Headlines about "Stock options"
Gathered from the web by the editors at BenefitsLink.com.
[Guidance Overview] Federal Reserve Board Enters Executive Pay Debate with Proposal for Oversight of Incentive Compensation
Excerpt: "The proposal does not create specific compensation guidelines or impose specific limits on executive pay. Rather, the Fed has advanced a series of principles for supervisory review of incentive pay programs. Under the proposal, incentive compensation arrangements must (i) provide incentives that do not encourage excessive risk-taking beyond the organization's ability to effectively identify and manage the risk, (ii) be compatible with effective controls and risk management and (iii) be support by strong corporate governance, including active and effective board oversight." (Kilpatrick Stockton)
Employee Ownership Update for November 2, 2009
NCEO Executive Director Corey Rosen discusses the following: defined contribution plan limits will remain unchanged in 2010; House Concurrent Resolution 204, expressing continued support for employee stock ownership plans (ESOPs), has been introduced; NCEO board nominations are now open; and SARs may be better than stock options in closely held companies. (National Center for Employee Ownership)
NCEO provides new data on employee ownership in S&P 900
The NCEO has completed an analysis of employee ownership in the S&P 900 index of large- and mid-cap publicly traded companies. Based on Form 5500 filings, we found 196 of the companies in the index had ESOPs or KSOPs (401(k)-ESOP combinations). Of these, 36 owned 5% or more of the company's outstanding shares. 19 companies had 401(k) plans that owned 5% or more of company shares out of 199 companies that had some company stock in their retirement plans. The data is available for purchase. (National Center for Employee Ownership)
Employee Ownership Update for October 1, 2009
NCEO Executive Director Corey Rosen discusses: 5 of the 15 winners of the Wall Street Journal and Winning Workplaces Best Small Workplaces Award are employee ownership companies; the Department of Labor's Phyllis Borzi says ESOPs are a priority; there is a new directory of professionals to help employees deal with stock option and other equity grants; a new definition of efficient markets; the NCEO has started a search for a new executive director; and personal notes on his change of roles. (National Center for Employee Ownership)
Executive Pay Overshadows Pension Funding
Excerpt: "More details are out on which companies spent more in 2008 on executive stock grants than on employee pensions, and other important expenses. The study in The Analyst's Accounting Observer . . . has now been released to the press, and with it much more detail on the companies which prioritize options and restricted stock grants over other promises. The idea behind the report, its author writes, is partly to shed light on what is being put into stock compensation versus other obligations (like pensions) and opportunities." (BusinessWeek)
IRS Memo Considers Backdated Stock Options Under 162(m)
Excerpt: "A recent IRS internal memo on backdated and misdated nonqualified stock options discusses how to determine the grant date when assessing whether options were discounted under Section 162(m). Besides analyzing the use of related accounting and tax standards to define the grant date, the memo concludes that discounted options can never qualify for exemption from 162(m)'s $1 million cap on deductible compensation. This disqualification applies even if the employee reimburses the discount or the option exercise price is reset to eliminate the discount. Some practitioners are criticizing the memo." (Mercer LLC)
Court Approval Ends Last Backdating Suit Against UnitedHealth
Excerpt: "Among other charges, the suit settled by the last order had included allegations the backdating practices left the company's stock artificially inflated and that the retirement plan lost significant assets when the UnitedHealth share price declined." (PLANSPONSOR)
Stock Option Backdating Likely More Widespread, According to Study
