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Share-Based Compensation and Other Incentive Plans | 12 Months Ended
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Dec. 31, 2023
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, 2023, 2022 and 2021, employees purchased 0.4 million, 0.4 million and 0.6 million shares, respectively, at purchase prices of $194.62 and $231.40, $199.16 and $190.37, and $133.27 and $160.11, 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 2023, 2022 and 2021 was $73.04, $67.18 and $41.57, respectively, using the following weighted-average assumptions:
| 2023 |  | 2022 |  | 2021
Expected volatility | 24.4 | % |  | 29.2 | % |  | 27.3 | %
Risk-free interest rate | 4.2 | % |  | 2.5 | % |  | 0.8 | %
Dividend yield | 1.6 | % |  | 1.9 | % |  | 2.2 | %
Expected life (years) | 5.9 |  | 6.6 |  | 5.9
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 2023 we re $122.55, $299.32 and $348.27, res pectively. The fair values of performance options, MSUs, and PSUs granted during 2022 were $84.73, $244.13 and $249.51, respectively. The fair value of performance options, MSUs and PSUs granted during 2021 was $60.42, $184.71 and $203.57, respectively. The following assumptions were used for the calculations.
| 2023 |  | 2022 |  | 2021
| Performance Options |  | Performance Options |  | Performance Options
Expected volatility of common stock | 25.1 | % |  | 29.7 | % |  | 28.5 | %
Expected volatility of the S&P 500 | 33.3 | % |  | 39.2 | % |  | 38.7 | %
Risk-free interest rate | 4.1 | % |  | 2.0 | % |  | 1.2 | %
Dividend yield | 1.7 | % |  | 2.0 | % |  | 2.3 | %
Expected life (years) | 6.5 |  | 6.5 |  | 6.5
| 2023 |  | 2022 |  | 2021
| Market Stock Unit |  | Market Stock Unit |  | Market Stock Units
Expected volatility of common stock | 25.1 | % |  | 29.7 | % |  | 28.5 | %
Risk-free interest rate | 4.5 | % |  | 1.9 | % |  | 0.3 | %
Dividend yield | 1.5 | % |  | 1.6 | % |  | 1.8 | %
| 2023 |  |  | 2022 | 2021
| Performance Stock Units |  |  | Performance Stock Units | Performance Stock Units
Expected volatility of common stock | 25.1 | % |  |  | 29.7 | % | 28.5 | %
Expected volatility of the S&P 500 | 33.3 | % |  |  | 39.2 | % | 38.7 | %
Risk-free interest rate | 4.6 | % |  |  | 1.8 | % | 0.3 | %
Dividend yield | 1.4 | % |  |  | 1.6 | % | 1.8 | %
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, 2023 (in thousands, except exercise price and years):
| Options Outstanding |  | Options Exercisable
Exercise price range | No. 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 | 209 |  |  | 67 |  |  | 1 |  | 209 |  |  | 67 |  |  | 1
$71-$90 | 714 |  |  | 77 |  |  | 3 |  | 714 |  |  | 77 |  |  | 3
$91-$110 | 208 |  |  | 108 |  |  | 4 |  | 208 |  |  | 108 |  |  | 4
$111-$130 | 46 |  |  | 120 |  |  | 5 |  | 46 |  |  | 120 |  |  | 5
$131-$150 | 243 |  |  | 139 |  |  | 5 |  | 243 |  |  | 139 |  |  | 5
$151-$170 | 199 |  |  | 156 |  |  | 6 |  | 196 |  |  | 155 |  |  | 6
$171-$190 | 244 |  |  | 180 |  |  | 7 |  | 41 |  |  | 180 |  |  | 7
$191 and over | 501 |  |  | 244 |  |  | 9 |  | 50 |  |  | 228 |  |  | 8
| 2,364 |  |  |  |  |  |  | 1,707 |  |  |  |  |
As of December 31, 2023, 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 Options |  | Restricted Stock Units |  | Restricted Stock
| No. of Options Outstanding |  | Wtd. Avg. Exercise Price of Shares |  | No. of Non-Vested Awards |  | Wtd. Avg. Grant Date Fair Value |  | No. of Non-Vested Awards |  | Wtd. Avg. Grant Date Fair Value
