GE 2015 Annual Report Download - page 209

FINANCIAL STATEMENTS OTHER STOCK-RELATED INFORMATION
GE 2015 FORM 10-K 181
NOTE 16. OTHER STOCK-RELATED INFORMATION
SHARE-BASED COMPENSATION
We grant stock options, restricted stock units and performance share units to employees under the 2007 Long-Term Incentive Plan.
Grants made under all plans must be approved by the Management Development and Compensation Committee of *(¶V Board of
Directors, which is composed entirely of independent directors.
STOCK OPTIONS
Under our stock option program, an employee receives an award that provides the opportunity in the future to purchase GE shares at
the market price of our stock on the date the award is granted (the strike price). The options become exercisable in equal amounts over
a five-year vesting period and expire 10 years from the grant date if they are not exercised. Stock options have no financial statement
effect on the date they are granted but rather are reflected over time through recording compensation expense and increasing
VKDUHRZQHUV¶ equity. We record compensation expense based on the estimated fair value of the awards expected to vest, and that
amount is amortized as compensation expense on a straight-line basis over the five-year vesting period. Accordingly, total expense
related to the award is reduced by the fair value of options that are expected to be forfeited by employees that leave GE prior to vesting.
We estimate forfeitures based on our experience and adjust the expense to reflect actual forfeitures over the vesting period. The offset
to the expense we record is reflected as an increase in the ³2Wher FDSLWDO´ component of VKDUHRZQHUV¶ equity.
(In millions, after tax) 2015 201
4
2013
Compensation Expense $ 234 $ 215 $ 231
We estimate the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model. The table below
provides the weighted average grant date fair values, key assumptions and other inputs into the pricing model. With the exception of
the dividend yield assumption, an increase in any individual assumption will increase the estimated fair value of the option, all other
things being equal.
2015 201
4
2013
Weighted average grant-date fair value of stock options $ 4.64 $ 5.26 $ 4.52
Stock Option Valuation Assumptions:
Risk-free interest rate 2.0 % 2.3% 2.5%
Dividend yield 3.4 % 3.1% 4.0%
Expected volatility 25.0 % 26.0% 28.0%
Expected option life (in years) 6.8 7.3 7.5
Other pricing model inputs:
Weighted average grant-date market price of GE stock (strike price) $ 25.79 $ 26.11 $ 23.80
GE 2015 FORM 10-K 181