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Share-Based Compensation | 9 Months Ended
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Sep. 30, 2024
Share-Based Payment Arrangement [Abstract] |
Share-Based Compensation | Share-Based Compensation The Company typically grants equity awards annually at its regularly scheduled first quarter meeting of the Board of Directors based on the recommendation from the Compensation Committee. The Company’s policy is to recognize compensation cost on a straight-line basis, assuming forfeitures, over the requisite service period for the entire award. Classification of share-based compensation cost within the Condensed Consolidated Statements of Income is consistent with the classification of cash compensation for the same employees. Stock Options Stock options granted under the Company’s plans are generally non-qualified and are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. The fair value of each option grant was estimated on the date of the grant using the Black Scholes valuation model. Stock options generally vest ratably over four years, with vesting beginning one year from the date of grant, and generally expire 10 years from the date of grant. The service period for certain retiree eligible participants is accelerated. The assumptions used in determining the fair value of the stock options granted in the respective periods were as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Weighted average fair value of grants | $49.83 |  | $56.47 |  | $63.63 |  | $60.49
Dividend yield | 1.42% |  | 1.20% |  | 1.09% |  | 1.07%
Volatility | 26.47% |  | 26.78% |  | 26.66% |  | 27.17%
Risk-free interest rate | 4.08% |  | 4.26% |  | 4.31% |  | 4.12%
Expected life (in years) | 4.60 |  | 4.50 |  | 4.60 |  | 4.50
A summary of the Company’s stock option activity as of September 30, 2024 and changes during the nine months ended September 30, 2024 are presented in the following table:
Stock Options | Shares |  | Weighted Average Exercise Price |  | Weighted-Average Remaining Contractual Term (years) |  | Aggregate Intrinsic Value
Outstanding at January 1, 2024 | 983,267 |  |  | $ | 178.86 |  |  | 6.88 |  | $ | 39.3 |
Granted | 196,600 |  |  | 234.59 |  |  |  |  |
Exercised | (79,005) |  |  | 155.56 |  |  |  |  |
Forfeited | (38,796) |  |  | 205.39 |  |  |  |  |
Outstanding at September 30, 2024 | 1,062,066 |  |  | $ | 189.84 |  |  | 6.78 |  | $ | 31.9 |
Vested and expected to vest as of September 30, 2024 | 1,025,776 |  |  | $ | 188.79 |  |  | 6.71 |  | $ | 31.7 |
Exercisable at September 30, 2024 | 603,219 |  |  | $ | 168.07 |  |  | 5.47 |  | $ | 28.7 |
As of September 30, 2024, there was $11.0 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.4 years. Restricted Stock Restricted stock awards generally cliff vest after three years for employees and non-employee directors. The service period for certain retiree eligible participants is accelerated. Unvested restricted stock carries dividend and voting rights and the sale of the shares is restricted prior to the date of vesting. Dividends are paid on restricted stock awards and their fair value is equal to the market price of the Company’s stock at the date of the grant. A summary of the Company’s restricted stock activity as of September 30, 2024 and changes during the nine months ended September 30, 2024 are presented in the following table:
Restricted Stock | Shares |  | Weighted-Average Grant Date Fair Value
Unvested at January 1, 2024 | 112,891 |  |  | $ | 193.03 |
Granted | 102,915 |  |  | 211.55 |
Vested | (24,125) |  |  | 201.52 |
Forfeited | (11,600) |  |  | 210.94 |
Unvested at September 30, 2024 | 180,081 |  |  | $ | 201.32 |