Excerpt: "The majority of companies that improperly backdated stock options never were caught by regulators or confessed to the practice, according to a new academic study. Researchers at the University of Houston's C.T. Bauer College of Business used a sophisticated statistical test to sift through more than 4,000 publicly traded companies for those with patterns of granting options at abnormally favorable times, often at low points for their share prices. The study identified 141 companies with such advantageous options-granting practices that the researchers concluded they were highly likely to have been involved in backdating. Ninety-two of those companies never were publicly linked to investigations or announced earnings restatements related to backdating." (The Wall Street Journal)
IRS Internal Memo on 162(m) and Backdated Options
Excerpt: "In Internal Memo, AM 2009-006, the IRS concluded that a stock option whose exercise price was less than the fair market value of the stock at the date of grant ('discounted stock option') does not, and could not be modified to, qualify as performance-based compensation under Code Sec. 162(m)(4)(C), where the executive reimburses the employer for the excess of the fair market value on the date of grant over the exercise price (or the parties otherwise agree to an increased exercise price)." (Michael Melbinger via Winston & Strawn LLP)
Judge Approves $925M UnitedHealth Backdating Options Suit Settlement
Excerpt: "UnitedHealth Group Inc. and its former chief executive William McGuire will pay $925 million to resolve an investor class-action lawsuit accusing the health insurer of improperly backdating stock options, Reuters reports. . . . Given that there was 'significant risk' to the plaintiffs recovering nothing had the case been fully tried, 'the $925.5 million settlement amount is substantial,' U.S. District Court Judge James Rosenbaum wrote in his 26-page order dated August 10, according to Reuters." (PLANSPONSOR.com; free registration required)
[Guidance Overview] Employees Using Vested Stock Options as Collateral for Writing Exchange-Listed Calls
Excerpt: "This will follow-up on my July 1 blog titled 'Stock Options Opened for 'Call Writing'' issue. On June 17, 2009, the Securities and Exchange Commission (SEC) approved a rule that would permit a public company to allow its employees to use vested stock options as collateral for writing exchange-listed calls. (SEC Release No. 34-60127) This blog will discuss: 1. Why did the SEC eliminate the margin requirements when an employee utilizes his or her employee stock option as collateral for a call option? 2. Why would an employee sell a call option when the employee owns a vested employee stock option? 3. Whether a company should allow its employees to sell a call option in the company's stock." (Michael Melbinger via Winston & Strawn LLP)
Some Employers Allowing Employees to Exchange Their Underwater Options for Cash, Restricted Stock or Repriced Options
Excerpt: "Seventy-one companies have executed stock options exchange programs so far this year, up from 50 that offered such programs in 2008, according to Underwaterexchange.com, a Web site created by San Jose, California-based Radford, an Aon Consulting company. On top of that, an additional 70 companies have made public their intentions to conduct such programs this year, says Brett Harsen, a vice president at Radford. 'We are tracking to triple the number of exchanges in 2009 than we saw in 2008,' Harsen says." (Workforce Management; free registration required)
[Guidance Overview] Focus on Employee Benefits Newsletter, August 5, 2009 (PDF)
6 pages. This edition covers the following issues: Play or Pay Proposals in Health Reform Legislation, Maintaining Plan Administrative Documents, Tax Treatment of Employment Settlements, and Discounted Options and Section 162(m). (Miller & Chevalier Chartered)
Employee Ownership Update for August 4, 2009
NCEO Executive Director Corey Rosen discusses ESOP valuations in the downturn; how 11 of the 35 Winning Workplaces Awards finalists are NCEO members; statements in a new papal encyclical that could relate to employee ownership; whether it is taxable if employees monetize stock options with call options; and a new ESPP survey showing few changes to plans. (National Center for Employee Ownership)
[Guidance Overview] IRS States it Can Enforce Tax Levy by Seizing and Selling Employee/Taxpayer's Stock Options
