It is difficult for publicly-traded issuers to solve the problems associated with outstanding stock options that are "underwater" (i.e., underwater because the exercise price of the stock option is greater than the fair market value of the underlying shares).  None of the typical solutions are attractive to publicly-traded issuers.  As a result, the underwater stock options continue to exist for 10 years from the date they were granted, and continue to decrease the life expectancy of the equity plan's share reserve.  But what if a compensatory design existed that, if implemented on the front end, could negate the possible future existence of outstanding stock options that are substantially underwater?  Would such a design be attractive to an issuer so long as the design did not destroy the retention value otherwise inherent in the stock option?  Could a stock-price forfeiture provision be a solution to the foregoing problem?  Discussing a stock-price forfeiture provision as a possible solution to negate substantially underwater stock options is this "Tip of the Week."

Just a quick note that late last week ISS made available for public comment nine discreet voting policies for potential application in 2019.   Only one of the draft voting policies addresses compensation, and it addresses the Financial Performance Assessment Methodology under the Pay-for-Performance Model.

The purpose of this post is to quickly highlight that we have published our Executive Compensation Webinar Schedule for all of 2019.  As background, I have been providing this monthly webinar series since 2010 (it is a constant that I look forward to every month).  Our programs are intended to provide FREE educational training (i.e., we take a compensation topic, make it narrow, and then try to teach it A-Z), which is why we are able to publish the list a year in advance.  Free continuation education credits apply!  Sign up here.  Our topics, dates and times for the remainder of ...

All publicly-traded issuers have (or should have) a blackout policy that prohibits a designated individual from engaging in open-market transactions whenever such individual possesses material non-public information.  But what if the issuer is always (or near always) in a blackout period?  How does the issuer satisfy its income tax withholding obligation if the individual cannot finance the obligation through other means (e.g., family money, borrowings, etc.) and the individual is prohibited from financing the obligation by selling shares in the open market?  Answers to these questions are discussed in this Tip of the Week (presented in NO particular order, and not intended as an exhaustive list).

Most publicly-traded issuers are interested in ideas that could help increase the life expectancy of the share reserve under its stockholder-approved equity incentive plan.  The purpose of this "Tip of the Week" is to discuss the use of "inducement grants" as one of the many ideas to consider.

Background

If you look at an equity incentive plan's annual life cycle on a per-key employee basis, it is likely that the largest share grant occurred at the time the key employee was hired.  That conclusion makes sense because more shares are generally granted at the time of the key employee's hire in order to induce him or her to become employed with the issuer (compared to the number of shares it takes on an annual basis thereafter to retain that same key employee).  With this point in mind, issuers could increase the life expectancy of its equity incentive plan's share reserve if new hires received equity grants that were "outside" of the stockholder-approved equity incentive plan.