Balance as of January 1, 2023 | 996 |  |  | $ | 128 |  |  | 1,211 |  |  | $ | 211 |  |  | 114 |  |  | $ | 224 |
Granted | 120 |  |  | 272 |  |  | 715 |  |  | 259 |  |  | 23 |  |  | 311 |
Releases/Exercised | (547) |  |  | 89 |  |  | (521) |  |  | 191 |  |  | (52) |  |  | 225 |
Forfeited/Canceled | (3) |  |  | 225 |  |  | (63) |  |  | 224 |  |  | — |  |  | — |
Balance as of December 31, 2023 | 566 |  |  | $ | 191 |  |  | 1,342 |  |  | $ | 224 |  |  | 85 |  |  | $ | 244 |
Awards exercisable | 297 |  |  | 149 |  |  | — |  |  | — |  |  | — |  |  | — |
| Performance Options |  | Market Stock Units |  | Performance Stock Units
| No. of Options Outstanding |  | Wtd. Avg. Exercise Price of Shares |  | No. of Non-Vested Awards |  | Wtd. Avg. Grant Date Fair Value |  | No. of Non-Vested Awards |  | Wtd. Avg. Grant Date Fair Value
Balance as of January 1, 2023 | 1,775 |  |  | $ | 112 |  |  | 103 |  |  | $ | 192 |  |  | 169 |  |  | $ | 226 |
Granted | 105 |  |  | 265 |  |  | 43 |  |  | 289 |  |  | 73 |  |  | 339 |
Releases/Exercised | (161) |  |  | 118 |  |  | (79) |  |  | 166 |  |  | (51) |  |  | 261 |
Adjustment for payout factor | 79 |  |  | 140 |  |  | 24 |  |  | 122 |  |  | 22 |  |  | 261 |
Forfeited/Canceled | — |  |  | — |  |  | (2) |  |  | 135 |  |  | — |  |  | — |
Balance as of December 31, 2023 | 1,798 |  |  | $ | 122 |  |  | 89 |  |  | $ | 254 |  |  | 213 |  |  | $ | 264 |
Awards exercisable | 1,410 |  |  | 96 |  |  | — |  |  | — |  |  | — |  |  | — |
At December 31, 2023 and 2022, 7.2 million and 8.3 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 31 | 2023 |  | 2022 |  | 2021
Share-based compensation expense included in: |  |  |  |  |
Costs of sales | $ | 40 |  |  | $ | 28 |  |  | $ | 16 |
Selling, general and administrative expenses | 116 |  |  | 98 |  |  | 79 |
Research and development expenditures | 56 |  |  | 46 |  |  | 34 |
Share-based compensation expense included in Operating earnings | 212 |  |  | 172 |  |  | 129 |
Tax benefit | 43 |  |  | 34 |  |  | 15 |
Share-based compensation expense, net of tax | $ | 169 |  |  | $ | 138 |  |  | $ | 114 |
Decrease in basic earnings per share | $ | (1.01) |  |  | $ | (0.82) |  |  | $ | (0.67) |
Decrease in diluted earnings per share | $ | (0.98) |  |  | $ | (0.80) |  |  | $ | (0.66) |
At December 31, 2023, the Company had unrecognized compensation expense related to all share based awards of $243 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, 2023 was $505 million. Cash received from stock option exercises and the employee stock purchase plan was $104 million, $156 million, and $102 million for the years ended December 31, 2023, 2022, and 2021, respectively. The total intrinsic value of options exercised during the years ended December 31, 2023, 2022, and 2021 was $152 million, $292 million, and $186 million, respectively. The aggregate intrinsic value for options outstanding and exercisable as of December 31, 2023 was $413 million and $355 million, respectively, based on a December 31, 2023 stock price of $313.09 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, 2023, 2022 and 2021 was $205 million, $165 million and $161 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. There were no LRIP awards with cash settlement terms for the year ended December 31, 2023. The expense for LRIP awards with cash settlement terms was $4 million and $8 million for the years ended December 31, 2022 and 2021, respectively.

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