Excerpt: "Late in June, the IRS released a memorandum from the Office of the Chief Counsel, declaring that the IRS can seize and sell executive stock options held by a taxpayer regardless of restrictions on the transferability of the options. The taxpayer had received and held both Incentive Stock Options (ISOs) and Non-Incentive Stock Options (NISOs). His Employer's Stock Plan and the Option Award Agreements unambiguously provided that the Options: could not be transferred except by will, the laws of descent or distribution, or pursuant to a qualified domestic relations order (QDRO)*, and during the taxpayer's life, could only be exercised by the taxpayer, his guardian or legal representative, or the Taxpayer's transferee pursuant to a QDRO." (Michael Melbinger via Winston & Strawn LLP)
[Guidance Overview] ERISA Litigation Newsletter for August 2009 from Proskauer Rose (PDF)
Articles include Bucking the Trend, District Court Finds That Utah's Attempt to Bar Discretionary Clauses Is Preempted By ERISA; When Discretion Is Gone... Is There Full Blown Federal Discovery?; Are Unpaid Employer Contributions to an ERISA Plan 'Plan Assets'? Courts and Government Weigh In; Defendants Acquire Favorable Judgments in Latest Round of Stock Drop Cases Involving Subprime and Stock Option Claims; Seventh Circuit Rules That 'Normal Retirement Age' Need Not Be Defined By Reference To A Specific Age. (Proskauer Rose)
Former Counsel of Video Game Maker Gets Law License Suspended
Excerpt: "A New York state appellate court has suspended for three years the Empire State law license of the former general counsel of a New York video games maker in connection with backdating stock options. A New York Law Journal report said the penalty was handed down against Kenneth Selterman in connection with stock-option backdating activities at Take-Two Interactive Software where Selterman served as general counsel from 1999 to 2007. The company makes the popular 'Grand Theft Auto' game series." (PLANSPONSOR.com; free registration required)
Senators Propose Curbing Deductions for Stock Options
Excerpt: "A bill (S 1491) from Sens. Carl Levin, D-MI, and John McCain, R-AZ, would require companies to deduct stock options in the same year and in the same amount as the options are expensed on the company's books. It would also eliminate the tax-favored treatment of options under Code Section 162(m). Levin said deductions for options far exceed the expense reported to shareholders and are costing the government billions in lost revenue." (Mercer LLC)
Stock Options Opened for 'Call Writing'
Excerpt: "Briefly, the SEC approved a rule on June 17, 2009, which would permit public companies to allow their employees to use vested stock options as collateral for writing exchange-listed calls. Permitting this activity would require some affirmative actions by the Company, such as revise plan documents and putting in place guidelines. A company also should consider whether this activity is consistent with its stock ownership guidelines." (Michael Melbinger via Winston & Strawn LLP)
Employee Ownership Update for July 1, 2009
NCEO Executive Director Corey Rosen, in his first column on the newly revised NCEO Web site, reports on what's new in the employee ownership world: SAIC changed its stock structure to eliminate the 10-to-1 voting rights that preferred shares held by employees were given when the company went public, the SEC issued a rule allowing employees with vested stock options to use them as collateral to purchase call options, and the NCEO is soliciting material for a book on what not to do with an ESOP. (National Center for Employee Ownership)
Do Stock Options Have a Future? (PDF)
3 pages. (WorldatWork via Frederic W. Cook, Inc.)
Employee Ownership Update for May 15, 2009
NCEO Executive Director Corey Rosen discusses the impressive 2003-2008 stock price growth of ESOP companies in a recent NCEO survey of executive compensation; stories that your customers tell about you, illustrated by an anecdote from Southwest Airlines President Emeritus Colleen Barrett; a new paper saying that the stock options backdating scandal caused significant shareholder damage; and the Ownership Thinking conference. (National Center for Employee Ownership)
[Guidance Overview] Compliance Considerations and Issues Surrounding the Repricing of Stock Options.
Excerpt: "The accounting for stock options (including re-pricings) is governed in the United States by FAS 123(R). Under this standard, the charge for any new options is only for the incremental value. Thus, in a value-for-value exchange (or one that is less favorable to the grantees), the re-pricing may be a shareholder-neutral event from an accounting expense standpoint." (JPMorgan Chase & Co.)
