Shareholder Considerations

Maximizing Shareholder Approval

In June 2003, the SEC approved new rules adopted by the NYSE and NASDAQ exchanges requiring shareholder approval for the vast majority of underwater stock option exchange programs. This more onerous requirement has forced the evolution of more “shareholder friendly” programs designed to ensure approval in the proxy voting process. The following summarizes the most shareholder-friendly approaches to each major design consideration.


Design Consideration Shareholder-Friendly Approach

Option Holder Eligibility
  • Exclude members of the Board of Directors
  • Exclude executive officers

Grant Eligibility
  • Exclude any awards that are not significantly underwater (e.g. strike price less than or equal to the 52-week high)
  • Exclude any awards that are less than two years old

Exchange Rate
  • Value neutral cash payments or share-for-share exchange rates (as determined by Black-Scholes or binomial models)

New Award Vesting
  • Reset vesting to original schedule, or possibly increase, for retention purposes

Share Recaptures
  • Retire net shares recaptures to permanently remove from plan pools