Share-Based Compensation

We have a share-based compensation program that provides our board of directors broad discretion in creating employee equity incentives. Share-based awards granted under this program include stock options, restricted stock (consisting of restricted stock units), and PSUs. For accounting purposes, we consider PSUs to be a form of restricted stock.

Summary of Share-Based Compensation Expense

The following table shows the total share-based compensation expense resulting from equity awards and the 15.0% discount for the ESPP for the years ended December 31, 2016, 2015 and 2014 in the Consolidated Statements of Income:



	Year Ended December 31,
	2016			2015			2014
	(in millions)
Share-based compensation expense before income taxes	$	86		$	68		$	62
Income tax benefit	(35		)	(28		)	(26		)
Share-based compensation expense after income taxes	$	51		$	40		$	36

Common Shares Available Under Our Equity Plan

As of December 31, 2016, we had approximately 6.7 million shares of common stock authorized for future issuance under our Equity Plan.

Restricted Stock

We grant restricted stock to most active employees. The grant date fair value of restricted stock awards is based on the closing price at the date of grant less the present value of future cash dividends. Restricted stock awards granted generally vest 25.0% on the second anniversary of the grant date, 25.0% on the third anniversary of the grant date, and 50.0% on the fourth anniversary of the grant date. We generally recognize compensation expense for restricted stock awards on a straight-line basis over the requisite service period of the award, taking into account an estimated forfeiture rate.

Summary of Restricted Stock Activity

The following table summarizes our restricted stock activity for the years ended December 31, 2016, 2015 and 2014:



	Restricted Stock
	Number of Awards		Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2013	3,826,470		$	25.96
Granted	1,196,441		36.87
Vested	(1,529,792	)	23.29
Forfeited	(299,889	)	29.87
Unvested balances at December 31, 2014	3,193,230		$	30.99
Granted	823,950		49.26
Vested	(370,998	)	29.90
Forfeited	(302,444	)	34.34
Unvested balances at December 31, 2015	3,343,738		$	35.36
Granted	724,200		62.91
Vested	(1,238,980	)	27.91
Forfeited	(268,380	)	43.29
Unvested balances at December 31, 2016	2,560,578		$	45.92

At December 31, 2016, $52 million of total unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted-average period of 1.7 years.

PSUs

The grant date fair value of PSUs is based on the closing price at the date of grant less the present value of future cash dividends. PSUs are based on performance measures that impact the amount of shares that each recipient will receive upon vesting. We report the target number of PSUs granted, unless we have determined that it is more likely than not, based on the actual achievement of performance measures, that an employee will receive a different amount of shares underlying the PSUs, in which case we report the amount of shares the employee is likely to receive. We have two performance-based long-term PSU programs for certain officers, a one-year performance-based program and a three-year cumulative performance-based program that focuses on TSR.

One-Year PSU Program

Under the one-year performance-based program, an employee may receive from 0.0% to 150.0% of the target amount granted, depending on the achievement of performance measures. These awards vest ratably on an annual basis over a three-year period commencing with the end of the performance period. Compensation cost is recognized over the performance period and the three-year vesting period, taking into account an estimated forfeiture rate.

During 2016, certain grants of PSUs with a one-year performance period exceeded the applicable performance parameters. As a result, an additional 56,533 units above target were considered granted in the first quarter of 2017.

Three-Year PSU Program

Under the three-year performance-based program, each individual receives PSUs with a three-year cumulative performance period that vest at the end of the performance period. Compensation cost is recognized over the three-year vesting period. Performance will be determined by comparing Nasdaq’s TSR to two peer groups, each weighted 50.0%. The first peer group consists of exchange companies, and the second peer group consists of all companies in the S&P 500. Nasdaq’s relative performance ranking against each of these groups will determine the final number of shares delivered to each individual under the program. The payout under this program will be between 0.0% and 200.0% of the number of PSUs granted and will be determined by Nasdaq’s overall performance against both peer groups. However, if Nasdaq’s TSR is negative for the three-year performance period, regardless of TSR ranking, the payout will not exceed 100.0% of the number of PSUs granted. We estimate the fair value of PSU’s granted under the three-year PSU program using the Monte Carlo simulation model, as these awards contain a market condition.

Certain grants of PSUs that were issued in 2014 with a three-year performance period exceeded the applicable performance parameters. As a result, an additional 538,892 units above target were considered granted in the first quarter of 2017.

The following weighted-average assumptions were used to determine the weighted-average fair values of the PSU awards granted under the three-year PSU program for the years ended December 31, 2016 and December 31, 2015:



	Year Ended December 31,
	2016			2015
Weighted-average risk free interest rate⁽¹⁾	0.84		%	0.81		%
Expected volatility⁽²⁾	21.0		%	21.5		%
Weighted-average grant date share price	$	66.36		$	50.97
Weighted-average fair value at grant date	$	93.25		$	64.08

____________


⁽¹⁾	The risk-free interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.


