  | $ | 238.77 |
(1)Amounts less than a million are shown as zero in the table above. The following table provides data related to restricted stock unit award activity:
| Years Ended March 31,
(In millions) | 2023 |  | 2022 |  | 2021
Total fair value of shares vested | $ | 200 |  |  | $ | 144 |  |  | $ | 79 |
Total compensation cost, net of estimated forfeitures, related to nonvested restricted stock unit awards not yet recognized, pre-tax | $ | 192 |  |  | $ | 165 |  |  | $ | 147 |
Weighted-average period in years over which restricted stock unit award cost is expected to be recognized | 2 |  | 2 |  | 2
Stock Options Stock options are granted with an exercise price at no less than the fair market value and those options granted under the stock plans generally have a contractual term of seven years and follow a four-year vesting schedule. The Company did not grant any stock options during the years ended March 31, 2023, 2022, and 2021. Compensation expense for stock options is recognized on a straight-line basis over the requisite service period and is based on the grant-date fair value for the portion of the awards that is ultimately expected to vest. The Company uses the Black-Scholes options-pricing model to estimate the fair value of its stock options. Once the fair value of an employee stock option is determined, current accounting practices do not permit it to be changed, even if the estimates used are different from actual. The following is a summary of stock options outstanding at March 31, 2023:
|  | Options Outstanding |  | Options Exercisable
Range of Exercise Prices |  | Number of Options Outstanding at Year End (In millions) |  | Weighted- Average Remaining Contractual Life (Years) |  | Weighted- Average Exercise Price |  | Number of Options Exercisable at Year End (In millions) |  | Weighted- Average Exercise Price
$123.98 | — | $182.78 |  | — |  |  | 1 |  | $ | 154.36 |  |  | — |  |  | $ | 154.36 |
The following table summarizes stock option activity during fiscal 2023:
(In millions, except per share data) | Shares |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Term (Years) |  | Aggregate Intrinsic Value (2)
Outstanding, March 31, 2022 | 1 |  |  | $ | 175.23 |  |  | 2 |  | $ | 114 |
Granted | — |  |  | — |  |  |  |  |
Cancelled | — |  |  | 125.02 |  |  |  |  |
Exercised | (1) |  |  | 191.12 |  |  |  |  |
Outstanding, March 31, 2023 | — |  |  | 154.36 |  |  | 1 |  | 73 |
Vested and expected to vest (1) | — |  |  | 154.36 |  |  | 1 |  | 73 |
Vested and exercisable, March 31, 2023 | — |  |  | 154.36 |  |  | 1 |  | 73 |
(1)The number of options expected to vest takes into account an estimate of expected forfeitures. (2)The intrinsic value is calculated as the difference between the period-end market price of the Company’s common stock and the exercise price of “in-the-money” options. The following table provides data related to stock option activity:
| Years Ended March 31,
(In millions, except per share data) | 2023 |  | 2022 |  | 2021
Weighted-average grant date fair value per stock option | $ | — |  |  | $ | — |  |  | $ | — |
Aggregate intrinsic value on exercise | $ | 69 |  |  | $ | 28 |  |  | $ | 5 |
Cash received upon exercise | $ | 93 |  |  | $ | 157 |  |  | $ | 38 |
Tax benefits realized related to exercise | $ | 4 |  |  | $ | 5 |  |  | $ | 4 |
Total fair value of stock options vested | $ | 1 |  |  | $ | 5 |  |  | $ | 10 |
Total compensation cost, net of estimated forfeitures, related to unvested stock options not yet recognized, pre-tax | $ | — |  |  | $ | — |  |  | $ | 2 |
Weighted-average period in years over which stock option compensation cost is expected to be recognized | 0 |  | 0 |  | 2
Employee Stock Purchase Plan The Company has an ESPP under which 23.1 million shares have been authorized for issuance. The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions. The deductions occur over three-month purchase periods and the shares are then purchased at 85% of the market price at the end of each purchase period. Employees are allowed to terminate their participation in the ESPP at any time during the purchase period prior to the purchase of the shares. The 15% discount provided to employees on these shares is included in compensation expense. The shares related to funds outstanding at the end of a quarter are included in the calculation of diluted weighted-average shares outstanding. These amounts have not been significant for all the years presented. The Company recognizes costs for employer matching contributions as ESPP expense over the relevant purchase period. Shares issued under the ESPP were not material in fiscal 2023, fiscal 2022, and fiscal 2021. At March 31, 2023, 3.6 million shares remain available for issuance.

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