
	SHARE-BASED PAYMENTS

Omnibus Incentive Plan

Prudential Financial, Inc.’s Omnibus Incentive Plan provides stock-based awards including stock options, stock appreciation rights, restricted stock shares, restricted stock units, stock settled performance shares, and cash settled performance units. Dividend equivalents are generally provided on restricted stock shares and restricted stock units outstanding as of the record date. Dividend equivalents are generally accrued on target performance shares and units outstanding as of the record date. These dividend equivalents are paid only on the shares and units released up to a maximum of the target number of shares and units awarded. Generally, the requisite service period is the vesting period. There were 23,092,637 authorized shares available for grant under the Omnibus Plan as of December 31, 2017.

Compensation Costs

Compensation cost for restricted stock units, performance shares and performance units granted to employees is measured by the share price of the underlying Common Stock at the date of grant.

Compensation cost for employee stock options is based on the fair values estimated on the grant date. The fair value of each stock option award is estimated using a binomial option pricing model on the date of grant for stock options issued to employees. The weighted average grant date assumptions used in the binomial option valuation model are as follows:



	2017		2016		2015
Expected volatility	35.29	%	38.36	%	34.67	%
Expected dividend yield	2.84	%	3.92	%	3.00	%
Expected term	5.60 years		5.61 years		5.57 years
Risk-free interest rate	2.06	%	1.25	%	1.61	%

Expected volatilities are based on historical volatility of the Company’s Common Stock and implied volatilities from traded options on the Company’s Common Stock. The Company uses historical data and expectations of future exercise patterns to estimate option exercises and employee terminations within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods associated with the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The following chart summarizes the compensation cost recognized and the related income tax benefit for stock options, restricted stock units, performance shares and performance units for the years ended December 31:



	2017				2016				2015
	Total Compensation Cost Recognized		Income Tax Benefit		Total Compensation Cost Recognized		Income Tax Benefit		Total Compensation Cost Recognized		Income Tax Benefit

	(in millions)
Employee stock options	$	12	$	5	$	19	$	7	$	21	$	8
Employee restricted stock units	142		51		126		47		111		42
Employee performance shares and performance units	109		41		57		21		32		12
Total	$	263	$	97	$	202	$	75	$	164	$	62

Compensation costs related to stock-based compensation plans capitalized in deferred acquisition costs for the years ended December 31, 2017, 2016 and 2015 were de minimis.

Stock Options

Each stock option granted has an exercise price at the fair market value of the Company’s Common Stock on the date of grant and has a maximum term of 10 years. Generally, one third of the option grant vests in each of the first three years.

A summary of the status of the Company’s stock option grants is as follows:



	Employee Stock Options
	Shares		Weighted Average Exercise Price
Outstanding at December 31, 2016	6,738,802		$	63.53
Granted	410,501		110.15
Exercised	(2,385,170	)	63.80
Forfeited	(28,910	)	69.23
Expired	(5,821	)	83.29
Outstanding at December 31, 2017	4,729,402		$	67.38
Exercisable at December 31, 2017	3,248,670		$	61.91

The weighted average grant date fair value of employee stock options granted during the years ended December 31, 2017, 2016 and 2015 was $27.91, $14.81 and $18.45, respectively.

The total intrinsic value (i.e., market price of the stock less the option exercise price) of employee stock options exercised during the years ended December 31, 2017, 2016 and 2015 was $109 million, $120 million, and $49 million, respectively.

The weighted average remaining contractual term and the aggregate intrinsic value of stock options outstanding and exercisable as of December 31, 2017 is as follows:



	December 31, 2017
	Employee Stock Options
	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in years)	(in millions)
Outstanding	5.56	$	225
Exercisable	4.51	$	172

Restricted Stock Units, Performance Share Awards and Performance Unit Awards

A restricted stock unit is an unfunded, unsecured right to receive a share of the Company’s Common Stock at the end of a specified period of time, which is subject to forfeiture and transfer restrictions. Generally, the restrictions will lapse on the third anniversary of the date of grant. Performance shares and performance units are awards denominated in the Company’s Common Stock. The number of units is determined over the performance period, and may be adjusted based on the satisfaction of certain performance goals for the Company. Performance share awards are payable in the Company’s Common Stock. Performance unit awards are payable in cash.

A summary of the Company’s restricted stock units, performance shares and performance unit awards is as follows:



	Restricted Stock Units		Weighted Average Grant Date Fair Value		Performance Share and Performance Unit Awards(1)		Weighted Average Grant Date Fair Value
Restricted at December 31, 2016(2)	4,979,707		$	73.77	1,663,673		$	104.06
Granted(2)	1,540,848		110.39		601,179		114.98
Forfeited	(125,209	)	83.34		(9,610	)	109.21
Performance adjustment(3)					105,829		110.45
Released	(1,253,305	)	84.08		(540,739	)	110.45
Restricted at December 31, 2017(2)	5,142,041		$	82.00	1,820,332		$	114.98

__________


(1)	Performance share and performance unit awards reflect the target units awarded, reduced for forfeitures and releases to date. The actual number of units to be awarded at the end of each performance period will range between 0% and 125% of the target number of units granted, based upon a measure of the reported performance for the Company relative to stated goals.

(2)

For performance share and performance unit awards, the grant date is the same as the date the grant vests. The features of the grant are such that a mutual understanding of the key terms and conditions of the award between the employee and employer have not been reached until the grant is vested. Consequently, the weighted average grant date fair value as of December 31, 2017 and December 31, 2016 is the closing stock price of Prudential Financial’s common stock on those dates.


(3)	Represents the difference between the target units granted and the actual units awarded based upon the attainment of performance goals for the Company.

The fair market value of restricted stock units, performance shares and performance units released for the years ended December 31, 2017, 2016 and 2015 was $196 million, $128 million and $162 million, respectively.

The weighted average grant date fair value for restricted stock units granted during the years ended December 31, 2017, 2016 and 2015 was $110.39, $64.12 and $78.4, respectively. The weighted average grant date fair value for performance shares and performance units granted during the years ended December 31, 2017, 2016 and 2015 was $114.98, $104.06 and $81.41, respectively.

Unrecognized Compensation Cost

Unrecognized compensation cost for stock options as of December 31, 2017 was $3 million with a weighted average recognition period of 1.64 years. Unrecognized compensation cost for restricted stock units, performance shares and performance units as of December 31, 2017 was $152 million with a weighted average recognition period of 1.71 years.

Tax Benefits Realized

The tax benefit realized for exercises of stock options during the years ended December 31, 2017, 2016 and 2015 was $39 million, $41 million and $20 million, respectively.

The tax benefit realized upon vesting of restricted stock units, performance shares and performance units for the years ended December 31, 2017, 2016 and 2015 was $70 million, $46 million and $58 million, respectively.

Settlement of Awards

The Company’s policy is to issue shares from Common Stock held in treasury upon exercise of stock options, the release of restricted stock units and performance shares. The Company uses cash to settle performance units. The amount of cash used to settle performance units during the years ended December, 31, 2017, 2016 and 2015 was $27 million, $18 million and $21 million, respectively.