Investor Presentaiton
Stock Options
Under various plans, stock options have been granted to certain employees and directors to purchase ordinary shares at
prices equal to fair market value on the date of grant. Substantially all of these options vest ratably during the three-year period
following the date of grant and expire 10 years from the date of grant. Compensation expense is recognized for stock options
based on the fair value of the options at the date of grant and amortized on a straight-line basis over the period the employee or
director is required to provide service.
The Company uses a Black-Scholes option pricing model to estimate the fair value of stock options. The principal
assumptions utilized in valuing stock options include the expected stock price volatility (based on the most recent historical
period equal to the expected life of the option); the expected option life (an estimate based on historical experience); the
expected dividend yield; and the risk-free interest rate (an estimate based on the yield of United States Treasury zero coupon
with a maturity equal to the expected life of the option). A summary of the assumptions used in determining the fair value of
stock options is as follows:
Expected volatility
Expected option life in years
Expected dividend yield
Risk-free interest rate
Weighted-average fair value of stock options granted
A summary of stock option activity is as follows:
2022
2021
2020
27 %
28 %
24 %
6.6
2.0 %
6.5
3.0 %
6.6
0.3 to 3.0%
0.0 to 1.5%
$
36.56
$
26.11
3.2 %
0.5 to 1.5%
15.55
Weighted-average
(Options in millions)
Weighted-average
exercise price per
option
Options
remaining
contractual life
in years
Aggregate
intrinsic
value
Outstanding at January 1, 2022
$
85.34
3.2
Granted
151.55
0.3
Exercised
78.39
(0.4)
Forfeited and canceled
121.79
(0.1)
Outstanding at December 31, 2022
$
91.15
3.0
5.9
197.6
Exercisable at December 31, 2022
Reserved for future grants at December 31, 2022
79.14
2.3
21.0
4.9
177.2
The aggregate intrinsic value in the table above represents the total excess of the $156.95 closing price of Eaton ordinary
shares on the last trading day of 2022 over the exercise price of the stock option, multiplied by the related number of options
outstanding and exercisable. The aggregate intrinsic value is not recognized for financial accounting purposes and the value
changes based on the daily changes in the fair market value of the Company's ordinary shares.
Information related to stock options is as follows:
(In millions)
Pre-tax expense for stock options
After-tax expense for stock options
Proceeds from stock options exercised
2022
2021
2020
$
11
$
14 $
9
9
11
7
28
63
70
Income tax benefit related to stock options exercised
Tax benefit classified in operating activities in the Consolidated
Statements of Cash Flows
Intrinsic value of stock options exercised
Total fair value of stock options vested
13
10
29
69
50
$
11
$
14 $
9
Stock options exercised
0.4
0.9
1.1
As of December 31, 2022, total compensation expense not yet recognized related to non-vested stock options was $9
million, and the weighted-average period in which the expense is expected to be recognized is 1.7 years.
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