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Equity Incentive Plans | 12 Months Ended
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Dec. 31, 2020
Equity Incentive Plans [Abstract] |
Equity Incentive Plans |
Note 18 | Equity Incentive Plans
The Company currently has equity incentive plans under which it grants nonqualified stock options, restricted stock units and performance stock awards to certain employees and directors of the Company.
Equity awards
($ in millions) |  | 2020 |  | 2019 |  | 2018
Compensation expense |  | $ | 124 |  |  | $ | 105 |  |  | $ | 125 |
Income tax benefits |  | 18 |  |  | 17 |  |  | 22 |
Cash received from exercise of options |  | 111 |  |  | 154 |  |  | 92 |
Tax benefit realized on options exercised and release of stock restrictions |  | 53 |  |  | 43 |  |  | 28 |
The Company records compensation expense related to awards under these plans over the shorter of the period in which the requisite service is rendered or retirement eligibility is attained. Compensation expense for performance stock awards with no market condition is based on the probable number of awards expected to vest using the performance level most likely to be achieved at the end of the performance period. Compensation expense for performance stock awards with a market condition is based on the number of awards expected to vest as estimated at the grant date and does not change if the market condition is not met.
Nonvested awards as of December 31, 2020
($ in millions) |  | Unrecognized compensation |  | Weighted average vesting period |  |
Nonqualified stock options |  | $ | 21 |  |  | 1.49 years |  |
Restricted stock units |  | 33 |  |  | 1.85 years |  |
Performance stock awards |  | 28 |  |  | 1.44 years |  |
Total |  | $ | 82 |  |  |  |  |
Options are granted to employees with exercise prices equal to the closing share price of the Company’s common stock on the applicable grant date. Options granted to employees on or after February 18, 2014 vest ratably over a three-year period. Options granted prior to February 18, 2014 vest 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date. Vesting is subject to continued service, except for employees who are retirement eligible and in certain other limited circumstances. Options may be exercised once vested and will expire no later than ten years after the date of grant. Restricted stock units for directors vest immediately and convert into shares of stock on the earlier of the day of the third anniversary of the grant date or the date the director’s service terminates, unless a deferred period of restriction is elected. Restricted stock units granted to directors prior to June 1, 2016 convert upon leaving the board. Restricted stock units granted to employees prior to February 19, 2020 vest on the day prior to the third anniversary of the grant date. Restricted stock units granted to employees on or after February 19, 2020 vest ratably over a three-year period. Restricted stock units granted to employees subsequently convert into shares of stock on the day of the respective anniversary of the grant date. Vesting is subject to continued service, except for employees who are retirement eligible and in certain other limited circumstances. Performance stock awards vest into shares of stock based on achieving established company-specific performance goals. Performance stock awards granted prior to February 19, 2020 vest into shares of stock on the day prior to the third anniversary of the grant date. Performance stock awards granted on or after February 19, 2020 vest into shares of stock on the third anniversary of the grant date. The numbers of shares earned upon vesting of the performance stock awards is based on the attainment of performance goals for each of the performance periods, subject to continued service, except for employees who are retirement eligible and in certain other limited circumstances. Since 2001, a total of 110.8 million shares of common stock were authorized to be used for awards under the plans, subject to adjustment in accordance with the plans’ terms. As of December 31, 2020, 20.9 million shares were reserved and remained available for future issuance under these plans. The Company uses its treasury shares for these issuances. The fair value of each option grant is estimated on the date of grant using a binomial lattice model. The Company uses historical data to estimate option exercise and employee termination within the valuation model. In addition, separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the binomial lattice model and represents the period of time that options granted are expected to be outstanding. The expected volatility of the price of the underlying shares is implied based on traded options and historical volatility of the Company’s common stock. The expected dividends were based on the current dividend yield of the Company’s stock as of the date of the grant. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
