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Share-Based Compensation | 12 Months Ended
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Dec. 31, 2019
Share-based Payment Arrangement [Abstract] |
Share-Based Compensation | Share-Based Compensation The Company recognizes the fair value of share-based compensation awards granted to employees in cost of processing and services, cost of product, and selling, general and administrative expense in its consolidated statements of income. The Company’s share-based compensation awards are typically granted in the first quarter of the year and primarily consist of the following: Stock Options – The Company grants stock options to employees and non-employee directors at exercise prices equal to the fair market value of the Company’s stock on the dates of grant. Stock options generally vest over a three-year period beginning on the first anniversary of the grant. All stock options expire ten years from the date of the award. The Company recognizes compensation expense for the fair value of the stock options over the requisite service period of the stock option award. Restricted Stock Units and Awards – The Company grants restricted stock units and awards to employees and non-employee directors. The Company recognizes compensation expense for restricted stock units and awards based on the market price of the common stock on the grant date over the period during which the units and awards vest. Performance Share Units and Awards – The Company grants performance share units and awards to employees. The number of shares issued at the end of the performance period is determined by the level of achievement of pre-determined performance and market goals, including earnings, revenue growth, synergy attainment and shareholder return. The Company recognizes compensation expense on performance share units and awards ratably over the requisite performance period of the award to the extent management views the performance goals as probable of attainment. The Company recognizes compensation expense for the fair value of the shareholder return component over the requisite service period of the award. Employee Stock Purchase Plan – The Company maintains an employee stock purchase plan that allows eligible employees to purchase a limited number of shares of common stock each quarter through payroll deductions at 85% of the closing price of the Company’s common stock on the last business day of each calendar quarter. The Company recognizes compensation expense related to the 15% discount on the purchase date. Effective January 1, 2020, the employee discount under the employee stock purchase plan was modified to 10%. The Company recognized $229 million, $73 million and $63 million of share-based compensation expense during the years ended December 31, 2019, 2018 and 2017, respectively. At December 31, 2019, the total remaining unrecognized compensation cost for unvested stock options, restricted stock units and awards and performance share units and awards, net of estimated forfeitures, of $496 million is expected to be recognized over a weighted-average period of 1.7 years. During the years ended December 31, 2019, 2018 and 2017, stock options to purchase 4.7 million, 2.7 million and 2.9 million shares, respectively, were exercised. Acquisition of First Data Upon the completion of the First Data acquisition on July 29, 2019 (see Note 4), First Data’s equity awards, whether vested or unvested, were either settled in shares of the Company’s common stock or converted into equity awards denominated in shares of the Company’s common stock based on a defined exchange ratio of 0.303, as described below. First Data time-vesting awards that were granted at or prior to the initial public offering of First Data (the “First Data IPO”) were accelerated in full in accordance with their terms, except for certain executive officer awards and certain awards held by retirement-eligible employees, which were not accelerated and instead converted into equity awards denominated in shares of the Company’s common stock. Each such time-vesting, pre-IPO restricted stock and restricted stock unit award was settled in shares of the Company’s common stock based on the exchange ratio. Each time-vesting, pre-IPO stock option award was converted into an option to purchase a number of shares of the Company’s common stock based on the exchange ratio with an exercise price per share equal to the exercise price per share of such stock option award immediately prior to the completion of the acquisition divided by the exchange ratio. First Data equity awards granted at the time of the First Data IPO that were subject to vesting solely upon achievement of a $32 price per share of First Data common stock were converted into equity awards denominated in shares of the Company’s common stock and remained eligible to vest upon satisfaction of an adjusted target price per share of the Company’s common stock equal to the existing First Data target price divided by the exchange ratio. Such awards vested during the third quarter of 2019. Each restricted stock and restricted stock unit award that was a performance-vesting IPO award was converted into an award denominated in shares of the Company’s common stock based on the exchange ratio, and each stock option award that was a performance-vesting award was converted into an option to purchase a number of shares of the Company’s common stock based on the exchange ratio with an exercise price per share equal to the exercise price per share of such stock option award immediately prior to the completion of the acquisition divided by the exchange ratio. As converted, the performance-vesting awards continued to be governed by the same terms and conditions as were applicable prior to the acquisition and vested during the year ended December 31, 2019 upon satisfaction of the adjusted performance condition. The remaining existing First Data equity awards, whether vested or unvested, were