Zoetis Inc.ZTS
Zoetis Inc. Stock Compensation Disclosure
15. Share-based Payments
The Zoetis 2013 Equity and Incentive Plan, Amended and Restated as of May 19, 2022 (Equity Plan), provides long-term incentives to our employees and non-employee directors. The principal types of share-based awards available under the Equity Plan may include, but are not limited to, stock options, restricted stock and restricted stock units (RSUs), deferred stock units (DSUs), performance-vesting restricted stock units (PSUs), and other equity-based or cash-based awards.
Thirty million shares of stock were approved and registered with the Securities and Exchange Commission for grants to participants under the Equity Plan. The shares reserved may be used for any type of award under the Equity Plan. At December 31, 2025, the aggregate number of remaining shares available for future grant under the Equity Plan was approximately 12 million shares.
A. Share-Based Compensation Expense
The components of share-based compensation expense follow:
| Year Ended December 31, | ||||||||||||||||||||
| (MILLIONS OF DOLLARS) | 2025 | 2024 | 2023 | |||||||||||||||||
| Stock options / stock appreciation rights | $ | 12 | $ | 11 | $ | 8 | ||||||||||||||
| RSUs / DSUs | 52 | 42 | 37 | |||||||||||||||||
| PSUs | 19 | 21 | 15 | |||||||||||||||||
Share-based compensation expense—total(a) | $ | 83 | $ | 74 | $ | 60 | ||||||||||||||
| Tax benefit for share-based compensation expense | (10) | (9) | (8) | |||||||||||||||||
| Share-based compensation expense, net of tax | $ | 73 | $ | 65 | $ | 52 | ||||||||||||||
(a) For each of the years ended December 31, 2025, 2024 and 2023, we capitalized up to $1 million of share-based compensation expense to inventory.
B. Stock Options
Stock options represent the right to purchase shares of our common stock within a specified period of time at a specified price. The exercise price for a stock option will be not less than 100% of the fair market value of the common stock as of the NYSE market close on the date of grant. Stock options granted may include those intended to be “incentive stock options” within the meaning of Section 422 of the U.S. Internal Revenue Code of 1986 (the Code).
Stock options are accounted for using a fair-value-based method at the date of grant in the Consolidated Statements of Income. The values determined through this fair-value-based method generally are amortized on a straight-line basis over the vesting term.
Eligible employees may receive Zoetis stock option awards. Zoetis stock option awards granted prior to 2023 generally vest after three years of continuous service from the date of grant and have a contractual term of 10 years while stock option awards granted in and after 2023 are subject to graded vesting over three years from the date of grant and have a contractual term of 10 years.
The fair-value-based method for valuing each Zoetis stock option grant on the grant date uses the Black-Scholes-Merton option-pricing model, which incorporates a number of valuation assumptions noted in the following table, shown at their weighted-average values:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
Expected dividend yield(a) | 1.27 | % | 0.87 | % | 0.92 | % | ||||||||||||||
Risk-free interest rate(b) | 4.38 | % | 4.06 | % | 3.84 | % | ||||||||||||||
Expected stock price volatility(c) | 26.42 | % | 26.99 | % | 28.63 | % | ||||||||||||||
Expected term(d) (years) | 4.3 | 4.1 | 4.2 | |||||||||||||||||
(a) Determined using a constant dividend yield during the expected term of the Zoetis stock option.
(b) Determined using the interpolated yield on U.S. Treasury zero-coupon issues.
(c) Determined using an equal weighting between historical volatility of the Zoetis stock price and implied volatility. The selection of the blended historical and implied volatility approach was based on our assessment that this calculation of expected volatility is more representative of future stock price trends.
(d) Determined using expected exercise and post-vesting termination patterns.
The following table provides an analysis of stock option activity for the year ended December 31, 2025:
| Weighted-Average Remaining Contractual Term (Years) | ||||||||||||||||||||||||||
Aggregate Intrinsic Value(a) (Millions) | ||||||||||||||||||||||||||
| Weighted-Average Exercise Price | ||||||||||||||||||||||||||
| Shares | ||||||||||||||||||||||||||
| Outstanding, December 31, 2024 | 1,447,949 | $ | 143.83 | |||||||||||||||||||||||
| Granted | 320,498 | 156.80 | ||||||||||||||||||||||||
| Exercised | (111,374) | 85.26 | ||||||||||||||||||||||||
| Forfeited | (78,289) | 179.64 | ||||||||||||||||||||||||
| Outstanding, December 31, 2025 | 1,578,784 | $ | 148.82 | 5.9 | $ | 18,853,364 | ||||||||||||||||||||
| Exercisable, December 31, 2025 | 1,046,676 | $ | 138.76 | 4.6 | $ | 18,853,364 | ||||||||||||||||||||
(a) Market price of underlying Zoetis common stock less exercise price.
As of December 31, 2025, there was approximately $10 million of unrecognized compensation costs related to nonvested stock options, which will be recognized over an expected remaining weighted-average period of ten months.
The following table summarizes data related to stock option activity:
| Year Ended/As of December 31, | ||||||||||||||||||||
| (MILLIONS OF DOLLARS, EXCEPT PER STOCK OPTION AMOUNTS) | 2025 | 2024 | 2023 | |||||||||||||||||
| Weighted-average grant date fair value per stock option | $ | 40.22 | $ | 50.77 | $ | 43.56 | ||||||||||||||
| Aggregate intrinsic value on exercise | 8 | 40 | 81 | |||||||||||||||||
| Cash received upon exercise | 9 | 20 | 42 | |||||||||||||||||
| Tax benefits realized related to exercise | 8 | 17 | 17 | |||||||||||||||||
C. Restricted Stock Units (RSUs)
Restricted stock units represent the right to receive a share of our common stock that is subject to a risk of forfeiture until the restrictions lapse at the end of the vesting period subject to the recipient's continued employment. RSUs accrue dividend equivalent units and are paid in shares of our common stock upon vesting (or cash determined by reference to the value of our common stock).
