The NASPP Blog

It’s once again proxy season and many companies will be asking their shareholders to vote on proposals relating to their stock plan.  Most of these proposals probably add more shares to the plan, but there are a number of other plan amendments companies might seek shareholder approval for, including:

• To add a new type of award that can be granted under the plan
• To change the employees eligible to participate in the plan
• To increase the limit on the number of shares that can be granted to one employee or some other plan limit
• To extend the term of the plan

In some cases, companies aren’t making any changes at all to the plan, but are merely seeking shareholder approval to preserve the plan’s exempt status under Section 162(m) (where a plan doesn’t state the specific performance conditions that awards will be subject to, the plan has to be approved by shareholders every five years). 

To Bundle or Not Bundle

It is not unusual for a company to have two or more changes to their stock plan that they are asking shareholders to approve.  Where this is the case, the company can bundle all the changes into one proposal or can present each change as a separate proposal subject to a separate vote. 

Mike Melbinger of Winston & Strawn recently noted in his blog on CompensationStandards.com (“Should Companies Bi-Furcate Their Request for Shareholder Approval of Stock Incentive Plans?” January 27, 2014) that the SEC has added a new Compliance and Disclosure Interpretation that blesses bundling all plan amendments into one proposal. 

Bundling presents shareholders with an all-or-nothing proposition; they either approve all the changes or they approve none of them. It seems to me that this could go either way for the company. If shareholders are a little opposed to some of the changes but mostly supportive, they might overlook their niggling doubts and vote for the proposal. On the other hand, if shareholders strongly oppose one of the changes, they might vote against the entire proposal and the company doesn’t get any of the changes that it wanted. 

Shareholders Wanting Their Cake and Eating It Too

Mike notes in his blog that there have been some recent lawsuits alleging improper bundling of changes (and expresses hope that the SEC’s new CDI will help resolve/prevent these suits), particularly where one of the changes is beneficial to shareholders.  This is interesting to me because my guess is that where a company bundles a shareholder-friendly change with another change, the shareholder-friendly change is probably included solely to pave the way for shareholders to approve the other change.

For example, a company might bundle a proposal allocating new shares to the plan with an amendment to restrict the company from repricing options without shareholder approval.  The repricing restriction is likely included because the company has received negative feedback from shareholders on this issue (repricing without shareholder approval is considered a poor compensation practice by ISS) and is afraid the share allocation won’t be approved without it.  The two proposals have a symbiotic relationship: the company isn’t willing to agree to the repricing amendment unless shareholders agree to the share allocation. Forcing companies to unbundle the two amendments means the company could end up having to implement the shareholder-friendly amending without getting the other change that it wanted.

A Poll

I conclude this blog with a short poll on how you are handling your shareholder proposals this year.

– Barbara