⁽²⁾	We use historic volatility for PSU awards issued under the three-year PSU program, as implied volatility data could not be obtained for all the companies in the peer groups used for relative performance measurement within the program.

In addition, the annual dividend assumption utilized in the Monte Carlo simulation model is based on Nasdaq’s dividend yield at the date of grant.

Summary of PSU Activity

The following table summarizes our PSU activity for the years ended December 31, 2016, 2015 and 2014:



	PSUs
	One-Year Program				Three-Year Program
	Number of Awards		Weighted-Average Grant Date Fair Value		Number of Awards		Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2013	804,377		$	27.38	1,111,224		$	31.95
Granted	328,791		36.20		553,846		42.80
Vested	(442,781	)	27.75		—		—
Forfeited	(132,347	)	28.58		(10,503	)	30.82
Unvested balances at December 31, 2014	558,040		$	24.17	1,654,567		$	35.57
Granted	206,199		48.16		649,626		49.69
Vested	(247,273	)	30.51		(837,109	)	22.50
Forfeited	(92,999	)	34.74		(27,366	)	43.49
Unvested balances at December 31, 2015	423,967		$	41.34	1,439,718		$	49.41
Granted	242,642		58.33		761,501		66.89
Vested	(242,793	)	39.63		(879,926	)	43.81
Forfeited	(45,050	)	47.72		(6,625	)	69.11
Unvested balances at December 31, 2016	378,766		$	52.55	1,314,668		$	63.18

At December 31, 2016, $10 million of total unrecognized compensation cost related to the one-year PSU program is expected to be recognized over a weighted-average period of 1.4 years. For the three-year PSU program, $20 million of total unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.3 years.

Stock Options

The fair value of stock options are estimated using the Black-Scholes option-pricing model. Each grant has a 10-year life, vesting ratably over a four-year period, starting at the date of the grant. There were no stock option awards granted for the years ended December 31, 2016, 2015 and 2014.

Summary of Stock Option Activity

A summary of stock option activity for the years ended December 31, 2016, 2015 and 2014 is as follows:



	Number of Stock Options		Weighted-Average Exercise Price

Outstanding at December 31, 2013	4,926,522		$	25.21
Exercised	(1,578,050	)	20.31
Forfeited or expired	(31,690	)	24.23
Outstanding at December 31, 2014	3,316,782		$	27.56
Exercised	(682,054	)	26.84
Forfeited or expired	(8,241	)	28.53
Outstanding at December 31, 2015	2,626,487		$	27.74
Exercised	(1,219,820	)	34.00
Forfeited or expired	(296	)	23.31
Outstanding at December 31, 2016	1,406,371		$	22.32

We received net cash proceeds of $41 million from the exercise of 1,219,820 stock options for the year ended December 31, 2016, received net cash proceeds of $18 million from the exercise of 682,054 stock options for the year ended December 31, 2015 and received net cash proceeds of $32 million from the exercise of 1,578,050 stock options for the year ended December 31, 2014.

The following table summarizes significant ranges of outstanding and exercisable stock options as of December 31, 2016:



					Outstanding and Exercisable
Range of Exercise Prices					Number of Stock Options	Weighted-Average Remaining Contractual Term (in years)	Weighted-Average Exercise Price		Aggregate Intrinsic Value (in millions)
$	17.36	-	$	19.99	140,733	3.13	$	19.74	$	7
$	20.00	-	$	25.75	1,237,333	2.62	22.16		55
$	25.76	-	$	45.38	28,305	1.17	41.77		1
Total					1,406,371	2.65	$	22.32	$	63

The aggregate intrinsic value in the above table represents the total pre-tax intrinsic value (i.e., the difference between our closing stock price on December 30, 2016 of $67.12 and the exercise price, times the number of shares) based on stock options with an exercise price less than Nasdaq’s closing price of $67.12 as of December 30, 2016, which would have been received by the option holders had the option holders exercised their stock options on that date. This amount can change based on the fair market value of our common stock. The total number of in-the-money stock options exercisable as of December 31, 2016 was 1.4 million. As of December 31, 2015, 2.6 million outstanding stock options were exercisable and the weighted-average exercise price was $27.74.

Total fair value of stock options vested was immaterial for both the years ended December 31, 2016 and 2015. The total pre-tax intrinsic value of stock options exercised was $40 million during 2016, $17 million during 2015 and $33 million during 2014.

ESPP

We have an ESPP under which approximately 2.3 million shares of our common stock have been reserved for future issuance as of December 31, 2016. Under our ESPP, employees may purchase shares having a value not exceeding 10.0% of their annual compensation, subject to applicable annual Internal Revenue Service limitations. We record compensation expense related to the 15.0% discount that is given to our employees. The following table summarizes employee activity and expense associated with the ESPP for the years ended December 31, 2016, 2015 and 2014.



	Year Ended December 31,
	2016		2015		2014
Number of shares purchased by employees	233,464		247,444		256,772
Weighted-average price of shares purchased	$	50.39	$	40.95	$	33.06
Compensation expense (in millions)	$	4	$	4	$	4