14. Stock-Based Compensation

The components of stock-based compensation expense are as follows:

 

 

Stock Award and Incentive Plan. Pursuant to the BlackRock, Inc. Second Amended and Restated 1999 Stock Award and Incentive Plan (the “Award Plan”), options to purchase shares of the Company’s common stock at an exercise price not less than the market value of BlackRock’s common stock on the date of grant in the form of stock options, restricted stock or RSUs may be granted to employees and nonemployee directors. A maximum of 34,500,000 shares of common stock were authorized for issuance under the Award Plan. Of this amount, 7,621,046 shares remain available for future awards at December 31, 2015. Upon exercise of employee stock options, the issuance of restricted stock or the vesting of RSUs, the Company issues shares out of treasury to the extent available.

Restricted Stock and RSUs. Pursuant to the Award Plan, restricted stock grants and RSUs may be granted to certain employees. Substantially all restricted stock and RSUs vest over periods ranging from one to three years and are expensed using the straight-line method over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.

Restricted stock and RSU activity for 2015 is summarized below.

 

 

The Company values restricted stock and RSUs at their grant-date fair value as measured by BlackRock’s common stock price. The total fair market value of RSUs/restricted stock granted to employees during 2015, 2014 and 2013 was $473 million, $472 million and $390 million, respectively. The total fair market value of RSUs/restricted stock converted to common stock during 2015, 2014 and 2013 was $379 million, $534 million and $528 million, respectively.

At December 31, 2015, the intrinsic value of outstanding RSUs was $1.0 billion, reflecting a closing stock price of $340.52 at December 31, 2015.

RSUs/restricted stock granted under the Award Plan primarily related to the following:

 

 

In addition the Company also granted RSUs of 120,935, 166,018 and 117,339 during 2015, 2014 and 2013, respectively.

At December 31, 2015, there was $305 million in total unrecognized stock-based compensation expense related to unvested RSUs. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 0.9 years.

In January 2016, the Company granted under the Award Plan

Market Performance-based RSUs. Pursuant to the Award Plan, market performance-based RSUs may be granted to certain employees. The market performance-based RSUs require that separate 15%, 25% and 35% share price appreciation targets be achieved during the six-year term of the awards. The awards are split into three tranches and each tranche may vest if the specified target increase in share price is met. Eligible vesting dates for each tranche are January 31 (or, if such date is not a business day, the next following business day) of the year in which the fourth, fifth or sixth anniversaries of the grant-date occurs. Certain awards are forfeited if the employee leaves BlackRock before the vesting date. These awards are amortized over a service period of four years, which is the longer of the explicit service period or the period in which the market target is expected to be met. Market performance-based RSUs are not considered participating securities as the dividend equivalents are subject to forfeiture prior to vesting of the award. During 2015 there were no market performance-based awards granted.  In 2014 and 2013, the Company granted 315,961 and 556,581 market performance-based RSUs, respectively.  The 2013 grant will be funded primarily by shares currently held by PNC (see Long-Term Incentive Plans Funded by PNC below).

Market performance-based RSU activity for 2015 is summarized below.

 

 

At December 31, 2015, total unrecognized stock-based compensation expense related to unvested market performance-based awards was $47 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 0.9 years.

At December 31, 2015, the intrinsic value of outstanding market performance-based awards was $469 million reflecting a closing stock price of $340.52.

The grant-date fair value of the awards was $62 million in 2014 and $71 million in 2013. The fair value was calculated using a Monte Carlo simulation with the following assumptions:

 

 

The Company’s expected stock volatility assumption was based upon an average of the historical stock price fluctuations of BlackRock’s common stock and an implied volatility at the grant-date. The dividend yield assumption was derived using estimated dividends over the expected term and the stock price at the date of grant. The risk-free interest rate is based on the U.S. Treasury yield at date of grant.

Performance-Based RSUs.  Pursuant to the Award Plan, performance-based RSUs may be granted to certain employees. Each performance-based award consists of a “base” number of RSUs granted to the employee. The number of shares that an employee ultimately receives at vesting will be equal to the base number of performance-based RSUs granted, multiplied by a predetermined percentage determined in accordance with the level of attainment of Company performance measures during the performance period and could be higher or lower than the original RSU grant. The awards are generally forfeited if the employee leaves the Company before the vesting date. Performance-based RSUs are not considered participating securities as the dividend equivalents are subject to forfeiture prior to vesting of the award.

In January 2015, the Company granted 262,847 performance-based RSUs to certain employees that cliff vest 100% on January 31, 2018. These awards are amortized over a service period of three years.  The number of shares distributed at vesting could be higher or lower than the original grant based on the level of attainment of predetermined Company performance measures.

Performance-based RSU activity for 2015 is summarized below.

 

 

At December 31, 2015, total unrecognized stock-based compensation expense related to unvested performance-based awards was $59 million.  The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 2.1 years.

The Company values performance-based RSUs at their grant-date fair value as measured by BlackRock’s common stock price. The total grant-date fair market value of performance-based RSUs expected to vest was $90 million.

At December 31, 2015, the intrinsic value of outstanding performance-based RSUs was $87 million reflecting a closing stock price of $340.52.

In January 2016, the Company granted 375,242 performance-based RSUs to certain employees that cliff vest 100% on January 31, 2019. These awards are amortized over a service period of three years.  The number of shares distributed at vesting could be higher or lower than the original grant based on the level of attainment of predetermined Company performance measures.

Long-Term Incentive Plans Funded by PNC. Under a share surrender agreement, PNC committed to provide up to 4 million shares of BlackRock stock, held by PNC, to fund certain BlackRock long-term incentive plans (“LTIP”). The current share surrender agreement commits PNC to provide BlackRock series C nonvoting participating preferred stock to fund the remaining committed shares. As of December 31, 2015, 2.7 million shares had been surrendered by PNC.     

At December 31, 2015, the remaining shares committed by PNC of 1.3 million were available to fund certain future long-term incentive awards.

In January 2016, 548,277 shares were surrendered by PNC.

Stock Options. Stock option grants were made to certain employees pursuant to the Award Plan in 1999 through 2007. Options granted have a ten-year life, vested ratably over periods ranging from two to five years and became exercisable upon vesting. The Company has not granted any stock options subsequent to the January 2007 grant, which vested on September 29, 2011. Stock option activity for 2015 is summarized below.

 

 

The aggregate intrinsic value of options exercised during 2015, 2014 and 2013 was $128 million, $4 million and $19 million, respectively.

The aggregate intrinsic value of exercisable shares was $27 million at December 31, 2015, reflecting a closing stock price of $340.52.  The weighted average remaining life of the options outstanding at December 31, 2015 was approximately one year.

As of December 31, 2015, the Company had no remaining unrecognized stock-based compensation expense related to stock options.

Employee Stock Purchase Plan (“ESPP”). The ESPP allows eligible employees to purchase the Company’s common stock at 95% of the fair market value on the last day of each three-month offering period. The Company does not record compensation expense related to employees purchasing shares under the ESPP.