SHARE BASED COMPENSATION AWARDS

3 Months Ended

Mar. 31, 2024

SHARE BASED COMPENSATION AWARDS [Abstract]

Share-based Payment Arrangement [Text Block]

SHARE-BASED COMPENSATION AWARDS

The Company utilizes share-based awards under employee and non-employee director compensation programs. These share-based awards have included restricted and unrestricted stock, restricted stock units, stock options, and long-term performance shares. In first quarter 2024 and 2023, $21 million and $22 million, respectively, were recognized as compensation expense before tax in selling, general and administrative expenses ("SG&A") in Unaudited Consolidated Statements of Earnings, Comprehensive Income, and Retained Earnings for all share-based awards, of which $7 million each year was for stock options. The compensation expense is recognized over the substantive vesting period, which may be a shorter time period than the stated vesting period for qualifying termination eligible employees as defined in the award notices. For first quarter 2024 and 2023, $6 million of stock option compensation expense was recognized each quarter due to qualifying termination eligibility preceding the requisite service period. The impact on net earnings for first quarter 2024 and 2023 of $15 million and $16 million, respectively, is net of deferred tax expense related to share-based award compensation for each period.

Stock Option Grants

In first quarter 2024 and 2023, the number of stock options granted under the 2021 Omnibus Stock Compensation Plan was approximately 389 thousand and 399 thousand, respectively. Options have an exercise price equal to the closing price of the Company's stock on the date of grant and a term of ten years, with vesting periods that vary up to three years. Vesting usually occurs ratably over the vesting period or at the end of the vesting period. The Company utilizes the Black Scholes Merton option valuation model which relies on certain assumptions to estimate an option's fair value.

The assumptions used in the determination of fair value for stock options granted in first quarter 2024 and 2023 are provided in the table below:


	First Quarter
Assumptions	2024	2023
Expected volatility rate	30.21%	30.55%
Expected dividend yield	3.82%	3.31%
Average risk-free interest rate	4.34%	4.13%
Expected term years	6.7	6.4

The grant date exercise price and fair value of options granted during first quarter of 2024 were $86.15 and $21.16, respectively, and first quarter 2023 were $83.84 and $21.67, respectively.

For options unvested at March 31, 2024, $3 million in compensation expense will be recognized over the next three years.

Other Share-Based Compensation Awards

In addition to stock option grants, the Company has awarded long-term performance shares, restricted stock and restricted stock units, and stock appreciation rights. The long-term performance share awards are based upon actual return on capital compared to a target return on capital and total stockholder return compared to a peer group ranking by total stockholder return over a three year performance period and pay out in unrestricted shares of common stock at the end of the performance period. The awards are valued using a Monte Carlo simulation based model and vest pro-ratably over the three year performance period. The number of long-term performance share target awards during first quarter 2024 and 2023 for the 2024-2026 and 2023-2025 periods were approximately 339 thousand and 407 thousand, respectively. The target shares awarded are assumed to be 100 percent. At the end of the three-year performance period, the actual number of shares awarded can range from zero to 250 percent of the target shares based on the award notice. The number of restricted stock unit awards, which pay out in unrestricted shares of common stock at the end of the vesting and performance (if any) period, during first quarter 2024 and 2023 were approximately 181 thousand and 108 thousand, respectively. The fair value of a restricted stock unit award is equal to the closing stock price of the Company's stock on the award date and normally vests over a period of three years. In first quarter 2024 and 2023, $14 million and $15 million, respectively, was recognized as compensation expense before tax for these other share-based awards and was included in the total compensation expense noted above for all share-based awards. The unrecognized compensation expense before tax for these same type awards at March 31, 2024 was approximately $97 million and will be recognized primarily over a period of three years.

For additional information regarding share-based compensation plans and awards, see Note 18, "Share-Based Compensation Plans and Awards", to the consolidated financial statements in Part II, Item 8 of the Company's 2023 Annual Report on Form 10-K.