converted into equity awards denominated in shares of the Company’s common stock based on the exchange ratio, with an exercise price per share for option awards equal to the exercise price per share of such stock option award immediately prior to the completion of the acquisition divided by the exchange ratio, and will continue to be governed by generally the same terms and conditions as were applicable prior to the acquisition; provided that, subject to compliance with Section 409A of the Internal Revenue Code, such awards will accelerate upon a covered termination as defined in the merger agreement. The portion of the fair value of the replacement awards related to services provided prior to the acquisition was $768 million and was accounted for as consideration transferred. The remaining portion of the fair value of $467 million is associated with future service and is recognized as compensation expense, net of estimated forfeitures, over the weighted-average remaining vesting period of 1.2 years. The fair value of options that the Company assumed in connection with the acquisition of First Data were estimated using the Black-Scholes model with the following assumptions:
Expected life (in years) | 2.5 |
Average risk-free interest rate | 1.9 | %
Expected volatility | 27.4 | %
Expected dividend yield | 0 | %
The Company determined the expected life of stock options using a midpoint approach considering the vesting schedule, contractual terms and current option life-to-date. The risk-free interest rate was based on the U.S. treasury yield curve in effect as of the acquisition date. Expected volatility was determined using a weighted-average of the implied volatility and the mean reversion volatility of the Company’s stock at the time of conversion. Share-Based Compensation Activity The weighted-average estimated fair value of stock options granted during 2019, 2018 and 2017 was $28.52, $22.48 and $18.76 per share, respectively. The fair values of stock options granted were estimated on the date of grant using a binomial option-pricing model with the following assumptions:
| 2019 |  | 2018 |  | 2017
Expected life (in years) | 6.4 |  |  | 6.3 |  |  | 6.3 |
Average risk-free interest rate | 2.7 | % |  | 2.2 | % |  | 2.2 | %
Expected volatility | 28.5 | % |  | 28.3 | % |  | 28.9 | %
Expected dividend yield | 0 | % |  | 0 | % |  | 0 | %
The Company determined the expected life of stock options using historical data adjusted for known factors that could alter historical exercise behavior. The risk-free interest rate was based on the U.S. treasury yield curve in effect as of the grant date. Expected volatility was determined using weighted-average implied market volatility combined with historical volatility. The Company believes that a blend of historical volatility and implied volatility better reflects future market conditions and better indicates expected volatility than purely historical volatility. A summary of stock option activity is as follows:
| Shares (In thousands) |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Term (Years) |  | Aggregate Intrinsic Value (In millions)
Stock options outstanding - December 31, 2018 | 12,052 |  |  | $ | 33.96 |  |  |  |  |
Converted First Data stock options | 7,591 |  |  | 42.13 |  |  |  |  |
Granted | 1,188 |  |  | 84.95 |  |  |  |  |
Forfeited | (183 | ) |  | 69.38 |  |  |  |  |
Exercised | (4,659 | ) |  | 28.43 |  |  |  |  |
Stock options outstanding - December 31, 2019 | 15,989 |  |  | $ | 42.83 |  |  | 4.97 |  | $ | 1,164 |
Stock options exercisable - December 31, 2019 | 13,370 |  |  | $ | 37.02 |  |  | 4.32 |  | $ | 1,051 |
A summary of restricted stock unit and performance share unit activity is as follows:
|  | Restricted Stock Units |  | Performance Share Units
|  | Shares (In thousands) |  | Weighted- Average Grant Date Fair Value |  | Shares (In thousands) |  | Weighted- Average Grant Date Fair Value
Units - December 31, 2018 |  | 1,821 |  |  | $ | 53.22 |  |  | 524 |  |  | $ | 57.60 |
Converted First Data units |  | 6,025 |  |  | 102.30 |  |  | 1,333 |  |  | 101.96 |
Granted |  | 564 |  |  | 92.24 |  |  | 1,114 |  |  | 92.95 |
Forfeited |  | (292 | ) |  | 83.23 |  |  | (238 | ) |  | 50.96 |
Vested |  | (1,249 | ) |  | 76.95 |  |  | (405 | ) |  | 90.03 |
Units - December 31, 2019 |  | 6,869 |  |  | $ | 93.80 |  |  | 2,328 |  |  | $ | 94.61 |
A summary of restricted stock award and performance share award activity is as follows:
| Restricted Stock Awards |  | Performance Share Awards
| Shares (In thousands) |  | Weighted-Average Grant Date Fair Value |  | Shares (In thousands) |  | Weighted-Average Grant Date Fair Value
Awards - December 31, 2018 | — |  |  | $ | — |  |  | — |  |  | $ | — |
Converted First Data awards | 96 |  |  | 102.30 |  |  | 264 |  |  | 87.57 |
Granted | — |  |  | — |  |  | — |  |  | — |
Forfeited | — |  |  | — |  |  | (16 | ) |  | 87.57 |
Vested | (48 | ) |  | 102.30 |  |  | (248 | ) |  | 87.57 |
Awards - December 31, 2019 | 48 |  |  | $ | 102.30 |  |  | — |  |  | $ | — |
The table below presents additional information related to stock option and restricted stock unit activity:
(In millions) |  | 2019 |  | 2018 |  | 2017
Total intrinsic value of stock options exercised |  | $ | 331 |  |  | $ | 147 |  |  | $ | 116 |
Fair value of restricted stock units vested |  | 198 |  |  | 37 |  |  | 61 |
Income tax benefit from stock options exercised and restricted stock units vested |  | 126 |  |  | 43 |  |  | 66 |
Cash received from stock options exercised |  | 104 |  |  | 29 |  |  | 36 |
At December 31, 2019, 33.2 million share-based awards were available for grant under the Amended and Restated Fiserv, Inc. 2007 Omnibus Incentive Plan. Under its employee stock purchase plan, the Company issued 0.6 million shares in 2019, 0.7 million shares in 2018 and 0.8 million shares in 2017. At December 31, 2019, there were 24.7 million shares available for issuance under the employee stock purchase plan.

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