Using Premium-Priced Options (PDF)
Page 9 of 12 pages. (Milliman)
[Guidance Overview] Option Repricing and Exchanges
Excerpt: "Even many privately held-companies have seen the fair market value of their stock decline, causing their outstanding options to be underwater, as well. As a result, those now valueless options no longer serve their incentive purpose, and affected companies are looking for ways to restore those incentives to motivate and retain employees. There are three principal approaches to try to restore those incentives: issue new options (or other incentive awards, such as restricted stock); reprice underwater options (that is, make the exercise price no less than the current fair market value); or offer cash, new options or other incentive awards in exchange for outstanding underwater options (or offer to materially amend terms of the underwater options other than the exercise price -- a material amendment generally is treated the same as an exchange)." (Seyfarth Shaw LLP)
[Guidance Overview] Revisiting Underwater Options
Excerpt: "Unprecedented volatility has been wreaking havoc on equity programs, placing many, if not all, stock options underwater. As a result, many companies are weighing whether to take action on underwater options. This Perspective, the third in Mercer's 'Weathering the Storm' series, provides a framework for evaluating underwater options and determining if actions are appropriate. The article explores different approaches to exchanging underwater options; discusses legal, shareholder approval and communication issues; and highlights findings from Mercer's review of about 50 recent option exchanges." (Mercer LLC)
New Publication on Equity Compensation in a Down Market
The NCEO presents excerpts from its new publication Equity Compensation in a Down Market: Repricing, Accounting, ESPP, and Employee Communications Issues, a 63-page issue brief. (National Center for Employee Ownership)
[Guidance Overview] Repricing Underwater Stock Options
Excerpt: "In this article, we discuss the more philosophical pros and cons of re-pricing these underwater options, and to the extent that there is some sort of exchange, what techniques are available for determining the exchange methodology." (JPMorgan Chase & Co.)
Employee Ownership Update for April 1, 2009
NCEO Executive Director Corey Rosen discusses FASB's reconsideration of whether ESOP-held shares that are mandatorily redeemable upon the occurrence of an event certain to occur are liabilities; French executives who gave up stock options; cash incentives; and, as an April 1 special, a new system that attaches to the ear and detects brain wave patterns in executives in response to various pay systems. (National Center for Employee Ownership)
Stock Options Adjusted at Some Public Companies After Share Prices Fall
Excerpt: "Executives at dozens of public companies, including Starbucks, Google, Intel and smaller enterprises like Composite Technology, are taking steps to lower the prices that their employees would have to pay to convert options into stock. The moves are usually described as important for retaining employees, especially as stock options that vest over several years look utterly worthless in the current market. With prices plunging across a variety of industries, companies also often assert that stock price movements are not really a reflection of employee performance." (The New York Times; free registration required)
Intel Seeks to Reprice Worthless Stock Options
Excerpt: "Intel Corp . . . is seeking permission from its shareholders to exchange worthless employee stock options, a controversial move that the world's biggest chip maker says is needed to retain critical staff. Under the plan, which is open to all employees excluding senior executives, Intel would exchange underwater stock options -- whose exercise prices are above the current stock price -- for ones carrying carry a lower exercise price." (Reuters via The New York Times; free registration required)
[Guidance Overview] Employee Benefits Issues to Consider in a Reduction in Force
Excerpt: "As unfortunate as it may be, sometimes the only effective way to increase a company's bottom line during an economic recession is a reduction in force (RIF). The economic analysis should, however, consider much more than just the terminated employees' salaries. Other considerations include nonqualified deferred compensation, stock plans, bonuses, severance pay, retirement plans, health and welfare plans, and FSAs. This article, while not exhaustive, discusses many of the issues an employer may face and thus should consider when performing the economic analysis of a potential RIF." (Deloitte via BenefitsLink.com)
[Guidance Overview] A Five-Year Long Lesson in Plan Drafting for Stock Options
Excerpt: "[The case of AT&T v. Lillis] took another turn last week as the Delaware Supreme Court ruled that a state trial court had properly considered AT&T's admissions in its pleadings that stock options of former directors and officers that were cashed out after a merger between AT&T Wireless Services Inc. and Cingular Wireless LLC may have included the future time value of those options." (Michael S. Melbinger via Winston & Strawn LLP)
[Guidance Overview] Underwater Stock Options ? What are the Alternatives?