As of September 30, 2024, there was $18.0 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of 1.2 years. Cash-Settled Restricted Stock The Company also maintains a cash-settled share-based compensation plan for certain employees. Cash-settled restricted stock awards generally cliff vest after three years. The service period for certain retiree eligible participants is accelerated. Cash-settled restricted stock awards are recorded at fair value on a quarterly basis using the market price of the Company’s stock on the last day of the quarter. At September 30, 2024 and December 31, 2023, the Company had accrued $3.7 million and $4.2 million, respectively, for cash-settled restricted stock in Accrued expenses in the Condensed Consolidated Balance Sheets and had accrued $2.5 million and $2.9 million, respectively, for cash-settled restricted stock in Other noncurrent liabilities in the Condensed Consolidated Balance Sheets. These recurring fair value measurements are classified as Level 1 in the fair value hierarchy. Dividend equivalents are paid on certain cash-settled restricted stock awards. A summary of the Company’s unvested cash-settled restricted stock activity as of September 30, 2024 and changes during the nine months ended September 30, 2024 are presented in the following table:
Cash-Settled Restricted Stock | Shares |  | Weighted-Average Fair Value
Unvested at January 1, 2024 | 56,655 |  |  | $ | 217.11 |
Granted | 23,555 |  |  | 229.87 |
Vested | (15,275) |  |  | 235.39 |
Forfeited | (5,430) |  |  | 214.50 |
Unvested at September 30, 2024 | 59,505 |  |  | $ | 214.50 |
As of September 30, 2024, there was $4.9 million of total unrecognized compensation cost related to cash-settled restricted shares that is expected to be recognized over a weighted-average period of 1.1 years. Performance Share Units The performance share units are market condition awards and have been assessed at fair value on the date of grant using a Monte Carlo simulation model. The assumptions used in determining the fair value of the performance share units granted in the respective periods were as follows:
| Nine Months Ended September 30,
| 2024 |  | 2023
Weighted average fair value of grants | $349.59 |  | $308.18
Dividend yield | —% |  | —%
Volatility | 22.23% |  | 27.00%
Risk-free interest rate | 4.45% |  | 4.37%
Expected life (in years) | 2.94 |  | 2.94
A summary of the Company’s performance share unit activity as of September 30, 2024 and changes during the nine months ended September 30, 2024 are presented in the following table:
Performance Share Units | Shares |  | Weighted-Average Grant Date Fair Value
Unvested at January 1, 2024 | 67,455 |  |  | $ | 265.15 |
Granted | 27,135 |  |  | 349.59 |
Vested | (9,606) |  |  | 245.40 |
Forfeited | (11,444) |  |  | 252.92 |
Unvested at September 30, 2024 | 73,540 |  |  | $ | 300.35 |
On January 31, 2024, 19,200 performance share units vested. Based on the Company’s relative total shareholder return rank during the three-year period ended January 31, 2024, the Company achieved a 50% payout factor and issued 9,606 common shares in February 2024 for awards that vested in 2024. As of September 30, 2024, there was $3.9 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 1.0 year. Summary of Share-Based Compensation Expense Pre-tax compensation cost is recognized in both Cost of sales and Selling, general and administrative expenses in the Condensed Consolidated Statements of Income depending on the functional area of the underlying employees. Total compensation cost related to all share-based awards was as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Stock options expense | $ | 1.5 |  |  | $ | 1.1 |  |  | $ | 8.4 |  |  | $ | 8.7 |
Restricted stock expense | 1.6 |  |  | 1.1 |  |  | 5.7 |  |  | 4.4
Cash-settled restricted stock expense | 1.2 |  |  | 0.6 |  |  | 2.8 |  |  | 2.3
Performance share units expense(1) | 0.9 |  |  | (0.3) |  |  | 6.8 |  |  | 5.7
Total pre-tax share-based compensation expense | 5.2 |  |  | 2.5 |  |  | 23.7 |  |  | 21.1
Income tax benefit | (0.7) |  |  | (0.5) |  |  | (2.3) |  |  | (2.1) |
Total share-based compensation expense, net of income taxes | $ | 4.5 |  |  | $ | 2.0 |  |  | $ | 21.4 |  |  | $ | 19.0 |
(1) Performance share units expense for the three and nine months ended September 30, 2023 reflects lower expense of $1.1 million of executive forfeitures, which occurred during the third quarter of 2023.

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