STOCK-BASED COMPENSATION PLANS |
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| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK-BASED COMPENSATION PLANS | STOCK-BASED COMPENSATION PLANS Our Company grants long-term equity awards under its stock-based compensation plans to certain employees of the Company. The Coca-Cola Company 2014 Equity Plan (“2014 Equity Plan”) was approved by shareowners in April 2014. Under the 2014 Equity Plan, a maximum of 500 million shares of our common stock was approved to be issued through the grant of equity awards. The 2014 Equity Plan allows for grants of stock options, performance share units, restricted stock, restricted stock units and other specified award types, including cash awards with performance-based vesting criteria. As of December 31, 2022, there were 308 million shares available to be granted under the 2014 Equity Plan. In addition, there were 3 million shares available for stock option and restricted stock award grants under plans approved by shareowners prior to 2014.
From 2015 to 2017, certain employees who had previously been eligible for long-term equity awards received long-term performance-based cash awards. Employees who received these performance-based cash awards did not receive equity awards as part of the long-term incentive program. In 2017, the Company changed the long-term incentive program for employees previously eligible for the performance-based cash award. These employees no longer participate in the long-term incentive program and were granted a final restricted stock unit award that vests ratably over five years.
Total stock-based compensation expense was $361 million, $337 million and $141 million in 2022, 2021 and 2020, respectively. In 2022, for certain employees who accepted voluntary separation from the Company as a result of the restructuring of our North America operating unit, the Company provided cash payments designed to offset the loss of certain equity awards and serve as a cash supplement to employees upon the exercise of certain stock options. In 2020, for certain employees who accepted voluntary separation from the Company as a result of our strategic realignment initiatives, the Company modified their outstanding equity awards so that the employees retained all or some of their awards, whereas otherwise the awards would have been forfeited. The incremental stock-based compensation expense in 2022 arising from the cash payments was $5 million, and the incremental stock-based compensation expense in 2020 arising from the modification of awards was $15 million. These amounts were recorded in the line item other operating charges in our consolidated statements of income. Refer to Note 18 for additional information on the Company’s restructuring and strategic realignment initiatives. The remainder of stock-based compensation expense in 2022 and 2020 of $356 million and $126 million, respectively, and all stock-based compensation expense in 2021 were recorded in the line item selling, general and administrative expenses in our consolidated statements of income. The total income tax benefit recognized in our consolidated statements of income related to total stock-based compensation expense was $55 million, $60 million and $32 million in 2022, 2021 and 2020, respectively.
As of December 31, 2022, we had $325 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under our plans, which we expect to recognize over a weighted-average period of 1.9 years as stock‑based compensation expense. This expected cost does not include the impact of any future stock-based compensation awards.
Stock Option Awards
Stock option awards are generally granted with an exercise price equal to the average of the high and low market prices per share of the Company’s stock on the grant date. The fair value of each stock option award is estimated using a Black-Scholes-Merton option-pricing model and is expensed on a straight-line basis over the vesting period, which is generally four years.
The weighted-average fair value of stock options granted during the years ended December 31, 2022, 2021 and 2020 and the weighted-average assumptions used in the Black-Scholes-Merton option-pricing model for such grants were as follows:
1The dividend yield is the calculated yield on the closing market price per share of the Company’s stock on the grant date.
2The expected volatility is based on implied volatilities from traded options on the Company’s stock, historical volatility of the Company’s stock and other factors.
3The risk-free interest rate for the period matching the expected term of the stock options is based on the U.S. Treasury yield curve in effect on the grant date.
4The expected term of the stock options represents the period of time that stock options are expected to be outstanding and is derived by analyzing historical exercise behavior.
Stock option awards generally expire 10 years after the grant date. The shares of common stock to be issued and/or sold upon the exercise of stock options are made available from either authorized and unissued common stock or from treasury shares. Since 2007, the Company has issued common stock under its stock-based compensation plans from treasury shares.
Stock option activity during the year ended December 31, 2022 was as follows:
The total intrinsic value of the stock options exercised was $534 million, $358 million and $453 million in 2022, 2021 and 2020, respectively. The total number of stock options exercised was 22 million, 19 million and 23 million in 2022, 2021 and 2020, respectively.
Performance-Based Share Unit Awards
Performance share unit awards require achievement of certain performance criteria, which are predefined by the Talent and Compensation Committee of our Board of Directors at the time of grant. For performance share unit awards granted from 2015 through 2017, the performance criteria were economic profit and net operating revenues over a predefined performance period of three years. Economic profit is our net operating profit after tax less the cost of the capital used in our business. Economic profit and net operating revenues were adjusted for certain items, which were approved by the Audit Committee of our Board of Directors. The purpose of these adjustments was to ensure a consistent year-to-year comparison of the specific performance criteria. Most of these awards included a relative TSR modifier to determine the final number of performance share units earned. For these awards, the number of performance share units earned based on the certified achievement of the predefined
performance criteria was reduced or increased if the Company’s total shareowner return over the performance period relative to a predefined compensation comparator group of companies fell outside of a predefined range. The fair value of these performance share units was determined using a Monte Carlo valuation model. The performance share unit awards granted from 2015 through 2017 were subject to a one-year holding period after the performance period before the shares were released.
