Our stock-based compensation programs are long-term retention programs that are intended to attract, retain and provide incentives for employees, officers and directors, and to align stockholder and employee interests. We have the following stock-based compensation plans and programs:
Restricted Stock Units
Prior to April 2019, we granted restricted stock units and performance awards to eligible employees under our 2003 Equity Incentive Plan, as amended (“2003 Plan”). In April 2019, our stockholders approved the 2019 Equity Incentive Plan (“2019 Plan”) which replaced the 2003 Plan.
Beginning January 2019, restricted stock units granted as part of our annual review process or for promotions vest over four years. Restricted stock units granted as part of our annual review process or for promotions with grant dates prior to January 2019 continue to vest over three years. Restricted stock units granted to new hires generally vest over four years. Certain grants have other vesting periods approved by our Board of Directors or an authorized committee. We grant performance awards to officers and key employees which cliff-vest after three years.
As of November 29, 2019, we had reserved 46.0 million shares of common stock for issuance under our 2019 Plan and had 44.1 million shares available for grant.
Employee Stock Purchase Plan
Our 1997 Employee Stock Purchase Plan (“ESPP”) allows eligible employee participants to purchase shares of our common stock at a discount through payroll deductions. The ESPP consists of a twenty-four-month offering period with four six-month purchase periods in each offering period. Employees purchase shares in each purchase period at 85% of the market value of our common stock at either the beginning of the offering period or the end of the purchase period, whichever price is lower. The ESPP will continue until the earlier of termination by the Board of Directors or the date on which all of the shares available for issuance under the plan have been issued.
As of November 29, 2019, we had reserved 93.0 million shares of our common stock for issuance under the ESPP and approximately 3.8 million shares remain available for future issuance.
Performance Share Programs
Our 2019, 2018 and 2017 Performance Share Programs aim to help focus key employees on building stockholder value, provide significant award potential for achieving outstanding Company performance and enhance the ability of the Company to attract and retain highly talented and competent individuals. The Executive Compensation Committee of our Board of Directors approves the terms of each of our Performance Share Programs, including the award calculation methodology, under the terms of our 2003 Plan. Shares may be earned based on the achievement of an objective relative total stockholder return measured over a three-year performance period. Performance share awards will be awarded and fully vest upon the later of the Executive Compensation Committee's certification of the level of achievement or the three-year anniversary of each grant. Program participants generally have the ability to receive up to 200% of the target number of shares originally granted.
On January 24, 2018, the Executive Compensation Committee approved the 2019 Performance Share Program, the terms of which are similar to prior year performance share programs as discussed above.
As of November 29, 2019, the shares awarded under our 2019, 2018 and 2017 Performance Share Programs remain outstanding and are yet to be achieved.
Issuance of Shares
Upon vesting of restricted stock units and performance shares, purchases of shares under the ESPP and exercise of stock options, we will issue treasury stock. If treasury stock is not available, common stock will be issued. In order to minimize the impact of on-going dilution from exercises of stock options and vesting of restricted stock units and performance shares, we instituted a stock repurchase program. See Note 14 for information regarding our stock repurchase programs.
Valuation of Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award.
Our performance share awards are valued using a Monte Carlo Simulation model. The fair value of the awards are fixed at grant date and amortized over the longer of the remaining performance or service period.
We use the Black-Scholes option pricing model to determine the fair value of ESPP shares. The determination of the fair value of stock-based payment awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, a risk-free interest rate and any expected dividends.
The expected term of ESPP shares is the average of the remaining purchase periods under each offering period. The assumptions used to value employee stock purchase rights were as follows:
2019 2018 2017
Expected life (in years) 0.5 - 2.0 0.5 - 2.0 0.5 - 2.0
Volatility 30% - 35% 26% - 29% 22% - 27%
Risk free interest rate 1.78% - 2.47% 1.54% - 2.52% 0.62% - 1.41%
Summary of Restricted Stock Units
Restricted stock unit activity for fiscal 2019, 2018 and 2017 was as follows:
(in thousands) 2019 2018 2017
Beginning outstanding balance 8,668 9,304 8,316
Awarded 4,598 4,012 5,018
Released (3,847) (3,988) (3,859)
Forfeited (785) (660) (766)
Increase due to acquisition — — 595
Ending outstanding balance 8,634 8,668 9,304
The weighted average grant date fair values of restricted stock units granted during fiscal 2019, 2018 and 2017 were $253.91,
$208.73 and $120.33, respectively. The total fair value of restricted stock units vested during fiscal 2019, 2018 and 2017 was
$969.6 million, $837.3 million and $472.0 million, respectively.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Information regarding restricted stock units outstanding at November 29, 2019, November 30, 2018 and December 1, 2017
Restricted stock units outstanding 8,634 1.12 $ 2,672.6
Restricted stock units expected to vest 7,987 1.05 $ 2,472.2
2018
Restricted stock units outstanding 8,668 1.06 $ 2,174.7
Restricted stock units expected to vest 8,049 1.01 $ 2,019.5
2017
Restricted stock units outstanding 9,304 1.11 $ 1,670.2
Restricted stock units expected to vest 8,608 1.05 $ 1,545.3
_________________________________________
(*) The intrinsic value is calculated as the market value as of the end of the fiscal period. As reported by the NASDAQ Global Select Market, the market values as of November 29, 2019, November 30, 2018 and December 1, 2017 were $309.53, $250.89 and $179.52, respectively.
