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Share-Based Compensation and Other Incentive Plans
 12 Months Ended
Dec. 31, 2022
Share-Based Payment Arrangement [Abstract]  
Share-Based Compensation and Other Incentive Plans Share-Based Compensation and Other Incentive Plans
The Company grants options and stock appreciation rights to acquire shares of common stock to certain employees and to existing option holders of acquired companies in connection with the merging of option plans following an acquisition. Each option and stock appreciation right granted has an exercise price of no less than 100% of the fair market value of the common stock on the date of the grant. The awards have a contractual life of five to ten years and vest over two to three years. In conjunction with a change in control, stock options and stock appreciation rights assumed or replaced with comparable stock options or stock appreciation rights only become exercisable if the holder is also involuntarily terminated (for a reason other than cause) or resigns for good reason within 24 months of a change in control.
Restricted stock grants consist of shares or the rights to shares of the Company’s common stock which are awarded to certain employees. The grants are restricted in such that they are subject to vesting conditions; however, restricted stock holders have voting rights, and the rights to earn dividends on unvested shares.
Restricted stock unit (“RSU”) grants consist of shares or the rights to shares of the Company’s common stock which are awarded to certain employees and non-employee directors. The grants are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the employee. In conjunction with a change in control, shares of RSUs assumed or replaced with comparable shares of RSUs will only have the restrictions lapse if the holder is also involuntarily terminated (for a reason other than cause) or resigns for good reason within 24 months of a change in control.
Performance-based stock options (“performance options”), market stock units ("MSUs"), and performance stock units ("PSUs") have been granted to certain Company executive officers. Performance options have a three-year performance period and are granted as a target number of units subject to adjustment based on company performance. Each performance option granted has an exercise price of no less than 100% of the fair market value of the common stock on the date of the grant. The awards have a contractual life of ten years. Shares ultimately issued for performance option awards granted are based on the actual total shareholder return (“TSR”) compared to the S&P 500 over the three-year performance period based on a payout factor that corresponds to actual TSR results as established at the date of grant. Vesting occurs on the third anniversary of the grant date. Under the terms of the MSUs, vesting is conditioned upon continuous employment until the vesting date and the payout factor is at least 60% of the share price on the award date. The payout factor is the share price on vesting date divided by share price on award date, with a maximum of 200%. The share price used in the payout factor is calculated using an average of the closing prices on the grant or vesting date, and the 30 calendar days immediately preceding the grant or vesting date. Vesting occurs ratably over three years. PSUs have been granted as a portion of the Long Range Incentive Plan (“LRIP”) awards issued to certain Company executive officers. The PSUs have a three-year performance period and were granted at a target number of units subject to adjustment based on company performance. The number of PSUs earned will be based on the actual TSR compared to the S&P 500 over the three-year performance period.
The employee stock purchase plan allows eligible participants to purchase shares of the Company’s common stock through payroll deductions of up to 20% of eligible compensation on an after-tax basis. Plan participants cannot purchase more than $25,000 of stock in any calendar year. The price an employee pays per share is 85% of the lower of the fair market value of the Company’s stock on the close of the first trading day or last trading day of the purchase period. The plan has two purchase periods, the first from October 1 through March 31 and the second from April 1 through September 30. For the years ended December 31, 2022, 2021 and 2020, employees purchased 0.4 million, 0.6 million and 0.7 million shares, respectively, at purchase prices of $199.16 and $190.37, $133.27 and $160.11, and $112.98 and $107.18, respectively.
Significant Assumptions Used in the Estimate of Fair Value
The Company calculates the value of each employee stock option, estimated on the date of grant, using the Black-Scholes option pricing model. The weighted-average estimated fair value of employee stock options granted during 2022, 2021 and 2020 was $67.18, $41.57 and $39.98, respectively, using the following weighted-average assumptions:
202220212020
Expected volatility29.2 %27.3 %33.7 %
Risk-free interest rate2.5 %0.8 %0.6 %
Dividend yield1.9 %2.2 %2.7 %
Expected life (years)6.65.95.9
The Company calculates the value of each performance option, MSU, and PSU using a Monte Carlo simulation option pricing model, estimated on the date of grant. The fair values of performance options, MSUs, and PSUs granted during 2022 were $84.73, $244.13 and $249.51, respectively. The fair values of performance options, MSUs, and PSUs granted during 2021 were $60.42, $184.71 and $203.57, respectively. The fair value of performance options, MSUs and PSUs granted during 2020 was $77.82, $112.17 and $233.96, respectively. The following assumptions were used for the calculations.
202220212020
Performance OptionsPerformance OptionsPerformance Options
Expected volatility of common stock29.7 %28.5 %34.7 %
Expected volatility of the S&P 50039.2 %38.7 %29.0 %
Risk-free interest rate2.0 %1.2 %0.8 %
Dividend yield2.0 %2.3 %2.6 %
Expected life (years)6.56.56.5
202220212020
Market Stock UnitMarket Stock UnitMarket Stock Units
Expected volatility of common stock29.7 %28.5 %34.7 %
Risk-free interest rate1.9 %0.3 %0.6 %
Dividend yield1.6 %1.8 %1.7 %
202220212020
Performance Stock UnitsPerformance Stock UnitsPerformance Stock Units
Expected volatility of common stock29.7 %28.5 %34.7 %
Expected volatility of the S&P 50039.2 %38.7 %29.0 %
Risk-free interest rate1.8 %0.3 %0.6 %
Dividend yield1.6 %1.8 %1.7 %
The Company uses the implied volatility for traded options on the Company’s stock as the expected volatility assumption in the valuation of stock options, performance options, MSUs, and PSUs. The selection of the implied volatility approach was based upon the availability of actively-traded options on the Company’s stock and the Company’s assessment that implied volatility is more representative of future stock price trends than historical volatility. At the conclusion of each three-year PSU and performance option cycle, the Company uses the historical volatility as the expected volatility to calculate the actual TSR compared to the S&P 500.
