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STOCK-BASED COMPENSATION | 12 Months Ended
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Dec. 31, 2024
Share-Based Payment Arrangement, Noncash Expense [Abstract] |
STOCK-BASED COMPENSATION | NOTE 13. STOCK-BASED COMPENSATION In 2021, our shareholders approved our 2021 Omnibus Incentive Compensation Plan (the "Plan") under which we are authorized to issue non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock units ("RSUs"), and restricted performance shares and performance units ("RPUs", collectively with RSUs, "Restricted Units") underlying 25 million shares. Each award issued in the form of Restricted Units, stock options and other permitted awards reduces the share reserve by one share. We had 9 million shares available to be issued under the Plan as of December 31, 2024. Our primary equity compensation programs are the UPS Long-Term Incentive Performance Award program (the "LTIP") and the UPS Stock Option program. We also grant Restricted Units to our Board of Directors (the "Board") as a component of their annual compensation and, from time to time, to individual employees as a retention mechanism. The awards issued under these programs are considered to be equity classified. The total expense recognized in our statements of consolidated income for these stock compensation programs during 2024, 2023 and 2022 was $24 million, $220 million and $1.6 billion, respectively. The associated income tax benefit (expense) recognized in our statements of consolidated income during 2024, 2023 and 2022 was $(18), $42 and $451 million, respectively. The cash income tax benefit received from the exercise of stock options and conversion of Restricted Units to class A shares during 2024, 2023 and 2022 was $110, $201 and $352 million, respectively. We maintain the UPS Management Incentive Award Program (the "MIP") for certain management employees. Employees may elect to receive cash or unrestricted shares of class A common stock under the MIP. Substantially all MIP awards are settled in cash, based on participant elections. We also maintain an employee stock purchase plan which allows eligible employees to purchase shares of UPS class A common stock at a discount. Management Incentive Award Program Non-executive management eligibility under the MIP is determined annually by the executive officers of UPS. Executive officer eligibility is determined annually by the Compensation and Human Capital Committee of the Board (the "Compensation Committee"). The MIP is an incentive-based compensation program, with awards based on annual Company performance. Beginning 2023, MIP awards are paid in cash, unless a participant elects to receive all or a portion of the award in unrestricted shares of class A common stock. As of December 31, 2024, the MIP was classified as a compensation obligation within Accrued wages and withholdings in our consolidated balance sheets. Prior to 2023, MIP awards were generally paid in one-half to two-thirds RPUs, depending upon the recipient's level of seniority. The remainder of the award was electable in the form of cash or unrestricted shares of class A common stock, and was fully vested at the time of grant. Upon conversion, RPUs resulted in the issuance of an equivalent number of shares of class A common stock after required tax withholdings. During 2022, the Compensation Committee amended and restated the terms and conditions governing 2022 MIP RPUs to provide that such awards would fully vest as of December 31, 2022. The elimination of a future service requirement for this award resulted in the recognition of an additional $505 million of stock compensation expense in 2022, of which approximately $431 million was recorded in U.S. Domestic Package. In 2023, the Compensation Committee approved the 2022 MIP awards and the compensation obligation was relieved. The RPUs granted were recorded as additional paid-in capital on the measurement date. Dividends earned on Restricted Units are reinvested in additional Restricted Units at each dividend payable date until conversion to class A shares occurs. The following table shows the change in non-vested Restricted Units under our equity compensation programs other than the LTIP (defined below) in 2024:
| Restricted Units (in thousands) |  | Weighted-Average Grant Date Fair Value |  |  |  |
Non-vested as of January 1, 2024 | 58 |  |  | $ | 176.68 |  |  |  |  |
Vested | (83) |  |  | 169.01 |  |  |  |  |
Granted | 14 |  |  | 147.22 |  |  |  |  |
Reinvested dividends | 41 |  |  | N/A |  |  |  |
Forfeited / Expired | (5) |  |  | 154.27 |  |  |  |  |
Non-vested as of December 31, 2024 | 25 |  |  | $ | 177.76 |  |  |  |  |
The fair value of these Restricted Units is the NYSE closing price of class B common stock on the date of grant. The weighted-average grant date fair value of Restricted Units, other than awards granted under the LTIP, which are discussed below, granted during 2024, 2023 and 2022 was $147.22, $185.66 and $223.72, respectively. The total fair value of these RPUs vested was $11 million, $1.1 billion and $923 million in 2024, 2023 and 2022, respectively. As of December 31, 2024, there was $3 million of total unrecognized compensation cost related to non-vested Restricted Units, other than awards granted under the LTIP, which are discussed below. That cost is expected to be recognized over a weighted-average period of two years. Long-Term Incentive Performance Award Program ("LTIP") LTIP RPUs vest at the end of a three-year performance period, assuming continued employment with the Company (except in the case of death, disability or retirement, in which case immediate vesting occurs on a prorated basis). The number of RPUs earned is based on achievement of performance targets established on the grant date. LTIP awards have performance targets that are equally weighted between adjusted earnings per share and adjusted cumulative free cash flow. The final number of RPUs earned is then subject to adjustment based on RTSR relative to the Standard & Poor's 500 Index. We determine the grant date fair value of these RPUs using a Monte Carlo model and recognize compensation expense (less estimated forfeitures) ratably over the vesting period, based on the number of awards expected to be earned. The weighted-average assumptions used in our Monte Carlo models for each award year were as follows:
| 2024 |  | 2023 |  | 2022
Risk-free interest rate | 4.43 | % |  | 3.89 | % |  | 2.35 | %
Expected volatility | 27.02 | % |  | 30.23 | % |  | 31.92 | %
Weighted-average fair value of units granted | $ | 156.73 |  |  | $ | 198.78 |  |  | $ | 227.00 |
Share payout | 101.92 | % |  | 107.72 | % |  | 107.37 | %
There is no expected dividend yield as units earn dividend equivalents. The following table shows LTIP RPU activity during the year ended December 31, 2024:
| RPUs (in thousands) |  | Weighted-Average Grant Date Fair Value |  |  |  |
Non-vested as of January 1, 2024 | 1,268 |  |  | $ | 210.04 |  |  |  |  |
Vested | (296) |  |  | 214.27 |  |  |  |  |
Granted | 918 |  |  | 156.73 |  |  |  |  |
Reinvested dividends | 90 |  |  | N/A |  |  |  |
Performance adjustments (1) | (320) |  |  | 226.71 |  |  |  |  |
Forfeited / Expired | (259) |  |  | 184.89 |  |  |  |  |
Non-vested as of December 31, 2024 | 1,401 |  |  | $ | 174.12 |  |  |  |  |
(1) Represents the incremental performance adjustment to RPUs with a performance period ending in 2024, which vested during the year. The fair value of each LTIP RPU is based on the NYSE closing price of class B common stock on the date of grant. The weighted-average grant date fair value of LTIP RPUs granted during 2024, 2023 and 2022 was $156.73, $198.78 and $227.00, respectively. The total fair value of LTIP RPUs vested during 2024, 2023 and 2022 was $23, $111 and $239 million, respectively. As of December 31, 2024, there was $104 million of total unrecognized compensation cost related to non-vested LTIP RPUs. That cost is expected to be recognized over a weighted-average period of one year and ten months. Non-qualified Stock Options Stock options may be granted under the Plan, and must have an exercise price at least equal to the NYSE closing price of UPS class B common stock on the date the option is granted. We grant non-qualified stock options to a limited group of eligible senior management employees annually, in which the value granted is determined as a percentage of salary. Stock option grants vest over a five-year period with approximately 20% of the award vesting at each anniversary of the grant date (except in the case of death, disability or retirement, in which case immediate vesting occurs). Option grants expire 10 years after the date of the grant. Option holders may exercise their options via the payment of cash or class A common stock; new class A shares are issued upon exercise. The following table provides an analysis of activity during 2024 relating to options to purchase shares of class A common stock:
| Options (in thousands) |  | Weighted-Average Exercise Price |  | Weighted-Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2024 | 1,382 |  |  | $ | 127.91 |  |  |  |  |
Exercised | (34) |  |  | 99.69 |  |  |  |  |
Granted | 153 |  |  | 154.76 |  |  |  |  |
Forfeited / Expired | (49) |  |  | N/A |  |  |  |
Outstanding as of December 31, 2024 | 1,452 |  |  | $ | 130.08 |  |  | 5.08 |  | $ | 19 |
Options Vested and Expected to Vest | 1,452 |  |  | $ | 130.08 |  |  | 5.08 |  | $ | 19 |
Exercisable as of December 31, 2024 | 1,128 |  |  | $ | 119.92 |  |  | 4.26 |  | $ | 18 |
The fair value of each option grant is estimated using the Black-Scholes option pricing model. The weighted-average assumptions used by year, and the calculated weighted-average fair values of options, are as follows:
| 2024 |  | 2023 |  | 2022
Expected dividend yield | 3.96 | % |  | 3.54 | % |  | 2.35 | %
Risk-free interest rate | 4.25 | % |  | 3.70 | % |  | 2.39 | %
Expected life in years | 6.13 |  | 5.93 |  | 7.50
Expected volatility | 28.94 | % |  | 28.31 | % |  | 25.04 | %
Weighted-average fair value of options granted | $ | 34.76 |  |  | $ | 41.08 |  |  | $ | 48.45 |
The expected dividend yield is based on recent historical dividend yields for our stock, taking into account changes in dividend policy. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant. The expected life represents an estimate of the period of time options are expected to remain outstanding. In determining this, we have relied upon a combination of the observed exercise behavior of our prior grants with similar characteristics and the contractual term of the grants. Expected volatilities are based on the historical returns on our stock and the implied volatility of our publicly-traded options. We received cash of $3, $20 and $14 million during 2024, 2023 and 2022, respectively, from option holders resulting from the exercise of stock options. The total intrinsic value of options exercised during 2024, 2023 and 2022 was $2, $15 and $20 million, respectively. As of December 31, 2024, there was $3 million of total unrecognized compensation cost related to non-vested options. That cost is expected to be recognized over a weighted-average period of three years and five months. Discounted Employee Stock Purchase Plan We maintain an employee stock purchase plan for all eligible employees. Under this plan, shares of UPS class A common stock may be purchased at quarterly intervals at 95% of the NYSE closing price of UPS class B common stock on the last day of each quarterly period. Employees purchased 0.8, 0.7 and 0.6 million shares at average prices of $130.14, $162.34 and $180.80 per share, during 2024, 2023 and 2022, respectively. This plan is not considered to be compensatory, and therefore no compensation cost is incurred for the employees’ purchase rights.

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