The NASPP Blog

May 5, 2009

And Another Thing…

I’ve spent the past week ruminating about Steve Jobs’ mega grants and I’ve got a little more to say on the matter. I also have an interesting tidbit on RiskMetric’s proxy proposal requesting more shares for their own stock plan. 

Jobs’ Memory Loss
Jobs’ request for an additional grant only a year after he received an option to purchase 20 million shares only proves my point about executives and short memories. Just one year after receiving what is arguably one of the largest option grants in history, Jobs’ asked for another grant because he felt like Apple’s board wasn’t looking out for him. Is he kidding?  20 million shares aren’t enough to take care of him?  It seems like Apple’s board might have been better off doling that 20-million share grant out over several years.

It is true that the 20-million share option was underwater when Jobs requested the second option, but it was only a year old. Jobs still had another eight or nine years for that option to be back in the money–hardly the time to panic. If Jobs had hung onto to that option, instead of trading it in for restricted stock, it would be worth over $4 billion today and still wouldn’t expire until next January. (Jobs traded in both his 2000 and 2001 mega grants for $7.4 million worth of restricted stock. At the time of the exchange in early 2003, the 2001 grant was underwater by only about $3 and the 2000 grant was underwater by about $28. Combined, both grants would be worth around $6 billion today. The restricted stock that Jobs received is worth about $1.3 billion.) Not only does Jobs have a short memory, he also doesn’t seem to have much of a long-term perspective on Apple’s stock.  The whole scenario illustrates why executive compensation needs to be structured so as to focus execs on long-term growth and prevent them from profiting on short-term gains. 

NASPP Blog Poll: If you didn’t take my poll last week on mega grants, take a moment to participate now. Click here to take the poll. The poll is only one question, so it won’t take more than a few seconds of your time.

What’s Next for RiskMetrics–A Repricing?
RiskMetrics (formerly ISS) has included a proposal in this year’s proxy statement to extend the term of their 2007 stock compensation plan to June 2012 (it is scheduled to expire this June) and add 3.5 million shares to it. Interestingly, the additional share allocation will cause their overhang to increase to just over 32%, and, I’m told, causes them to exceed their acceptable Shareholder Value Transfer limits (I’m not able to run the SVT numbers myself). It certainly looks excessive when compared to average overhang levels reported in the NASPP’s 2007 Stock Plan Design and Administration Survey (co-sponsored by Deloitte)–only 6% of public companies reported overhang in excess of 25% and most (79%) reported overhang of less than 17.5% (a little over half the size of RiskMetrics’ overhang).

In the discussion of the plan, RiskMetrics points out that if they exclude options that have been outstanding for more than four years, their overhang drops to a little over 21%. That’s nice, but under their own guidelines, they don’t allow this exclusion. They will allow the exclusion of options that have been outstanding for longer than six years, but only if certain conditions are met, e.g., sustained positive stock performance, reasonable dilution, and sound compensation practices. (See the NASPP Practice Alert on ISS’s Corporate Governance Policy Update for 2008.) I wonder if RiskMetrics will have to recommend that institutional investors vote against their own plan?

In reviewing their 2007 plan, I noticed that it is an omnibus plan that allows for grants of ISOs, NSOs, SARs (payable in cash or stock, tandem or standalone), restricted stock, RSUs, unrestricted stock, and performance awards. I was surprised, however, that the plan doesn’t include a flexible share reserve or a limit on the number of shares that can be granted as full value awards. I guess that means that RiskMetrics treats all the shares under the plan as full value awards for purposes of their SVT calculation….

Thanks to Tami Bohm of Radian Group for bringing the RiskMetrics proxy filing to my attention.

Reason #23 to Renew Your NASPP Membership: Restricted Stock Essentials for Just $445
NASPP members that are attending the NASPP Conference can register for the NASPP’s acclaimed program, Restricted Stock Essentials, for just $445 until May 22 ($595 if you aren’t attending the NASPP Conference).  This one-day program, held on November 9, in advance of the NASPP Conference, covers everything you need to know to administer restricted stock and unit programs.  This year’s program has been updated to include panels on administering global programs and performance awards.  Register today.   

NASPP Conference Hotel Nearly Full
With the overwhelming response we’ve received to our unprecedented 2-for-1 early-bird rate on the 2009 NASPP Annual Conference, the hotel is nearly full.  The Conference will be held at the San Francisco Hilton from November 9-12; make your reservations today. If you have any difficulty making your reservations, please call our office at (925) 685-9271 and we’ll be happy to assist. 

If you haven’t yet registered for the Conference, make sure you do so by May 22.  NASPP members from the same company and location can receive 2-for-1 registrations and members that register on an individual basis also qualify for a substantial discount. But don’t wait to register any longer–we won’t be able to offer these discounts after May 22.

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. 

– Barbara