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Share-Based Associate Compensation Plans | 12 Months Ended
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Dec. 31, 2023
Share-Based Payment Arrangement, Noncash Expense [Abstract] |
Stock-Based Associate Compensation Plans | Share-Based Associate Compensation Plans Three equity compensation plans currently permit us to grant various types of equity awards. We currently grant incentive stock options, nonqualified stock options, service-based restricted stock units and performance-based restricted stock units to associates, including some with market-based performance objectives under our shareholder-approved plans. We also have a Holiday Stock Plan that permits annual awards of one share of common stock to each full-time associate for each full calendar year of service up to a maximum of 10 shares. One of our equity compensation plans permits us to grant stock to our outside directors as a component of their annual compensation. We used treasury shares for share-based compensation award issues or exercises during 2023 and 2022. Share-based compensation cost after tax was $32 million, $29 million and $26 million for the years ended December 31, 2023, 2022 and 2021, respectively. The related income tax benefit recognized was $8 million,$7 million and $6 million for the years ended December 31, 2023, 2022 and 2021, respectively. Options exercised during the years ended December 31, 2023, 2022 and 2021, had intrinsic value of $14 million, $21 million and $24 million, respectively. Intrinsic value is the market price less the exercise price. Options vested during the year ended December 31, 2023 had no intrinsic value because the weighted average exercise price was greater than the market price on the reporting date. Options vested during the years ended December 31, 2022 and 2021, had total intrinsic value of $2 million and $15 million, respectively. As of December 31, 2023, we had $43 million of unrecognized total compensation cost related to nonvested stock options and restricted stock unit awards. That cost will be recognized over a weighted-average period of 1.8 years. Stock Options Stock options are granted to associates at an exercise price equal to the fair value as determined by the average high and low sales price reported on the Nasdaq Global Select Market for the grant date and are exercisable over 10-year periods. The stock options generally vest ratably over a three-year period. In determining the share-based compensation amounts, we estimate the fair value of each option granted on the date of grant using the Black Scholes pricing model. We make the following assumptions to develop the Black Scholes pricing model as follows: •Weighted-average expected term is based on historical experience of similar awards with consideration for current exercise trends. •Expected volatility is based on our stock price over a historical period that approximates the expected term. •Dividend yield is determined by dividing the annualized per share dividend by the stock price on the date of grant. •Risk-free rates are the implied yield currently available on zero-coupon U.S. Treasury issues with a remaining term approximating the expected term. The following weighted average assumptions were used in determining fair value for option grants issued:
|  | 2023 |  | 2022 |  | 2021
Weighted-average expected term |  | 8-9 years |  | 7-9 years |  | 7-9 years
Expected volatility |  | 28.25-29.61% |  | 26.34-28.87% |  | 25.56-27.81%
Dividend yield |  | 2.39% |  | 2.23% |  | 2.62%
Risk-free rates |  | 3.98-3.99% |  | 1.90-1.92% |  | 0.97-1.26%
Weighted-average fair value of options granted during the period |  | $38.22 |  | $30.34 |  | $19.64
Below is a summary of option information for the year 2023:
(Dollars in millions, except exercise price. Shares in thousands) |  | Shares |  | Weighted- average exercise price |  | Aggregate intrinsic value |  | Weighted-average remaining contractual life
Outstanding option shares at January 1, 2023 |  | 3,608 |  |  | $ | 86.21 |  |  |  |  |
Granted |  | 384 |  |  | 125.57 |  |  |  |  |
Exercised |  | (280) |  |  | 59.98 |  |  |  |  |
Forfeited or expired |  | (65) |  |  | 86.73 |  |  |  |  |
Outstanding option shares at December 31, 2023 |  | 3,647 |  |  | 92.36 |  |  | $ | 62 |  |  | 5.43 years
Options exercisable at end of period |  | 2,855 |  |  | $ | 84.68 |  |  | $ | 61 |  |  | 4.59 years
Cash received from the exercise of options was $9 million, $10 million and $13 million for the years ended December 31, 2023, 2022 and 2021, respectively. We acquired 72,549, 80,538 and 77,947 shares totaling $8 million, $10 million and $8 million, respectively, from associates in consideration for option exercises during 2023, 2022 and 2021. The weighted-average remaining contractual life for options expected to vest as of December 31, 2023, was 8.45 years.
