The Company utilizes share-based awards under employee and non-employee director compensation programs. These share-based awards include restricted and unrestricted stock, restricted stock units ("RSUs"), stock options, stock appreciation rights, and performance share awards ("PSAs"). In first quarter 2026 and 2025, $27 million and $23 million, respectively, of compensation expense before tax was recognized in "Selling, general and administrative expense" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for all share-based awards. The related impact on net earnings for first quarter 2026 and 2025 was $20 million and $17 million, respectively, net of deferred tax expense related to share-based award compensation for each period.

of the Company's stock on the grant date, have a term of ten years, and generally vest ratably over a period of up to three years. In first quarter 2026 and 2025, $11 million and $9 million, respectively, of compensation expense related to stock option awards was recognized, including expense associated with qualifying termination eligibility. Compensation expense for stock option awards is generally recognized over the applicable vesting period. For employees that satisfy the qualifying termination provisions as defined in the award documents, the compensation expense may be recognized over a shorter time period. In first quarter 2026 and 2025, the Company recognized $10 million and $8 million, respectively, of stock option compensation expense for employees who became eligible under the qualifying termination provisions prior to completing the requisite service period. The Company utilizes the Black-Scholes-Merton option valuation model to estimate the fair value of stock options granted.

The assumptions used in the determination of fair value for stock option grants in first quarter 2026 and 2025 are provided in the table below:


	First Quarter
Assumptions	2026	2025
Expected volatility rate	31.30%	30.61%
Expected dividend yield	4.50%	3.32%
Average risk-free interest rate	3.83%	4.42%
Expected term years	7.2	6.8
Exercise price at grant date	$77.12	$100.56
Fair value of options granted	$17.41	$26.99

The Company also grants PSAs, RSUs, and other long-term equity awards. PSAs are settled in unrestricted shares of common stock and vest at the end of a three-year performance period, contingent upon the achievement of specified performance goals, including average Return on Invested Capital and relative total stockholder return versus a defined peer group. The target shares awarded are assumed to be earned at 100 percent, and the actual number of shares awarded at the end of the three-year performance period can range from zero to 250 percent of the target shares based on final performance. RSUs are settled in unrestricted shares of common stock and generally vest over periods of up to three years. The fair value of the PSA component subject to market conditions is estimated using a Monte Carlo simulation model. The fair value of RSU awards is generally based on the closing market price of the Company's stock on the grant date. Compensation expense for PSAs, RSUs, and other long-term equity awards is generally recognized over the applicable vesting or performance period. For employees that satisfy the qualifying termination provisions as defined in the award documents and who meet certain additional requirements, the compensation expense may be recognized over a shorter time period.

In first quarter 2026 and 2025, the Company granted approximately 452 thousand and 332 thousand PSA target awards, respectively, for the 2026-2028 and 2025-2027 performance periods. In first quarter 2026 and 2025, the Company also granted approximately 239 thousand and 176 thousand RSUs, respectively. In first quarter 2026 and 2025, $16 million and $14 million, respectively, of compensation expense before tax was recognized for PSAs, RSUs, and other long-term equity awards and was included in the total compensation expense noted above for all share-based awards. At March 31, 2026, approximately $110 million in unrecognized compensation expense related to PSAs and RSUs is expected to be recognized primarily over a period of three years.