The risk-free interest rate assumption is based upon the average daily closing rates during the year for U.S. Treasury notes that have a life which approximates the expected life of the grant. The dividend yield assumption is based on the Company’s future expectation of dividend payouts. The expected life represents the average of the contractual term of the options and the weighted average vesting period for all option tranches.
The Company has applied forfeiture rates, estimated based on historical data, of 10% to the stock option fair values calculated by the Black-Scholes option pricing model and 15% to RSUs. These estimated forfeiture rates are applied to grants based on their remaining vesting term and may be revised in subsequent periods if actual forfeitures differ from these estimates.
The following table summarizes information about the total stock options outstanding and exercisable under all stock option plans, at December 31, 2022 (in thousands, except exercise price and years):
 Options OutstandingOptions Exercisable
Exercise price rangeNo. of
options		Wtd. avg.
Exercise
Price		Wtd. avg.
contractual
life (in yrs.)		No. of
options		Wtd. avg.
Exercise
Price		Wtd. avg.
contractual
life (in yrs.)
$51-$70
586 66 2586 66 2
$71-$90
786 77 4786 77 4
$91-$110
267 108 5267 108 5
$111-$130
51 121 640 121 6
$131-$150
288 139 6281 139 6
$151-$170
206 156 756 157 7
$171-$190
284 180 838 180 8
$191 and over
303 225 911 223 9
 2,771   2,065  
As of December 31, 2022, the weighted average contractual life for options outstanding and exercisable was four and three years, respectively.
Current Year Activity
Total share-based compensation activity was as follows (in thousands, except exercise price):
 Stock OptionsRestricted Stock UnitsRestricted Stock
No. of Options OutstandingWtd. Avg. Exercise Price of SharesNo. of Non-Vested AwardsWtd. Avg. Grant Date Fair ValueNo. of Non-Vested AwardsWtd. Avg. Grant Date Fair Value
Balance as of January 1, 20221,587 $92 924 $199 209 $203 
Granted153 227 776 217 48 217 
Releases/Exercised(734)70 (408)157 (143)195 
Forfeited/Canceled(10)183 (81)193 — — 
Balance as of December 31, 2022996 $128 1,211 $211 114 $224 
Awards exercisable684 95 — — — — 
 Performance OptionsMarket Stock UnitsPerformance Stock Units
No. of Options OutstandingWtd. Avg. Exercise Price of SharesNo. of Non-Vested AwardsWtd. Avg. Grant Date Fair ValueNo. of Non-Vested AwardsWtd. Avg. Grant Date Fair Value
Balance as of January 1, 20222,368 $91 120 $147 128 $210 
Granted122 222 43 244 68 248 
Releases/Exercised(830)72 (80)140 (48)217 
Adjustment for payout factor115 133 20 129 21 217 
Balance as of December 31, 20221,775 $112 103 $192 169 $226 
Awards exercisable1,381 91 — — — — 
At December 31, 2022 and 2021, 8.3 million and 4.9 million shares, respectively, were available for future share-based award grants under the current share-based compensation plan, covering all equity awards to employees and non-employee directors.
Total Share-Based Compensation Expense
Compensation expense for the Company’s share-based compensation plans was as follows: 
Years ended December 31202220212020
Share-based compensation expense included in:
Costs of sales$28 $16 $16 
Selling, general and administrative expenses98 79 73 
Research and development expenditures46 34 40 
Share-based compensation expense included in Operating earnings172 129 129 
Tax benefit34 15 30 
Share-based compensation expense, net of tax$138 $114 $99 
Decrease in basic earnings per share$(0.82)$(0.67)$(0.58)
Decrease in diluted earnings per share$(0.80)$(0.66)$(0.57)
At December 31, 2022, the Company had unrecognized compensation expense related to all share based awards of $184 million, net of estimated forfeitures, expected to be recognized over the weighted average period of approximately three years and $5 million of unrecognized compensation expense related to the employee stock purchase plan that will be recognized over the remaining purchase period. The aggregate fair value of outstanding share based awards as of December 31, 2022 was $408 million.
Cash received from stock option exercises and the employee stock purchase plan was $156 million, $102 million, and $108 million for the years ended December 31, 2022, 2021, and 2020, respectively. The total intrinsic value of options exercised during the years ended December 31, 2022, 2021, and 2020 was $292 million, $186 million, and $149 million, respectively. The aggregate intrinsic value for options outstanding and exercisable as of December 31, 2022 was $389 million and $342 million, respectively, based on a December 31, 2022 stock price of $257.71 per share.
Motorola Solutions Incentive Plans
The Company's incentive plans provide eligible employees with an annual payment, calculated as a percentage of an employee’s eligible earnings, in the year after the close of the current calendar year if specified business goals and individual performance targets are met. The expense for awards under these incentive plans for the years ended December 31, 2022, 2021 and 2020 was $165 million, $161 million and $78 million, respectively.
Long-Range Incentive Plan
The LRIP rewards elected officers for the Company’s achievement of specified business goals during the period, based on a single performance objective measured over a three-year period. The expense for those LRIP awards with cash settlement terms was $4 million, $8 million and $9 million for the years ended December 31, 2022, 2021 and 2020 , respectively.