RTX CorpRTX
RTX Corp Stock Compensation Disclosure
NOTE 19: STOCK-BASED COMPENSATION
RTX’s long-term incentive plans authorize various types of market and performance-based incentive awards that may be granted to officers and key employees. The RTX Corporation Long-Term Incentive Plan (LTIP), was last amended on October 29, 2025. A total of 231 million shares have been authorized for issuance pursuant to awards under the LTIP including shares assumed from predecessor plans and adjustments associated with the separation of Carrier and Otis. As of December 31, 2025, approximately 101 million shares remain available for awards under the LTIP. The LTIP does not contain aggregate annual award limits, however, it sets an annual award limit per participant. The LTIP will expire after all authorized shares have been awarded or on May 2, 2034, whichever is sooner.
Under the LTIP, the exercise price of awards is set on the grant date and may not be less than the fair market value per share on that date. Generally, stock appreciation rights (SARs) and stock options have a term of ten years and a three-year vesting period, subject to limited exceptions. In the event of retirement, annual stock appreciation rights, stock options, and restricted stock units (RSUs) held for more than one year may become vested and exercisable, subject to certain terms and conditions. LTIP awards with performance-based vesting generally have a minimum three-year vesting period and vest based on actual performance against pre-established metrics. In the event of retirement, performance-based awards held for more than one year, remain eligible to vest based on actual performance relative to performance goals.
We measure the cost of share-based payments for restricted share units, stock options, stock appreciation rights, and awards with market-based conditions at fair value on the grant date. For awards that include performance conditions, compensation expense is recorded based on the estimated number of awards that are expected to vest at the end of the performance period. The cost of all share-based payments are recognized in the Consolidated Statement of Operations, net of expected forfeitures, as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Total compensation cost recognized | $ | 519 | $ | 437 | $ | 425 | |||||||||||
The cash received and the related tax benefit realized on exercised stock options for 2025, 2024 and 2023 were not material. Additionally, the future income tax benefit recognized and the tax benefits realized on vesting of performance share units (PSU’s), restricted stock awards and RSUs were not material for the respective periods.
At December 31, 2025, there was $340 million of total unrecognized compensation cost related to non-vested equity awards granted under long-term incentive plans. This cost is expected to be recognized ratably over a weighted-average period of 2.3 years.
A summary of the transactions under our long-term incentive plans for the year ended December 31, 2025 follows.
| Stock Options | Stock Appreciation Rights | Performance Share Units | Restricted Stock and RSUs | ||||||||||||||||||||||||||||||||||||||||||||
| (shares and units in thousands) | Shares | Average Price (1) | Shares | Average Price (1) | Units | Average Price (2) | Units | Average Price (2) | |||||||||||||||||||||||||||||||||||||||
| Outstanding at: | |||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | 1,255 | $ | 83.18 | 25,746 | $ | 84.13 | 2,701 | $ | 95.26 | 8,903 | $ | 94.32 | |||||||||||||||||||||||||||||||||||
Granted (3) | 74 | 128.78 | 1,777 | 128.78 | 830 | 136.65 | 2,832 | 132.59 | |||||||||||||||||||||||||||||||||||||||
Exercised / earned (3) | (348) | 78.37 | (8,031) | 80.26 | (945) | 100.31 | (3,054) | 97.02 | |||||||||||||||||||||||||||||||||||||||
| Cancelled | (5) | 128.78 | (225) | 102.38 | (73) | 111.22 | (327) | 111.46 | |||||||||||||||||||||||||||||||||||||||
| December 31, 2025 | 976 | $ | 88.11 | 19,267 | $ | 89.65 | 2,513 | $ | 106.57 | 8,354 | $ | 105.50 | |||||||||||||||||||||||||||||||||||
(1) Weighted-average exercise price per share.
(2) Weighted-average grant date fair value per share.
(3) Performance Share Units includes an adjustment for actual performance achieved on the 2022 award of 86 thousand units.
The weighted-average grant date fair value of stock options and stock appreciation rights granted during 2025, 2024, and 2023 was $36.37, $21.72, and $24.66, respectively. The weighted-average grant date fair value of PSU’s, which vest upon achieving certain performance metrics, granted during 2025, 2024, and 2023 was $136.10, $93.48, and $96.39, respectively. The total fair value of awards vested during 2025, 2024, and 2023 was $437 million, $447 million, and $273 million, respectively. The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of stock options and stock appreciation rights exercised during 2025, 2024, and 2023 was $553 million, $245 million, and $46 million, respectively. The total intrinsic value (which is the stock price at vesting multiplied by the number of underlying shares) of PSU’s and other restricted awards vested was $520 million, $506 million, and $263 million during 2025, 2024, and 2023, respectively.
The following table summarizes information about equity awards outstanding that are vested and expected to vest as well as equity awards outstanding that are exercisable at December 31, 2025:
| Equity Awards Vested and Expected to Vest | Equity Awards That Are Exercisable | |||||||||||||||||||||||||||||||||||||||||||||||||
| (shares in thousands; aggregate intrinsic value in millions) | Awards | Average Price | Aggregate Intrinsic Value | Remaining Term (3) | Awards | Average Price | Aggregate Intrinsic Value | Remaining Term (3) | ||||||||||||||||||||||||||||||||||||||||||
Stock Options (1) | 973 | $ | 88.04 | $ | 93 | 4.89 | 726 | $ | 82.84 | $ | 73 | 3.81 | ||||||||||||||||||||||||||||||||||||||
Stock Appreciation Rights (1) | 19,175 | 89.53 | 1,800 | 5.23 | 13,098 | 83.07 | 1,314 | 3.92 | ||||||||||||||||||||||||||||||||||||||||||
Performance Share Units (2) | 2,476 | 106.37 | 454 | 1.04 | ||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock and RSUs (2) | 8,060 | 105.28 | 1,478 | 1.49 | ||||||||||||||||||||||||||||||||||||||||||||||
(1) Average price is weighted-average exercise price per share.
(2) Average price is weighted-average grant date fair value per share.
(3) Weighted-average contractual remaining term in years.
The fair value of each option award is estimated on the date of grant using a binomial lattice model. The following table indicates the assumptions used in estimating fair value for awards granted during 2025, 2024, and 2023. Lattice-based option models incorporate ranges of assumptions for inputs; those ranges are as follows:
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Expected volatility | 25.9% | 24.7% | 26.2% | |||||||||||||||||
| Weighted-average volatility | 26 | % | 25 | % | 26 | % | ||||||||||||||
| Expected term (in years) | 7.0 | 6.9 | 6.7 | |||||||||||||||||
| Expected dividend yield | 2.0 | % | 2.6 | % | 2.3 | % | ||||||||||||||
| Risk-free rate | 4.1% - 4.4% | 4.1% - 5.4% | 3.6% - 4.8% | |||||||||||||||||
Expected volatilities are based on the returns of our stock, including implied volatilities from traded options on our stock for the binomial lattice model. We use historical data to estimate equity award exercise and employee termination behavior within the valuation model. The expected term represents an estimate of the period of time equity awards are expected to remain outstanding. The risk-free rate is based on the term structure of interest rates at the time of equity award grant.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.