Stock-Based Compensation Plans

12 Months Ended

Dec. 31, 2023

Stock-Based Compensation Plans [Abstract]

4. Stock-Based Compensation Plans

We have four stock incentive plans under which a total of 6.1 million shares were able to be issued to key employees and directors through a grant of stock options, stock awards and/or performance stock units (“PSUs”). The Compensation/Incentive Committee (“CIC”) of the Board of Directors administers these plans.

We grant stock options, stock awards and PSUs to our officers, other key employees and directors to better align their long-term interests with those of our shareholders. We grant stock options at an exercise price equal to the market price of our stock on the date of grant. Options vest ratably annually over a three year period. Those granted after 2014 have a contractual life of 5 years; those granted prior to 2014 have a contractual life of 10 years. Unrestricted stock awards generally are granted to our non-employee directors annually at the time of our annual meeting. PSUs are contingent upon achievement of multi-year earnings per share (“EPS”) targets or total shareholder return (“TSR”) targets. Upon achievement of targets, PSUs are converted to unrestricted shares of stock.

We recognize the cost of stock options, stock awards and PSUs on a straight-line basis over the service life of the award, generally the vesting period. We include the cost of all stock-based compensation in selling, general and administrative expense.

In May 2023, the CIC granted 2,646 unrestricted shares of stock to the Company’s outside directors.

PERFORMANCE AWARDS

The CIC determines a targeted number of PSUs to be granted to each participant. A participant can ultimately receive up to 200% of the targeted PSUs based upon exceeding the respective EPS and TSR targets.

In February 2021, 2022, and 2023, the CIC granted PSUs contingent upon the achievement of certain TSR targets as compared to the TSR of a group of peer companies for the three-year measurement period, at which date the awards may vest. We utilize a Monte Carlo simulation approach in a risk-neutral framework with inputs including historical volatility and the risk-free rate of interest to value these TSR awards. We amortize the total estimated cost over the service period of the award.

In February 2021, 2022, and 2023, the CIC granted PSUs contingent on the achievement of certain EPS targets over the three-year measurement period. At the end of each reporting period, we estimate the number of shares of stock we believe will ultimately vest and record that expense over the service period of the award.

Comparative data for the PSUs include:



		2023 Awards			2022 Awards			2021 Awards
TSR Awards
Shares of stock granted - target		8,107			7,983			6,277
Per-share fair value	$	633.32		$	595.70		$	599.04
Volatility		25.5	%		30.4	%		30.2	%
Risk-free interest rate		4.3	%		1.7	%		0.2	%

EPS Awards
Shares of stock granted - target		8,107			7,983			6,277
Per-share fair value	$	515.12		$	459.77		$	491.34

Common Assumptions
Service period (years)		2.9			2.9			2.9
Three-year measurement period ends December 31,		2025			2024			2023

The following table summarizes total stock option, stock award and PSU activity during 2023:


	Stock Options						Stock Awards			Performance Units (PSUs)
									Weighted
			Weighted Average			Aggregate			Average				Weighted
				Remaining		Intrinsic			Grant-Date	Number of			Average
	Number of		Exercise	Contractual		Value	Number of		Per-Share	Target			Grant-Date
	Options		Price	Life (Years)		(thousands)	Awards		Fair Value	Units			Price
Outstanding at December 31, 2022	1,181,154	$	432.75				-	$	-	37,490		$	543.11
Granted	315,555		509.46				2,646		545.69	21,802			557.23
Exercised/Vested	(370,105)		406.45				(2,646)		545.69	(15,138)			544.36
Canceled/ Forfeited	(9,381)		455.42				-		-	-			-
Outstanding at December 31, 2023	1,117,223	$	462.94	3.3	$	134,531	-	$	-	44,154		$	549.65

Vested and expected to vest
at December 31, 2023	1,117,223	$	462.94	3.3	$	134,531	-	$	-	49,231	*	$	546.47
Exercisable at December 31, 2023	494,064		437.24	2.2		72,191	n.a.		n.a.	n.a.			n.a.
* Amount includes 9,918 share units which vested and were converted to shares of stock and distributed in the first quarter of 2024.

We estimate the fair value of stock options using the Black-Scholes valuation model. We determine expected term, volatility, and dividend yield and forfeiture rate based on our historical experience. We believe that historical experience is the best indicator of these factors.

‎

Comparative data for stock options, stock awards and PSUs include (in thousands, except per-share amounts):


		Years Ended December 31,
		2023		2022		2021
Total compensation expense of stock-based compensation
plans charged against income	$	40,793	$	33,613	$	31,420
Total income tax benefit recognized in income for stock
based compensation expense charged against income		9,709		8,487		7,918
Total intrinsic value of stock options exercised		54,681		53,339		62,038
Total intrinsic value of stock awards vested during the period		1,444		1,170		1,173
Per-share weighted average grant-date fair value of
stock awards granted		545.69		496.25		482.66

The assumptions we used to value stock option grants are as follows:


		2023			2022			2021
Stock price on date of issuance	$	509.46		$	462.04		$	445.35
Grant date fair value per option	$	111.24		$	104.69		$	96.91
Number of options granted		315,555			312,598			326,806
Expected term (years)		3.5			3.5			3.5
Risk free rate of return		4.99	%		4.39	%		0.87	%
Volatility		19.24	%		22.29	%		28.81	%
Dividend yield		0.3	%		0.3	%		0.3	%
Forfeiture rate		-			-			-

Other data for stock options, stock awards and PSUs for 2023 include (dollar amounts in thousands):


		Stock		Stock
		Options		Awards		PSUs

Total unrecognized compensation at the end of the year	$	60,819	$	-	$	10,125
Weighted average period over which unrecognized compensation to be recognized (years)		2.2		-		1.6
Actual income tax benefit realized	$	12,139	$	321	$	1,478
Aggregate intrinsic value vested and expected to vest	$	134,531	$	-	$	28,719

EMPLOYEE STOCK PURCHASE PLAN (“ESPP”)

The ESPP allows eligible participants to purchase shares of stock through payroll deductions at current market value. We pay administrative and broker fees associated with the ESPP. Shares of stock purchased for the ESPP are purchased on the open market and credited directly to participants’ accounts. In accordance with the FASB’s guidance, the ESPP is non-compensatory.