STOCK INCENTIVE PLANS

The Company maintains stock incentive plans under which the Company may grant a variety of incentive awards to employees and executives, which include restricted stock units (RSUs), non-qualified stock options, performance shares and deferred stock units. As of December 31, 2018, there were 2.5 million shares available for grant under the plans. When awards are exercised or settled, shares of the Company’s treasury stock are issued.

Pretax stock-based compensation expense, included in SG&A was $47 million, $33 million and $36 million in 2018, 2017 and 2016, respectively and was primarily comprised of Restricted Stock Units (RSUs) and option grants. Related income tax benefits recognized in earnings were $26 million, $26 million and $12 million in 2018, 2017 and 2016, respectively.

Restricted Stock Units

The Company awards RSUs to certain employees and executives. RSUs granted vest generally over periods from three to seven years from issuance, although accelerated vesting is provided in certain instances. Holders of RSUs are entitled to receive nonforfeitable cash payments equivalent to cash dividends and other distributions paid with respect to common stock. RSUs are settled by the issuance of the Company's common stock on a one-for-one basis. Compensation expense related to RSUs is based upon the closing market price on the last trading day preceding the date of award and is charged to earnings on a straight-line basis over the vesting period. The following table summarizes RSU activity (in millions, except for share and per share amounts):



	2018				2017				2016
	Shares		Weighted Average Price Per Share		Shares		Weighted Average Price Per Share		Shares		Weighted Average Price Per Share
Beginning nonvested units	352,919		$	226.31	373,403		$	221.77	432,783		$	213.45
Issued	141,775		$	284.98	129,378		$	222.53	113,909		$	230.36
Canceled	(56,393	)	$	245.08	(47,488	)	$	229.36	(62,869	)	$	229.70
Vested	(94,487	)	$	233.75	(102,374	)	$	203.51	(110,420	)	$	193.51
Ending nonvested units	343,814		$	245.38	352,919		$	226.31	373,403		$	221.77
Fair value of shares vested	$22				$21				$21

At December 31, 2018 there was $51 million of total unrecognized compensation expense related to nonvested RSUs that the Company expects to recognize over a weighted average period of 3.0 years.

Stock Options

The Company issues stock option grants to certain employees and executives. Option awards are granted with an exercise price equal to the closing market price of the Company's stock on the day of the grant. The options generally vest over three years, although accelerated vesting is provided in certain circumstances. Awards generally expire 10 years from the grant date. Transactions involving stock options are summarized as follows:



	Shares Subject to Option		Weighted Average Price Per Share		Options Exercisable
Outstanding at January 1, 2016	2,226,286		$	169.96	1,411,460
Granted	294,874		$	234.25
Exercised	(317,110	)	$	108.28
Canceled or expired	(80,014	)	$	210.01
Outstanding at December 31, 2016	2,124,036		$	186.59	1,346,707
Granted	306,206		$	230.97
Exercised	(409,269	)	$	115.35
Canceled or expired	(87,260	)	$	222.00
Outstanding at December 31, 2017	1,933,713		$	207.10	1,375,844
Granted	204,250		$	276.64
Exercised	(931,929	)	$	193.68
Canceled or expired	(72,931	)	$	226.48
Outstanding at December 31, 2018	1,133,103		$	229.42	581,534

At December 31, 2018 there was $9 million of total unrecognized compensation expense related to nonvested option awards, which the Company expects to recognize over a weighted average period of 1.9 years.

The following table summarizes information about stock options (in millions of dollars):



	For the years ended December 31,
	2018		2017		2016
Fair value of options exercised	$	38	$	11	$	8
Total intrinsic value of options exercised	102		47		36
Fair value of options vested	8		24		15
Settlements of options exercised	180		47		35

Information about stock options outstanding and exercisable as of December 31, 2018, is as follows:



	Options Outstanding						Options Exercisable
		Weighted Average						Weighted Average
Range of Exercise Prices	Number	Remaining Contractual Life	Exercise Price		Intrinsic Value (millions)		Number	Remaining Contractual Life	Exercise Price		Intrinsic Value (millions)
$72.14 - $204.01	184,435	2.23 years	$	152.28	$	24	183,292	2.19 years	$	152.17	$	24
$223.68 - $276.64	948,668	7.37 years	$	244.42	36		398,242	6.10 years	$	238.88	17
	1,133,103	6.54 years	$	229.42	$	60	581,534	4.87 years	$	211.55	$	41

The Company uses a binomial lattice option pricing model for the valuation of stock options. The weighted average fair value of options granted in 2018, 2017 and 2016 was $67.31, $45.09 and $44.94, respectively. The fair value of options granted in 2018, 2017 and 2016 used the following assumptions:



	For the years ended December 31,
	2018	2017	2016
Risk-free interest rate	2.6%	2.0%	1.4%
Expected life	6 years	6 years	6 years
Expected volatility	27.5%	23.9%	24.5%
Expected dividend yield	1.9%	2.1%	2.0%

The risk-free interest rate is selected based on yields from U.S. Treasury zero-coupon issues with a remaining term approximately equal to the expected term of the options being valued. The expected life selected for options granted during each year presented represents the period of time that the options are expected to be outstanding based on historical data of option holder exercise and termination behavior. Expected volatility is based upon implied and historical volatility of the Company's closing stock price over a period equal to the expected life of each option grant. Historical Company information is the primary basis for selection of expected dividend yield assumptions.