Stock-Based Compensation Plans

12 Months Ended

Dec. 31, 2024

Stock-Based Compensation Plans [Abstract]

4. Stock-Based Compensation Plans

We have three stock incentive plans under which a total of 4.4 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.

At the end of 2023, the then Chief Financial Officer (CFO) transitioned to an employee advisor role. In early 2024, in connection with this change of roles, the CFO’s employment agreement terminated, and the CFO was given a one-time grant of 6,424 PSUs to be paid based on the Company’s TSR performance for the fiscal years 2024 to 2026. This one-time grant is structured the same as the Company’s standard TSR-based PSU grants with the exception that there are no future service requirements to be satisfied by the employee and a minimum value of shares are guaranteed. Based on the structure of the one-time award, the entire value of the award, $5.3 million, was recognized as compensation expense in SG&A in the consolidated statements of income for the period ended March 31, 2024.

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 2024, the CIC granted 2,272 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 2022, 2023, and 2024, 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 2022, 2023, and 2024, 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.

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Comparative data for the PSUs include:



		2024 Awards			2023 Awards			2022 Awards
TSR Awards
Shares of stock granted - target		7,133			8,107			7,983
Per-share fair value	$	673.71		$	633.32		$	595.70
Volatility		21.8	%		25.5	%		30.4	%
Risk-free interest rate		4.4	%		4.3	%		1.7	%

EPS Awards
Shares of stock granted - target		7,133			8,107			7,983
Per-share fair value	$	586.49		$	515.12		$	459.77

TSR Awards - Former CFO One-Time Grant
Shares of stock granted - target		6,424			-			-
Per-share fair value	$	830.86		$	-		$	-
Volatility		22.00			-	%		-	%
Risk-free interest rate		4.07			-	%		-	%

Common Assumptions
Service period (years)		2.9			2.9			2.9
Three-year measurement period ends December 31,		2026			2025			2024

The following table summarizes total stock option, stock award and PSU activity during 2024:


	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, 2023	1,117,223	$	462.94			-	$	-	44,154		$	549.65
Granted	318,015		597.70			2,272		564.34	20,690			692.43
Exercised/Vested	(226,836)		410.02			(2,272)		564.34	(9,559)			555.98
Canceled/ Forfeited	(26,221)		485.20			-		-	(3,565)			529.51
Outstanding at December 31, 2024	1,182,181	$	508.85	3.2	49,497	-	$	-	51,720		$	606.99

Vested and expected to vest
at December 31, 2024	1,182,181	$	508.85	3.2	49,497	-	$	-	54,200	*	$	565.33
Exercisable at December 31, 2024	569,991		466.88	2.2	37,929	n.a.		n.a.	n.a.			n.a.
* Amount includes 20,756 share units which vested and were converted to shares of stock and distributed in the first quarter of 2025.

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.

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


		Years Ended December 31,
		2024		2023		2022
Total compensation expense of stock-based compensation
plans charged against income	$	52,110	$	40,793	$	33,613
Total income tax benefit recognized in income for stock
based compensation expense charged against income		12,730		9,709		8,487
Total intrinsic value of stock options exercised		42,914		54,681		53,339
Total intrinsic value of stock awards vested during the period		1,282		1,444		1,170
Per-share weighted average grant-date fair value of
stock awards granted		564.34		545.69		496.25

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


		2024			2023			2022
Stock price on date of issuance	$	597.70		$	509.46		$	462.04
Grant date fair value per option	$	114.55		$	111.24		$	104.69
Number of options granted		318,015			315,555			312,598
Expected term (years)		3.5			3.5			3.5
Risk free rate of return		4.02	%		4.99	%		4.39	%
Volatility		17.81	%		19.24	%		22.29	%
Dividend yield		0.3	%		0.3	%		0.3	%
Forfeiture rate		-			-			-

Other data for stock options, stock awards and PSUs for 2024 include (dollar amounts in thousands):


		Stock		Stock
		Options		Awards		PSUs

Total unrecognized compensation at the end of the year	$	62,439	$	-	$	11,385
Weighted average period over which unrecognized compensation to be recognized (years)		2.2		-		1.6
Actual income tax benefit realized	$	9,570	$	286	$	2,520
Aggregate intrinsic value vested and expected to vest	$	49,497	$	-	$	28,912

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.