RSUs are accounted for using a fair-value-based method that utilizes the closing price of Zoetis common stock on the date of grant. Zoetis RSUs granted prior to 2023 generally vest after three years of continuous service from the grant date while RSUs granted in and after 2023 are subject to graded vesting over three years. These values are amortized on a straight-line basis over the vest terms.
The following table provides an analysis of RSU activity for the year ended December 31, 2025:
| Weighted-Average | ||||||||||||||
| RSUs | Grant Date Fair Value | |||||||||||||
| Nonvested, December 31, 2024 | 556,106 | $ | 187.61 | |||||||||||
| Granted | 594,287 | 156.29 | ||||||||||||
| Vested | (334,042) | 189.70 | ||||||||||||
| Reinvested dividend equivalents | 9,929 | 167.44 | ||||||||||||
| Forfeited | (51,599) | 169.77 | ||||||||||||
| Nonvested, December 31, 2025 | 774,681 | $ | 163.56 | |||||||||||
As of December 31, 2025, there was approximately $77 million of unrecognized compensation costs related to nonvested RSUs, which will be recognized over an expected remaining weighted-average period of twelve months.
D. Deferred Stock Units (DSUs)
Deferred stock units, which were granted to non-employee compensated Directors in 2013 and 2014, represent the right to receive shares of our common stock at a future date. The DSU awards will be automatically settled and paid in shares within 60 days following the Director’s separation from service on the Board of Directors.
DSUs are accounted for using a fair-value-based method that utilizes the closing price of Zoetis common stock on the date of grant. DSUs vested immediately as of the grant date and the values were expensed at the time of grant into Selling, general and administrative expenses.
For the years ended December 31, 2025 and 2024, there were no DSUs granted. As of December 31, 2025 and 2024, there were 57,100 and 66,318 DSUs outstanding, respectively, including dividend equivalents.
E. Performance-Vesting Restricted Stock Units (PSUs)
Performance-vesting restricted stock units, which are granted to eligible senior management, represent the right to receive a share of our common stock that is subject to a risk of forfeiture until the restrictions lapse, which include continued employment through the end of the vesting period and the attainment of performance goals. PSUs represent the right to receive shares of our common stock in the future (or cash determined by reference to the value of our common stock).
PSUs are accounted for using a Monte Carlo simulation model. Beginning in 2025, the units underlying the PSUs will be earned and vested over a three-year performance period as measured by two metrics, each of which is subject to an independent achievement condition: (1) a market condition comprising the total shareholder return of the company in comparison to the total shareholder return of the companies comprising the S&P 500 Health Care index at the start of the performance period, excluding companies that during the performance period are acquired or no longer publicly traded (Relative TSR); and (2) a performance condition comprising the company's three-year average annual operational revenue growth ("revenue growth"). PSUs that are earned and vested based upon a market condition are accounted for at fair-value using a Monte Carlo simulation model and PSUs that are earned and vested based upon a performance condition are accounted for at fair-value using the closing price of Zoetis common stock on the date of grant. The Monte Carlo weighted-average fair value was estimated based on volatility assumptions of Zoetis common stock and an average of the S&P 500 Health Care index companies, which were 27.6% and 29.8%, respectively, in 2025, and the Monte Carlo weighted-average fair value was estimated based on volatility assumptions of Zoetis common stock and an average of peer companies which were 26.2% and 30.6%, respectively, in 2024. Depending on the company’s Relative TSR performance and the company's revenue growth performance at the end of the performance period, the recipient may earn between 0% and 200% of the target number of units. Vested units, including dividend equivalent units, are paid in shares of the company’s common stock. PSU values are amortized on a straight-line basis over the vesting term.
The following table provides an analysis of PSU activity for the year ended December 31, 2025:
| Weighted-Average | ||||||||||||||
| PSUs | Grant Date Fair Value | |||||||||||||
| Nonvested, December 31, 2024 | 256,567 | $ | 248.68 | |||||||||||
| Granted | 148,130 | 171.21 | ||||||||||||
| Vested | (79,630) | 236.20 | ||||||||||||
| Reinvested dividend equivalents | 4,050 | 222.23 | ||||||||||||
| Forfeited | (26,654) | 232.41 | ||||||||||||
| Nonvested, December 31, 2025 | 302,463 | $ | 215.08 | |||||||||||
Shares issued, December 31, 2025 | 742 | $ | 245.07 | |||||||||||
As of December 31, 2025, there was approximately $27 million of unrecognized compensation costs related to nonvested PSUs, which will be recognized over an expected remaining weighted-average period of 1.3 years.
F. Other Equity-Based or Cash-Based Awards
Our Compensation Committee is authorized to grant awards in the form of other equity-based awards or other cash-based awards, as deemed to be consistent with the purposes of the Equity Plan.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Feb 13, 2024 | |
| 2022 | Feb 14, 2023 | |
| 2021 | Feb 15, 2022 | |
| 2020 | Feb 16, 2021 | |
| 2019 | Feb 13, 2020 | |
| 2018 | Feb 14, 2019 | |
| 2017 | Feb 15, 2018 | |
| 2016 | Feb 16, 2017 | |
| 2015 | Feb 24, 2016 | |
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.