Excerpt: "The recent economic downturn has left a significant number of options far out-of-the-money (underwater). Some awards are so deep underwater that it might be unlikely for these options to become in-the money again before expiration. Seventy-two percent of the companies in the Fortune 500 are facing the challenge of underwater options, based on Equilar's analysis of average exercise prices in mid-December of 2008. Two broad schools of thought have emerged on the strategic compensation direction best suited for navigating this obstacle: Leave the current awards unchanged, reflecting returns to shareholders. Exchange underwater options for new options or another form of compensation of value to the employee to address top talent retention problems." (Deloitte Development LLC)
Employee Ownership Update for March 13, 2009
NCEO Executive Director Corey Rosen discusses a new survey of what companies plan to do with equity compensation; how ESOPs are still a good idea for employee retirement security; a newly endowed chair for employee ownership that has been established at Rutgers; and applying for the Principal 10 Best Companies for Financial Security award. (National Center for Employee Ownership)
[Guidance Overview] Top 10 Things You Need to Know for Option Exchanges Involving International Employees (PDF)
5 pages. Excerpt: "Underwater options are a common occurrence in today's stock market. As a result, many companies are considering offering an option exchange program, however, most companies focus on the U.S. considerations and neglect to consider how this may affect their non-U.S. employees. This article discusses the top 10 issues that should be carefully considered before making a global exchange offer." (Baler & McKenzie)
Issue Brief: The State of Employee Ownership 2009
The NCEO presents excerpts from The State of Employee Ownership 2009, an issue brief that reviews the number of plans, participants, and assets for ESOPs and similar plans, broad-based stock options, 401(k) plans with company stock, and employee stock purchase plans. It also reviews the most relevant research on employee ownership and corporate performance and recent political and legal developments in the field. (National Center for Employee Ownership)
A Statistical Profile of Employee Ownership
The NCEO has released the 2009 update of its Statistical Profile of Employee Ownership. The Web page with the data also explains the methodology behind the new estimates of the number of ESOPs. (National Center for Employee Ownership)
A Statistical Profile of Employee Ownership
The NCEO has released the 2009 update of its Statistical Profile of Employee Ownership. The Web page with the data also explains the methodology behind the new estimates of the number of ESOPs. (National Center for Employee Ownership)
Employee Ownership Update for Feburary 17, 2009
NCEO Executive Director Corey Rosen discusses the predominance of ESOP and other employee-owned companies in Fortune magazine's 100 Best Companies to Work For in America list; Bureau of Labor Statistics data indicating that the percentage of workers receiving stock options in 2008 was unchanged from previous years; and data from Radford Surveys on equity award exchange patterns. (National Center for Employee Ownership)
Compensation Objectives and the Organization-Wide Use of Non-Cash Pay
Excerpt: "This study investigates the effects of attraction, retention, and incentive objectives on the organization-wide use of two non-cash pay elements: benefits and broad-based equity (stock and stock option) grants. Recent economic theories lead to conflicting implications for the use of various non-cash pay elements in achieving these objectives. Data from the European operations of 185 large firms indicate that benefits are primarily provided for retention purposes. Broad-based option grant eligibility is positively associated with incentive and attraction purposes, but negatively associated with retention objectives, despite claims that options' vesting provisions enhance their retention advantages. Stock grant eligibility is also positively associated with incentive objectives, but has little relation with either attraction or retention objectives." (Social Science Research Network)
[Guidance Overview] Bringing Underwater Stock Options Back to the Surface (PDF)
4 pages. Excerpt: "Many companies saw their stock price significantly decline in 2008. As the result of these declines, employees of these companies may now hold stock options that are severely underwater -- that is, the exercise price of the stock option exceeds the fair market value of the underlying stock. . . . This update briefly describes underwater stock option exchanges as well as some of the hurdles that companies will face in implementing these exchanges." (Dechert LLP)
New book: Advanced Topics in Equity Compensation Accounting
