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Stock Compensation | 12 Months Ended
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Jan. 02, 2021
Share-based Payment Arrangement [Abstract] |
Stock Compensation [Text Block] | STOCK COMPENSATION The Company uses various equity-based compensation programs to provide long-term performance incentives for its global workforce. Currently, these incentives consist principally of stock options, restricted stock units and executive performance shares. The Company also sponsors a discounted stock purchase plan in the United States and matching-grant programs in several international locations. Additionally, the Company awards restricted stock to its outside directors. These awards are administered through several plans, as described within this Note. The 2017 Long-Term Incentive Plan (2017 Plan), approved by shareholders in 2017, permits awards to employees and officers in the form of incentive and non-qualified stock options, performance units, restricted stock or restricted stock units, and stock appreciation rights. The 2017 Plan, which replaced the 2013 Long-Term Incentive Plan (2013 Plan), authorizes the issuance of a total of (a) 16 million shares; plus (b) the total number of shares remaining available for future grants under the 2013 Plan. The total number of shares remaining available for issuance under the 2017 Plan will be reduced by two shares for each share issued pursuant to an award under the 2017 Plan other than a stock option or stock appreciation right, or potentially issuable pursuant to an outstanding award other than a stock option or stock appreciation right, which will in each case reduce the total number of shares remaining by one share for each share issued. At January 2, 2021, there were 16 million remaining authorized, but unissued, shares under the 2017 Plan. In April 2020, the Amended and Restated Kellogg Company 2002 Employee Stock Purchase Plan was approved by shareholders, effective July 1, 2020. The plan is a tax-qualified employee stock purchase plan made available to substantially all U.S. employees, which allows participants to acquire Kellogg stock at a discounted price. The purpose of the plan is to encourage employees at all levels to purchase stock and become shareholders. Compensation expense for all types of equity-based programs and the related income tax benefit recognized were as follows:
(millions) |  | 2020 |  | 2019 |  | 2018
Pre-tax compensation expense |  | $ | 81 |  |  | $ | 61 |  |  | $ | 64 |
Related income tax benefit |  | $ | 21 |  |  | $ | 16 |  |  | $ | 16 |
As of January 2, 2021, total stock-based compensation cost related to non-vested awards not yet recognized was $95 million and the weighted-average period over which this amount is expected to be recognized was 2 years. Cash flows realized upon exercise or vesting of stock-based awards in the periods presented are included in the following table. Tax windfall (shortfall) realized upon exercise or vesting of stock-based awards generally represent the difference between the grant date fair value of an award and the taxable compensation of an award. Cash used by the Company to settle equity instruments granted under stock-based awards was not material.
(millions) |  | 2020 |  | 2019 |  | 2018
Total cash received from option exercises and similar instruments |  | $ | 112 |  |  | $ | 64 |  |  | $ | 167 |
Tax windfall (shortfall) classified as cash flow from operating activities |  | $ | 2 |  |  | $ | (2) |  |  | $ | 11 |
Shares used to satisfy stock-based awards are normally issued out of treasury stock, although management is authorized to issue new shares to the extent permitted by respective plan provisions. Refer to Note 6 for information on shares issued during the periods presented to employees and directors under various long-term incentive plans and share repurchases under the Company’s stock repurchase authorizations. The Company does not currently have a policy of repurchasing a specified number of shares issued under employee benefit programs during any particular time period. Stock options During the periods presented, non-qualified stock options were granted to eligible employees under the 2017 and 2013 Plans with exercise prices equal to the fair market value of the Company’s stock on the grant date, a contractual term of ten years, and a three-year graded vesting period. Management estimates the fair value of each annual stock option award on the date of grant using a lattice-based option valuation model. Composite assumptions are presented in the following table. Weighted-average values are disclosed for certain inputs which incorporate a range of assumptions. Expected volatilities are based principally on historical volatility of the Company’s stock, and to a lesser extent, on implied volatilities from traded options on the Company’s stock. Historical volatility corresponds to the contractual term of the options granted. The Company uses historical data to estimate option exercise and employee termination within the valuation models; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted represents the period of time that options granted are expected to be outstanding; the weighted-average expected term for all employee groups is presented in the following table. The risk-free rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.