For performance share unit awards granted from 2018 through 2022, the performance criteria were equally weighted among net operating revenues, earnings per share and free cash flow over a predefined performance period of three years. For performance share unit awards granted to executives in 2022, the performance criteria were weighted 30 percent for net operating revenues, 30 percent for earnings per share, 30 percent for free cash flow and 10 percent for environmental sustainability. For purposes of these performance criteria, earnings per share is diluted net income per share; free cash flow is net cash provided by operating activities less purchases of property, plant and equipment; and environmental sustainability is comprised of predefined goals related to the Company’s packaging and water security strategies. These performance criteria are adjusted for certain items, if applicable, which are subject to Audit Committee approval. The purpose of these adjustments is to ensure a consistent year-to-year comparison of the specific performance criteria. Performance share unit awards granted to executives include a relative TSR modifier to determine the final number of performance share units earned. The fair value of performance share units that include a TSR modifier is determined using a Monte Carlo valuation model. For these awards, the number of performance share units earned based on the certified achievement of the predefined performance criteria will be reduced or increased if the Company’s total shareowner return over the performance period relative to a predefined compensation comparator group of companies falls outside of a predefined range. The fair value of performance share units that do not include a TSR modifier is the closing market price per share of the Company’s stock on the grant date less the present value of the expected dividends not received during the performance period. The performance share unit awards will generally vest at the end of the respective performance period.
During 2021, in addition to granting performance share unit awards with a three-year performance period, the Company granted emerging stronger performance share unit awards with a predefined performance period of two years. The award’s performance criterion was earnings per share, and the award included a relative TSR modifier. Earnings per share for these purposes was diluted net income per share adjusted for certain items, which were approved by the Audit Committee. The purpose of these adjustments was to ensure a consistent year-to-year comparison of the performance criterion. These performance share unit awards generally vested at the end of the two-year performance period.
For performance share unit awards, in the event the certified results equal the predefined performance criteria, the number of performance share units earned will be equal to the target award. In the event the certified results exceed the predefined performance criteria, additional performance share units up to the maximum award will be earned. In the event the certified results fall below the predefined performance criteria but are at or above the minimum threshold, a reduced number of performance share units will be earned. If the certified results fall below the minimum threshold, no performance share units will be earned. Performance share unit awards do not entitle participants to vote or receive dividends until the performance share units are settled in stock.
In the reporting period it becomes probable that the minimum performance threshold specified in the performance share unit award will be achieved, we recognize compensation expense for the proportionate share of the total fair value of the performance share units related to the vesting period that has already lapsed for the performance share units expected to vest. The remaining fair value of the performance share units expected to vest is expensed on a straight-line basis over the remainder of the vesting period. In the event the Company determines it is no longer probable that the minimum performance threshold specified in the award will be achieved, we reverse all previously recognized compensation expense in the reporting period such a determination is made.
Performance share units earned are generally settled in stock, except for certain circumstances such as death or disability, in which case beneficiaries or employees are provided cash payments. As of December 31, 2022, nonvested performance share units of approximately 1,949,000 and 1,757,000 were outstanding for the 2021-2023 and 2022-2024 performance periods, respectively, based on the target award amounts.
The following table summarizes information about outstanding nonvested performance share units based on the target award levels:
1Represents the target level of performance share units vested as of December 31, 2022 for the 2020-2022 and 2021-2022 performance periods. Upon certification in February 2023 of the financial results for the performance periods, the final number of shares earned will be determined and released.
2The outstanding nonvested performance share units as of December 31, 2022 at the threshold award and maximum award levels were approximately 1,563,000 and 8,486,000, respectively.
The weighted-average grant date fair value of performance share unit awards granted in 2022, 2021 and 2020 was $59.61, $47.04 and $57.00, respectively.
The following table summarizes information about vested performance share units based on the certified award level:
The total intrinsic value of performance share units that were released was $125 million, $237 million and $191 million in 2022, 2021 and 2020, respectively.
Time-Based Restricted Stock and Restricted Stock Unit Awards
Time-based restricted stock and restricted stock unit awards granted under the 2014 Equity Plan do not entitle recipients to vote or receive dividends during the vesting period and will be forfeited in the event of the recipient’s termination of employment, except for certain circumstances such as death or disability. The fair value of restricted stock and restricted stock units is the closing market price per share of the Company’s stock on the grant date less the present value of the expected dividends not received during the vesting period. The fair value of the restricted stock and restricted stock units expected to vest and be released is expensed on a straight-line basis over the vesting period.
The following table summarizes information about outstanding nonvested time-based restricted stock and restricted stock units:
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