Under all active shareholder approved plans, a total of 10.3 million shares were authorized to be granted. At December 31, 2023, 3.6 million shares remained available for future issuance under the plans. During 2023, we granted 11,524 shares of common stock to our directors for 2022 board service fees. Restricted Stock Units Service-based restricted stock units granted to associates are valued at fair value of the shares on the date of grant less the present value of the dividends that holders of restricted stock units do not receive on the shares underlying the restricted stock units during the vesting period. Service-based restricted stock units generally cliff vest three years after the date of grant. We also grant restricted stock units which vest on a three year ratable vesting schedule. Service-based restricted stock units vested during the year had an intrinsic value of $22 million, $32 million and $26 million for the years ended December 31, 2023, 2022 and 2021, respectively. We have performance-based awards that vest on the first day of March after a three-calendar-year performance period. These awards vest according to the level of three-year total shareholder return achieved compared with a peer group over a three-year performance period with payouts ranging from 0% to 200% for awards granted in 2023, 2022 and 2021. Three-year total shareholder return is calculated by using annualized total return of a stock to an investor due to capital gain appreciation plus reinvestment of all dividends. For the three-year performance period ended December 31, 2023, our total shareholder return exceeded two of our eight peers. We expect no payout of these shares to occur in March of 2024. During 2023, no shares of performance-based restricted stock units were issued for the three-year performance period ended December 31, 2022, as our total shareholder return exceeded one of eight peers in our 2020 peer group. We issued 52,335 shares of performance-based restricted stock units during 2022 at the target-level performance hurdle for the three-year performance period ended December 31, 2021, as our total shareholder return exceeded six of nine peers in our 2019 peer group. Performance-based awards vested during the years end December 31, 2022 and 2021 had an intrinsic value of $6 million and $11 million, respectively. These performance-based awards are valued using a Monte-Carlo valuation on the date of grant, which uses a risk-neutral framework to model future stock price movements based upon the risk-free rate of return, the volatility of each peer and the pairwise correlations of each peer being modeled. Compensation cost is recognized regardless of whether the market-based performance objective has been satisfied. We make assumptions to develop the Monte-Carlo model as follows: •Correlation coefficients are based upon the stock price data used to calculate the historical volatilities. The correlation coefficients are used to model the way the price of each entity's stock tends to move in relation to each other. •Expected volatility is based on each company's historical volatility using daily stock price observations with the period commensurate with the performance measurement period. •Dividend yield assumption is based on our current expected annual cash dividend and the valuation date stock price. •Risk-free rates are equal to the yield, as of the measurement date, of the zero-coupon U.S. Treasury bill that is commensurate with the performance measurement period. The following assumptions were used in determining fair value for performance-based grants issued:
|  | 2023 |  | 2022 |  | 2021
Expected term |  | 2.86 years |  | 2.86 years |  | 2.85 years
Expected volatility |  | 25.98-47.73% |  | 30.09-49.28% |  | 29.50-47.26%
Dividend yield |  | 2.37% |  | 2.19% |  | 2.62%
Risk-free rates |  | 4.32% |  | 1.64% |  | 0.20%
Below is a summary of service-based and performance-based share information, assuming a target payout for performance-based shares, for the year 2023:
(Shares in thousands) |  | Service-based shares |  | Weighted- average grant date fair value |  | Performance-based shares |  | Weighted- average grant date fair value
Nonvested at January 1, 2023 |  | 523 |  |  | $ | 102.26 |  |  | 155 |  |  | $ | 124.69 |
Granted |  | 174 |  |  | 117.21 |  |  | 70 |  |  | 169.50 |
Vested |  | (179) |  |  | 104.61 |  |  | — |  |  | — |
Forfeited or canceled |  | (22) |  |  | 105.73 |  |  | (38) |  |  | 111.77 |
Nonvested at December 31, 2023 |  | 496 |  |  | 106.52 |  |  | 187 |  |  | 144.05 |

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