Stock option valuation model assumptions for grants within the year ended: |  | 2020 |  | 2019 |  | 2018
Weighted-average expected volatility |  | 18.00 | % |  | 18.00 | % |  | 18.00 | %
Weighted-average expected term (years) |  | 6.70 |  | 6.60 |  | 6.60
Weighted-average risk-free interest rate |  | 1.35 | % |  | 2.59 | % |  | 2.82 | %
Dividend yield |  | 3.40 | % |  | 3.90 | % |  | 3.00 | %
Weighted-average fair value of options granted |  | $ | 7.34 |  |  | $ | 6.78 |  |  | $ | 10.00 |
A summary of option activity for the year ended January 2, 2021 is presented in the following table:
Employee and director stock options |  | Shares (millions) |  | Weighted- average exercise price |  | Weighted- average remaining contractual term (yrs.) |  | Aggregate intrinsic value (millions)
Outstanding, beginning of year |  | 14 |  |  | $ | 65 |  |  |  |  |
Granted |  | 3 |  |  | 65 |  |  |  |  |
Exercised |  | (2) |  |  | 59 |  |  |  |  |
Forfeitures and expirations |  | (1) |  |  | 68 |  |  |  |  |
Outstanding, end of year |  | 14 |  |  | $ | 65 |  |  | 4.7 |  | $ | 15 |
Exercisable, end of year |  | 10 |  |  | $ | 66 |  |  | 5.9 |  | $ | 22 |
Additionally, option activity for the comparable prior year periods is presented in the following table:
(millions, except per share data) |  | 2019 |  | 2018
Outstanding, beginning of year |  | 14 |  |  | 14 |
Granted |  | 3 |  |  | 3 |
Exercised |  | (1) |  |  | (2) |
Forfeitures and expirations |  | (2) |  |  | (1) |
Outstanding, end of year |  | 14 |  |  | 14 |
Exercisable, end of year |  | 10 |  |  | 10 |
Weighted-average exercise price: |  |  |  |
Outstanding, beginning of year |  | $ | 66 |  |  | $ | 64 |
Granted |  | 57 |  |  | 70 |
Exercised |  | 56 |  |  | 58 |
Forfeitures and expirations |  | 67 |  |  | 71 |
Outstanding, end of year |  | $ | 65 |  |  | $ | 66 |
Exercisable, end of year |  | $ | 65 |  |  | $ | 63 |
The total intrinsic value of options exercised during the periods presented was (in millions): 2020–$17; 2019–$7; 2018–$33. Other stock-based awards During the periods presented, other stock-based awards consisted principally of executive performance shares and restricted stock granted under the 2017 and 2013 Plans. In the first quarter of 2020, the Company granted performance shares to a limited number of senior level employees, which entitle these employees to receive a specified number of shares of the Company's common stock upon vesting, as well as dividend equivalent shares. The number of shares earned could range between 0 and 200% of the target amount depending upon performance achieved over the three year vesting period. The performance conditions of the award include three year net sales growth and cash flow related targets. Dividend equivalents accrue and vest in accordance with the underlying award. The 2020 target grant currently corresponds to approximately 327,000 shares, with a grant-date fair value of $66 per share. In 2019, the Company granted performance shares to a limited number of senior executive-level employees, which entitle these employees to receive a specified number of shares of the Company's common stock upon vesting. The number of shares earned could range between 0 and 200% of the target amount depending upon performance achieved over the three year vesting period. The performance conditions of the award include three-year net sales growth and total shareholder return (TSR) of the Company's common stock relative to a select group of peer companies. Dividend equivalents accrue and vest in accordance with the underlying award. The 2019 target grant currently corresponds to approximately 213,000 shares, with a grant-date fair value of $73 per share. In 2018, the Company granted performance shares to a limited number of senior executive-level employees, which entitle these employees to receive a specified number of shares of the Company's common stock upon vesting. The number of shares earned could range between 0 and 200% of the target amount depending upon performance achieved over the three year vesting period. The performance conditions of the award includes nets sales growth and TSR of the Company's common stock relative to a select group of peer companies. The 2018 target grant currently corresponds to approximately 143,000 shares, with a grant-date fair value of $88 per share. A Monte Carlo valuation model was used to determine the fair value of awards with a TSR performance metric. The TSR performance metric is a market condition. Therefore, compensation cost of the TSR condition is fixed at the measurement date and is not revised based on actual performance. The TSR metric was valued as a multiplier of possible levels of the performance metric. Compensation cost related to performance metric is revised for changes in the expected outcome. Based on the market price of the Company’s common stock at year-end 2020, the maximum future value that could be awarded on the vesting date was (in millions): 2020 award–$41; 2019 award– $26; and 2018 award–$18. The 2017 performance share award, payable in stock, was settled at 90% of target in February 2020 for a total dollar equivalent of $6 million. The Company also grants restricted stock units to eligible employees under the 2017 Plan, typically with three year cliff vesting earning dividend equivalent units for awards granted beginning in 2019. Dividend equivalents accrue and vest in accordance with the underlying award. Management estimates the fair value of restricted stock grants based on the market price of the underlying stock on the date of grant. A summary of restricted stock unit activity for the year ended January 2, 2021, is presented in the following table:
Employee restricted stock units |  | Shares (thousands) |  | Weighted-average grant-date fair value
Non-vested, beginning of year |  | 1,901 |  |  | $ | 61 |
Granted |  | 596 |  |  | 65 |
Vested |  | (504) |  |  | 65 |
Forfeited |  | (257) |  |  | 58 |
Non-vested, end of year |  | 1,736 |  |  | $ | 61 |
Additionally, restricted stock unit activity for 2019 and 2018 is presented in the following table:
Employee restricted stock units |  | 2019 |  | 2018
Shares (in thousands): |  |  |  |
Non-vested, beginning of year |  | 1,708 |  |  | 1,673 |
Granted |  | 888 |  |  | 772 |
Vested |  | (469) |  |  | (507) |
Forfeited |  | (226) |  |  | (230) |
Non-vested, end of year |  | 1,901 |  |  | 1,708 |
Weighted-average exercise price: |  |  |  |
Non-vested, beginning of year |  | $ | 65 |  |  | $ | 65 |
Granted |  | 55 |  |  | 63 |
Vested |  | 68 |  |  | 59 |
Forfeited |  | 62 |  |  | 64 |
Non-vested, end of year |  | $ | 61 |  |  | $ | 65 |
The total fair value of restricted stock units vesting in the periods presented was (in millions): 2020–$34; 2019–$27; 2018–$35.

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