v3.20.4

Share-based Compensation | 12 Months Ended
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Dec. 31, 2020
Share-based Payment Arrangement [Abstract] |
Share-based Compensation | Share-based Compensation Share-based compensation expense is included in the following line items in our statement of operations:
| 2020 |  | 2019 |  | 2018
Cost of revenue | 45 |  |  | 42 |  |  | 40 |
Research and development | 159 |  |  | 141 |  |  | 133 |
Selling, general and administrative | 180 |  |  | 163 |  |  | 141 |
| 384 |  |  | 346 |  |  | 314 |
The income tax (expense) benefit recognized in net income related to share-based compensation expenses was $32 million (includes $10 million of excess tax benefits), $27 million (includes $3 million of excess tax benefits) and $27 million (includes $4 million of excess tax benefits) for the years ended December 31, 2020, 2019 and 2018, respectively. Long Term Incentive Plans (LTIP’s) The LTIP was introduced in 2010 and is a broad-based long-term retention program to attract, retain and motivate talented employees as well as align stockholder and employee interests. The LTIP provides share-based compensation (“awards”) to both our eligible employees and non-employee directors. Awards that may be granted include performance shares, stock options and restricted shares. On October 27, 2020, the Company granted PSU awards to certain executives of the Company with a performance measure of Relative Total Shareholder Return (“Relative TSR”). Each PSU, which cliff vests on the third anniversary of the date of grant, entitles the grant recipient to receive from 0 to 2 common shares for each of the target units awarded based on the Relative TSR of the Company's share price as compared to a set of peer companies. The Company estimates the fair value of the PSUs using a Monte Carlo valuation model, utilizing assumptions underlying the Black-Scholes methodology. The grant date fair value was $167.64 per PSU. The fair value of the PSUs is recognized as compensation cost over the service period of 3 years. Awards granted generally will become fully vested upon a termination event occurring within one year following a change in control, as defined. A termination event is defined as either termination of employment or services other than for cause or constructive termination resulting from a significant reduction in either the nature or scope of duties and responsibilities, a reduction in compensation or a required relocation. The number of shares authorized and available for awards at December 31, 2020 was 26.1 million. A charge of $376 million was recorded in 2020 for the LTIP (2019: $339 million; 2018: $307 million). A summary of the activity for our LTIP’s during 2020 is presented below. Stock options The options have a strike price equal to the closing share price on the grant date. The fair value of the options has been calculated using the Black-Scholes formula, using the following assumptions: •an expected life varying from 5.98 to 6.25 years, calculated in accordance with the guidance provided in SEC Staff bulletin No. 110 for plain vanilla options using the simplified method, since our equity shares have been publicly traded for only a limited period of time and we did not have sufficient historical exercise data at the grant date of the options; •a risk-free interest rate varying from 1.2% to 1.9% (2019: 1.0% to 1.9%; 2018: 0.8% to 2.1%); •no expected dividend payments; and •a volatility of 42 – 45% based on the volatility of a set of peer companies. Peer company data was used given the short period of time our shares had been publicly traded. Above assumptions were valid at the moment NXP granted the options. Changes in the assumptions can materially affect the fair value estimate.
| Stock options |  | Weighted average exercise price in USD |  | Weighted average remaining contractual term |  | Aggregate intrinsic value
Outstanding at January 1, 2020 | 1,202,909 |  |  | 52.08 |  |  |  |  |
Granted | — |  |  | — |  |  |  |  |
Exercised | 547,174 |  |  | 47.77 |  |  |  |  |
Forfeited | 11,401 |  |  | 35.53 |  |  |  |  |
Outstanding at December 31, 2020 | 644,334 |  |  | 56.03 |  |  | 3.46 |  | 66 |
Exercisable at December 31, 2020 | 644,334 |  |  | 56.03 |  |  | 3.46 |  | 66 |
No options were granted in 2020, 2019 and 2018. The intrinsic value of the exercised options was $45 million (2019: $48 million; 2018: $59 million), whereas the amount received by NXP was $26 million (2019: $45 million; 2018: $30 million). The tax benefit realized from stock options exercised during fiscal 2020, 2019, and 2018 was $33 million, $31 million, and $34 million, respectively. At December 31, 2020, there were no (2019: none) unrecognized compensation cost related to non-vested stock options. Performance share units Financial performance conditions
| Shares |  | Weighted average grant date fair value in USD
Outstanding at January 1, 2020 | 195,098 |  |  | 75.60 |
Granted | — |  |  | — |
Vested | — |  |  | — |
Forfeited | 195,098 |  |  | 75.60 |
Outstanding at December 31, 2020 | — |  |  | — |
Market performance conditions
| Shares |  | Weighted average grant date fair value in USD
Outstanding at January 1, 2020 | 1,844,187 |  |  | 125.61 |
Granted | 335,567 |  |  | 164.92 |
Vested | — |  |  | — |
Forfeited | 48,060 |  |  | 125.28 |
Outstanding at December 31, 2020 | 2,131,694 |  |  | 131.81 |
In 2020, the weighted average grant date fair value of performance share units granted was $164.92 (2019: $141.64; 2018: $121.18). No performance share units vested in 2020 (the fair value of the performance share units at the time of vesting in 2019: none ; 2018: $6 million). At December 31, 2020, there was a total of $89 million (2019: $135 million; 2018: $143 million) of unrecognized compensation cost related to non-vested performance share units. This cost is expected to be recognized over a weighted-average period of 2.0 years (2019: 2.0 years; 2018: 2.6 years). Restricted share units
| Shares |  | Weighted average grant date fair value in USD
Outstanding at January 1, 2020 | 6,006,591 |  |  | 102.20 |
Granted | 2,616,364 |  |  | 129.05 |
Vested | 2,863,408 |  |  | 102.73 |
Forfeited | 366,861 |  |  | 103.86 |
Outstanding at December 31, 2020 | 5,392,686 |  |  | 114.83 |
The weighted average grant date fair value of restricted share units granted in 2020 was $129.05 (2019: $111.62; 2018: $84.77). The fair value of the restricted share units at the time of vesting was $372 million (2019: $325 million; 2018: $263 million). At December 31, 2020, there was a total of $502 million (2019: $501 million; 2018: $484 million) of unrecognized compensation cost related to non-vested restricted share units. This cost is expected to be recognized over a weighted-average period of 1.5 years (2019: 1.5 years; 2018: 1.5 years).

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