Summary of Performance Shares
Performance share activity for fiscal 2019, 2018 and 2017 was as follows:
(in thousands) 2019 2018 2017
Beginning outstanding balance 1,148 2,296 1,534 3,068 1,630 3,261
Awarded 722 614 837 628 1,082 1,040
Achieved (830) (830) (1,050) (1,053) (1,135) (1,147)
Forfeited (82) (164) (173) (347) (43) (86)
Ending outstanding balance 958 1,916 1,148 2,296 1,534 3,068
_________________________________________
(1) Shares awarded during fiscal 2019 include 0.4 million additional shares awarded for the final achievement of the 2016 Performance Share Program which was certified in the first quarter of fiscal 2019. The remaining awarded shares were for the 2019 Performance Share Program. Shares achieved during fiscal 2019 resulted from 200% achievement of target for the 2016 Performance Share Program.
(2) Shares awarded during fiscal 2018 include 0.5 million additional shares awarded for the final achievement of the 2015 Performance Share Program which was certified in the first quarter of fiscal 2018. The remaining awarded shares were for the 2018 Performance Share Program. Shares achieved during fiscal 2018 resulted from 200% achievement of target for the 2015 Performance Share Program.
(3) Shares awarded during fiscal 2017 include 0.6 million additional shares awarded for the final achievement of the 2014 Performance Share Program which was certified in the first quarter of fiscal 2017. The remaining awarded shares were for the 2017 Performance Share Program. Shares achieved during fiscal 2017 resulted from 198% achievement of target for the 2014 Performance Share Program.
The total fair value of performance awards vested during fiscal 2019, 2018 and 2017 was $203.8 million, $208.2 million and $127.4 million, respectively.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summary of Employee Stock Purchase Plan Shares
The weighted average subscription date fair value of shares under the ESPP during fiscal 2019, 2018 and 2017 were $72.98,
$53.12 and $29.86, respectively. Employees purchased 1.5 million shares at an average price of $150.55, 1.8 million shares at an average price of $104.94, and 1.9 million shares at an average price of $77.63 for fiscal 2019, 2018 and 2017, respectively. The intrinsic value of shares purchased during fiscal 2019, 2018 and 2017 was $178.8 million, $198.9 million and $97.7 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.
Grants to Executive Officers
All equity awards granted to executive officers are made after a review by and with the approval of the Executive Compensation Committee of the Board of Directors.
Grants to Non-Employee Directors
Although the 2003 and 2019 Plans provide for the granting of qualified stock options and restricted stock units to non-employee directors, restricted stock units are the primary form of our grants to non-non-employee directors. The initial equity grant to new non-employee directors and annual equity grants to existing non-employee directors are restricted stock unit awards, each grant having an aggregate value of $0.3 million based on the average stock price over the 30 calendar days ending on the day before the date of grant and vest 100% on the day preceding the next annual meeting. The actual target grant value of initial equity grants will be prorated based on the number of days remaining before the next annual meeting or the date of the first anniversary of our last annual meeting if the next annual meeting is not yet scheduled.
Restricted stock units granted to directors for fiscal 2019, 2018 and 2017 were as follows:
(in thousands) 2019 2018 2017
Annual equity grants to existing directors 10 11 18
Initial equity grants to new directors 1 1 —
Compensation Costs
We recognize the estimated compensation cost of restricted stock units, net of estimated forfeitures, on a straight-line basis over the requisite service period of the entire award, which is generally the vesting period. The estimated compensation cost is based on the fair value of our common stock on the date of grant.
We also recognize the estimated compensation cost of performance shares, net of estimated forfeitures, on a straight-line basis over the requisite performance period or service period of the entire award, whichever is longer. Our performance share awards are earned upon achievement of an objective total stockholder return measure at the end of the three-year performance period, as described above.
We estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate forfeitures and record stock-based compensation expense only for those awards that are expected to vest.
As of November 29, 2019, there was $1.36 billion of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards and purchase rights which will be recognized over a weighted average period of 1.9 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Total stock-based compensation costs that have been included in our Consolidated Statements of Income for fiscal 2019,
(1) During fiscal 2019, 2018 and 2017, we recorded tax benefits related to stock-based compensation costs of $248.4 million,
$222.4 million and $153.2 million, respectively.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)