The NASPP Blog

I hope you all tuned in for last week’s excellent webcast, “Knowing When to Let Go: Practical Advice on Amending vs. Replacing Your Equity Compensation Plan,” which was presented by Danielle Benderly of Perkins Coie, Amy Muecke of Cooley, and Scott Witz of W.W. Grainger. Today I highlight a few things I learned while listening to the webcast.

Liberal Share Counting

I often hear that liberal share counting–i.e., allowing shares tendered to the company for net exercises and tax withholding–is a deal-breaker with ISS. Turns out, this isn’t always the case. For full value awards, allowing shares tendered for taxes to return to the plan is okay. Moreover, if you don’t have a flexible share reserve (or a cap on the number of shares that can be issued as full value awards), liberal share counting is also okay.

This is because the only impact of a liberal share counting provision is that ISS will treat all options and SARs as full value awards in their shareholder value transfer analysis. But full value awards are already treated as full value awards in that analysis, so there’s no reason not to use liberal share counting for these awards. And without a flexible share reserve or a cap on the number of shares that can be issued as full value awards, ISS assumes that all shares under the plan will be issued as full value awards.

Black-Out Periods and Post-Exercise Grace Periods

It is possible for stock plans to provide that, where a black-out period occurs during the post-termination exercise period for stock options, the exercise period is automatically extended. This ensures that all former employees have the same amount of time to exercise their options without having to modify the options (and perhaps take an accounting hit) at the time of termination. I imagine it also might head off lawsuits that might be filed if former employees aren’t able to exercise due to a company-imposed blackout. (Of course, in no event, should the extension allow the option to be exercised beyond the original contractual term of the option.)

Shareholder Voting Bias

One consideration in the decision to amend vs. adopt a new plan is that shareholders might have a slight bias for new plans. Just a slight bias–when considering this decision, W.W. Grainger was advised that approval rates for new plans were maybe 1% to 2% higher than for plan amendments–but still, every little advantage helps.

Majority for NYSE Companies

For stock plan proposals, NYSE companies need a majority not just of the votes cast but of their total votes outstanding. That’s a much higher bar to acheive and, since brokers can’t vote on stock plan proposals without receiving direction from shareholders, could be a challenge for companies with high levels of lackadaisical shareholders, e.g., retail investors and probably even employees. When stock plan proposals are in your proxy statement, make sure employees are aware of them and vote.

You’re Not Getting Away With Anything

You may have some older plans with a lot of unused shares still available for grant–maybe even an non-shareholder approved plan that you slipped in before Nasdaq and the NSYE tightened up those requirements–and you (or your execs) may think those plans are flying below the radar. Not so. Your shareholders, particularly institutional investors, and their advisors, are aware of those plans (after all, you are disclosing these plans under Item 201(d) in the proxy statement) and these plans are likely to impact how shareholders will vote on current stock plan proposals. If you aren’t using these plans, maybe it’s time to get rid of them.

The Early-Bird Gets the Vote

You might have been thinking that this webcast was timed oddly–really too late to do anything about stock plan proposals for this year’s proxy season. But, in fact, the webcast was timed just about right for getting started on next year’s proposals. If you expect to go out to shareholders with a proposal that is significant enough that it warrants consideration of amending an existing plan vs. adopting a new plan, you want to start that process about a year ahead of time. Even better would be to start two years ahead of time and get the proposal into your proxy statement a year early, so you have another chance if the proposal fails.

These were just a tiny portion of the many great practical tips presented during the webcast. If you missed it, the audio archive is now available and the transcript will be posted in a couple of weeks.

Online Financial Reporting Course–Only a Few Days Left for Early-Bird Rate
There are only a few days left to receive the early-bird rate for the NASPP’s newest online program, “Financial Reporting for Equity Compensation.” This multi-webcast course will help you become literate in all aspects of stock plan accounting, including the practical considerations and technical aspects of the underlying principles.  Register by this Friday, April 29, for the early-bird rate.

2011 Domestic Stock Plan Administration Survey
The NASPP is excited to announce the launch of our 2011 Domestic Stock Plan Administration Survey, covering administration and communication of stock plans, ESPPs, insider trading compliance, outside director plans, and ownership guidelines.  You must participate in the survey to receive the full survey results. Register to complete the survey today–you only have until May 20 to complete it.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

• Register for 19th Annual NASPP Conference (November 1-4 in San Francisco).  Don’t wait; the early-bird rate is only available until May 13.
• Participate in the NASPP’s 2011 Domestic Stock Plan Administration Survey (co-sponsored by Deloitte, with survey systems support provided by the CEP Institute).
• Submit your questions for the NASPP’s next Ask the Experts webcast on Restricted Stock and Unit Awards. Questions must be submitted by May 18.
• Check out the NASPP’s Facebook and Twitter pages.
• Register for the NASPP’s newest online course, “Financial Reporting for Equity Compensation.”  Don’t wait; the early-bird rate is only available until this Friday, April 29.
• Complete the Compliance-O-Meter quiz on Transfer Agents.
• Take the “Question of the Week” challenge.
• Renew your NASPP membership for 2011 (if you aren’t an NASPP member, join today).
• Attend your local NASPP chapter meetings in Houston and Portland. 

– Barbara