Pepsi 2015 Annual Report Download - page 115

Table of Contents
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The following table summarizes our total share-based compensation expense:
2015 2014 2013
Share-based compensation expense $ 295 $ 297 $ 303
Restructuring and impairment charges/(credits) 4(3) —
Total $ 299 $ 294 $ 303
Income tax benefits recognized in earnings related to share-based
compensation $ 77 $ 75 $ 76
As of December 26, 2015, there was $335 million of total unrecognized compensation cost related to
nonvested share-based compensation grants. This unrecognized compensation cost is expected to be
recognized over a weighted-average period of two years.
Method of Accounting and Our Assumptions
We account for our employee stock options under the fair value method of accounting using a Black-Scholes
valuation model to measure stock option expense at the date of grant. The fair value of RSUs is measured
at the market price of the Company’s stock on the date of grant. The fair value of PSUs is measured at the
market price of the Company’s stock on the date of grant with the exception of market-based awards, for
which we use the Monte-Carlo simulation option-pricing model to determine the fair value. The Monte-Carlo
simulation option-pricing model uses the same input assumptions as the Black-Scholes model; however, it
also further incorporates into the fair-value determination the possibility that the market condition may not
be satisfied. Compensation costs related to these awards are recognized regardless of whether the market
condition is satisfied, provided that the requisite service has been provided.
All stock option grants have an exercise price equal to the fair market value of our common stock on the
date of grant and generally have a 10-year term. We do not backdate, reprice or grant share-based compensation
awards retroactively. Repricing of awards would require shareholder approval under the LTIP.
The fair value of share-based award grants is amortized to expense over the vesting period, primarily three
years. Awards to employees eligible for retirement prior to the award becoming fully vested are amortized
to expense over the period through the date that the employee first becomes eligible to retire and is no longer
required to provide service to earn the award. Executives who are awarded long-term incentives based on
their performance may generally elect to receive their grant in the form of stock options or RSUs, or a
combination thereof. Executives who elect RSUs receive one RSU for every four stock options that would
have otherwise been granted. Certain executive officers and other senior executives do not have a choice
and, through 2015, were granted a combination of 60% PEPunits measuring both absolute and relative stock
price performance and 40% long-term cash based on achievement of specific performance operating metrics.
Beginning in 2016, certain executive officers and other senior executives will be granted 66% performance
stock units and 34% long-term cash, each of which will be subject to pre-established performance targets.
Certain executives are granted performance-based stock units which require the achievement of specified
financial and/or operational performance metrics. The number of shares may be increased to the maximum
or reduced to the minimum threshold based on the results of these performance metrics in accordance with
the terms established at the time of the award.
Our weighted-average Black-Scholes fair value assumptions are as follows:
2015 2014 2013
Expected life 7 years 6 years 6 years
Risk-free interest rate 1.8% 1.9% 1.1%
Expected volatility 15% 16% 17%
Expected dividend yield 2.7% 2.9% 2.7%