The NCEO presents excerpts from its new book, Advanced Topics in Equity Compensation Accounting. The book presents a selective and detailed treatment of some of the most crucial topics in accounting for stock options and other equity compensation plans. The author is noted expert Takis Makridis. (National Center for Employee Ownership)
Underwater Options Exchange Should Exclude Executives, Maintain Value
Excerpt: "A new analysis from Aon Consulting's Radford Surveys + Consulting found exclusion of board and named executive officers (NEOs) and a value-neutral exchange rate were design features of underwater stock option exchange proposals that figured most prominently in gaining approval." (PLANSPONSOR.com; free registration required)
Google Offers to Exchange Employee Options
Excerpt: "Google employees will have a chance to exchange underwater stock options for new, at-the-money options under a program intended to increase retention. Several features of Google's offer are far more generous than typical option exchanges -- for example, a one-for-one exchange ratio and no minimum out-of-the-money amount for determining option eligibility. While Google's program is receiving much attention, it may not serve as a model for other companies with underwater options -- at least if their shareholders must approve the option exchange." (Mercer LLC)
[Guidance Overview] Presentation: Dealing With Underwater Options: Option Repricings, Option Exchanges, Option Buy-Outs Webcast (PDF)
28 pages. Excerpt: "Three techniques for dealing with underwater options: 1. Option Repricing: The underwater option is cancelled and replaced with an at-the-money option 2. Option Exchange: The underwater option is exchanged for a restricted stock unit award 3. Option Buyout: The option is purchased by the issuer for cash" (Morgan, Lewis & Bockius LLP)
[Guidance Overview] Jan. 31 Reporting Requirement Deadline Regarding ISOs and ESPPs
Excerpt: "This is a reminder to public and private companies that grant incentive stock options (ISOs) or maintain a tax-advantaged employee stock purchase plan (ESPP). Section 6039 of the Internal Revenue Code of 1986, as amended requires such companies to provide information statements by January 31, 2009 to each employee who during 2008 either (i) received stock upon the exercise of an incentive stock option or (ii) sold or otherwise transferred legal title to stock acquired under an employee stock purchase plan. Treasury regulations specify the information required to be in each information statement." (Briggs and Morgan)
Employee Ownership Update for Feburary 2, 2009
NCEO Executive Director Corey Rosen discusses a survey of how ESOP companies are weathering the downturn, Google's generous option exchange program, ESOPs and the coming wave of business sales, and initial results from the NCEO's first ESOP membership survey. (National Center for Employee Ownership)
[Guidance Overview] Net Exercise of Stock Options (PDF)
2 pages. Excerpt: "Conclusion: Because of the positive changes provided by new accounting standards, net exercises of stock options are an attractive and practical benefit. Net exercises are administratively less burdensome for the sponsor and a cost-free additional benefit for participants. Before implementing any net exercise provisions, companies should consider the tax, securities law, accounting and plan amendment issues that may be implicated by a new net exercise provision." (Kelly, Hannaford & Battles P.A.)
Google Offers Workers Cheaper Stock Options
Excerpt: "Google Inc. is allowing its employees to swap their stock options for new ones that will give them a better chance to profit from their holdings. The Mountain View-based company outlined the exchange program Thursday in its fourth-quarter earnings report. . . . Google will have to absorb another hit to earnings to pay for the new options being made available to its 20,222 employees. Management expects the accounting charge to be about $460 million, assuming the new exercise price for the options is around $300." (AP via The Washington Post; free registration required)
[Guidance Overview] Special Reporting Requirements Regarding Incentive Stock Options and Employee Stock Purchase Plans
Excerpt: "This Alert will serve as a reminder of certain year-end reporting requirements imposed with respect to incentive stock options and employee stock purchase plans and as a notification of changes in future reporting requirements." (Cooley Godward Kronish LLP)
Employee Ownership Update for January 15, 2009
NCEO Executive Director Corey Rosen discusses an increase in stock drop cases involving 401(k) plans and ESOPs; an analysis of stock option valuation assumptions; the recoverability of equity-based compensation deferred tax assets; NCEO volunteer opportunities; and the Great Game of Business conference. (National Center for Employee Ownership)
New article on stock options, restricted stock, phantom stock, SARs, and ESPPs
