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Selected Issues in Equity Compensation
by Michael J. Album, Alisa J. Baker, Barbara Baksa, Mark A. Borges, Colin Diamond, William Dunn, Jennifer George, Mark Hamilton, Kristy Harlan, Thomas LaWer, Joshua McGinn, Eric Orsic, Corey Rosen, and Christine Zwerling
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Format: Perfect-bound book, 425 pages
Dimensions: 6 x 9 inches
Edition: 13th (March 2016)
Status: In stock
Administering an Employee Stock Option Plan
Federal Securities Law Considerations for Equity Compensation Plans
State Securities Law Considerations for Equity Compensation Plans
Preparing for an Initial Public Offering
Handling Death Under an Equity Compensation Plan
Evergreen Provisions for Stock Plans
Repricing Underwater Stock Options
Equity Awards in Divorce
Designing and Implementing an Employee Stock Purchase Plan
The Role of the Transfer Agent
Plan Design and Communications Issues
A Layperson's Glossary of Employee Stock Plan Terminology
From Chapter 1, "Administering an Employee Stock Option Plan"Under an employee stock option plan, the number of shares of stock to be granted under option to each recipient is typically determined by the board of directors or appropriate board committee that has been designated as the plan administrator. Companies use a wide variety of approaches and/or policies for determining the size of a stock option grant. Typically, a company establishes guidelines for determining the number of shares of stock to be subject to each stock option grant. The number of shares of stock may be determined on an employee-by-employee basis, by job classification, or based on the company's overall performance over a specified period of time. The number of shares of stock also may be determined as a percentage of the employee's annual salary or based on a desired overall dollar value for the award. Typically, a company will establish an annual "budget" for the number of shares to be granted under option, with the allocation among employees determined on the basis of guidelines such as those described in the preceding sentences.
With performance-based equity awards becoming more common, including performance-based stock options, a question may arise as to the number of shares of stock to be credited against the plan reserve for a performance-based stock option grant. This issue is relevant where the award provides for variations in the number of shares earned (and thus available to exercise) based on the actual level of performance achieved. Frequently, these awards will provide, in addition to a target performance level, for a "threshold" performance level (below which no shares will be earned) and a "maximum" performance level (which will "cap" the maximum number of shares that may be earned, typically expressed as a percentage of the target, e.g., 150%). In this instance, even though the performance outcome will not be known at the time of grant, it is customary for the company to reserve the maximum number of shares that may be earned (assuming that the actual performance will be at the maximum performance level) to ensure that an adequate number of shares has been reserved for the award and, perhaps more importantly, to guard against inadvertently exceeding the limit of the plan share reserve.