Option grant assumptions
|  | 2020 |  | 2019 |  | 2018
Weighted average expected term |  | 6.1 years |  | 5.8 years |  | 5.7 years
Expected volatility |  | 16.3% - 37.1% |  | 15.6% - 28.9% |  | 15.6% - 30.7%
Weighted average volatility |  | 17.6 | % |  | 18.4 | % |  | 19.8 | %
Expected dividends |  | 1.6% - 2.4% |  | 1.9% - 2.2% |  | 1.5% - 2.2%
Weighted average expected dividends |  | 1.8 | % |  | 2.2 | % |  | 2.0 | %
Risk-free rate |  | 0.1% - 1.8% |  | 1.3% - 2.7% |  | 1.3% - 3.2%
Summary of option activity
|  | For the year ended December 31, 2020
|  | Number (in 000s) |  | Weighted average exercise price |  | Aggregate intrinsic value (in 000s) |  | Weighted average remaining contractual term (years)
Outstanding as of January 1, 2020 |  | 11,671 |  |  | $ | 73.40 |  |  |  |  |
Granted |  | 1,555 |  |  | 123.43 |  |  |  |  |
Exercised |  | (2,201) |  |  | 53.75 |  |  |  |  |
Forfeited |  | (394) |  |  | 104.18 |  |  |  |  |
Expired |  | (14) |  |  | 81.21 |  |  |  |  |
Outstanding as of December 31, 2020 |  | 10,617 |  |  | 83.65 |  |  | $ | 298,537 |  |  | 6.1
Outstanding, net of expected forfeitures |  | 10,543 |  |  | 83.46 |  |  | 297,990 |  |  | 6.1
Outstanding, exercisable (“vested”) |  | 6,907 |  |  | 72.51 |  |  | 258,510 |  |  | 5.0
The weighted average grant date fair value of options granted was $18.17, $14.96 and $17.03 during 2020, 2019 and 2018, respectively. The intrinsic value, which is the difference between the fair value and the exercise price, of options exercised was $119 million, $114 million and $72 million during 2020, 2019 and 2018, respectively.
Changes in restricted stock units
|  | For the year ended December 31, 2020
|  | Number (in 000s) |  | Weighted average grant date fair value
Nonvested as of January 1, 2020 |  | 877 |  |  | $ | 83.87 |
Granted |  | 407 |  |  | 118.61 |
Vested |  | (278) |  |  | 80.10 |
Forfeited |  | (58) |  |  | 105.03 |
Nonvested as of December 31, 2020 |  | 948 |  |  | 98.61 |
The fair value of restricted stock units is based on the market value of the Company’s stock as of the date of the grant. The market value in part reflects the payment of future dividends expected. The weighted average grant date fair value of restricted stock units granted was $118.61, $92.97 and $93.16 during 2020, 2019 and 2018, respectively. The total fair value of restricted stock units vested was $32 million, $29 million and $47 million during 2020, 2019 and 2018, respectively.
Changes in performance stock awards
|  | For the year ended December 31, 2020
|  | Number (in 000s) |  | Weighted average grant date fair value
Nonvested as of January 1, 2020 |  | 1,181 |  |  | $ | 87.78 |
Granted |  | 282 |  |  | 123.48 |
Adjustment for performance achievement |  | 408 |  |  | 78.49 |
Vested |  | (816) |  |  | 78.49 |
Forfeited |  | (104) |  |  | 101.10 |
Nonvested as of December 31, 2020 |  | 951 |  |  | 100.89 |
The change in performance stock awards comprises those initially granted in 2020 and the adjustment to previously granted performance stock awards for performance achievement. The fair value of performance stock awards that do not include a market condition is based on the market value of the Company’s stock as of the date of the grant. Starting with the February 2020 award, the fair value of performance stock awards includes a component with market-based condition measured on the grant date using a Monte Carlo simulation model. Market-based condition measures the Company’s total shareholder return (“TSR”) relative to the TSR of peer companies, expressed in terms of the Company’s TSR percentile rank among the peer companies, over a three-calendar-year performance period. The Monte Carlo simulation model uses a risk-neutral framework to model future stock price movements based upon the risk-free rate of return at the time of grant, volatilities of the Company and the peer companies, and expected term assumed to be equal to the remaining measurement period. The market value in part reflects the payment of future dividends expected. For the year ended December 31, 2020, the 2020 performance stock awards with market-based condition assumes a risk-free rate of 1.4%, volatility of 16.9%, average peer volatility of 35.1% and an expected term of 2.9 years. The weighted average grant date fair value of performance stock awards granted was $123.48, $92.49 and $92.88 during 2020, 2019 and 2018, respectively. The total fair value of performance stock awards vested was $101 million, $65 million and $15 million during 2020, 2019 and 2018, respectively. The Company recognizes all tax effects related to share-based payments at settlement or expiration through the income statement.

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