NCEO Executive Director Corey Rosen has written a new article for the NCEO's Web site on stock options, restricted stock, phantom stock, stock appreciation rights, and employee stock purchase plans. (National Center for Employee Ownership)
[Guidance Overview] Recoverability of Equity-Based Compensation Deferred Tax Assets
Excerpt: "As the stock market slides, more stock options and related deferred compensation instruments are 'underwater,' and the related deferred tax assets may no longer be recoverable. The balance sheets and tax footnotes of many entities highlight the magnitude of these equity-based compensation deferred tax assets. When and how they are written off could have a significant impact on the income statement. As a result, and in light of the recent trends in market prices, equity-based deferred compensation plans need to be monitored quarterly for events that trigger the fixing of the corporate tax deduction and the recoverability of the related tax asset." (Journal of Accountancy)
FAS 123(R) Option Assumptions: Analysis of the 2007 Results
Excerpt: "Watson Wyatt recently completed its second annual analysis of stock option valuation assumptions and results under Statement of Financial Account Standards (SFAS) 123(R).1 From 2006 to 2007, the percentage of companies disclosing option fair values decreased from 74 percent to 73 percent, and the number disclosing stock compensation expense increased from 93 percent to 94 percent. Median stock compensation expense increased by 9 percent in 2007." (Watson Wyatt Worldwide)
Employee Ownership Update for January 5, 2009
NCEO Executive Director Corey Rosen discusses a wave of stock option repricings; IRS statements to ESOP advisors that they are putting on hold approving plan provisions that segregate ESOP accounts at termination until the IRS comes up with a position on this; enhanced employee ownership opportunities in Germany; an employee ownership proposal at Change.org; and an invitation to submit stories about how your employee ownership company is dealing with the downturn. (National Center for Employee Ownership)
[Guidance Overview] Saving Severely Underwater Stock Options
Excerpt: "Falling share prices have left many option holders -- both senior management and rank-and-file employees -- with severely underwater options. If these options remain underwater for a significant period of time, employee morale and retention could be negatively affected. To help avoid such consequences, companies may wish to consider repricing options to better reflect current share prices. Before doing so, however, a number of important securities, tax and accounting issues should be considered." (Faegre & Benson)
[Guidance Overview] Valuing Stock Options: Is It Time to Reconsider Binomial Lattice Models?
Excerpt: "Valuation models were the subject of intense debate during the drafting of 'Statement of Financial Accounting Standards (SFAS) No. 123(R) -- Share-Based Payment.' The exposure draft would have required companies to use a binomial lattice model (or something similar) to value employee stock option awards, but the final standard has allowed companies to use either a binomial lattice or a closed-form model, such as Black-Scholes, without preference. Companies overwhelmingly have selected the Black-Scholes model. Most consider Black-Scholes easier to use and understand, its use is comparable with peers and its results were generally consistent with a binomial lattice approach. This article examines why those advantages might hold less true today and why companies might want to reconsider their model selection." (Watson Wyatt Worldwide)
Underwater Stock Options and Repricing Strategy (PDF)
18 pages. Excerpt: "This article updates the discussion of repricing strategy in Underwater Stock Options and Repricing Strategy: Is Your Company Drowning in Confusion? and reviews the current usefulness of repricing alternatives. This article appears as a chapter of Selected Issues in Equity Compensation (2009)." (National Center for Employee Ownership via Janich Law Group)
Solutions to Underwater Equity (PDF)
Excerpt: "For most companies, the last several months have been a period of tremendous share price volatility and unprecedented decline in market value. The drop in the stock market has made underwater stock options a major topic of concern and conversation. It is a troubling problem for management and the board of directors when equity compensation vehicles initially granted to provide incentive and address retention and engagement issues among employees have lost their value. The problem is more acute as many companies over the past few years, often to mitigate the prospect of underwater options, have supplemented or replaced stock options with other forms of equity-based compensation which have lost most or all of their value and taken on the 'underwater' label as well." (Buck Consultants)
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