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Selected Issues in Equity Compensation

(Print Version)

13th Edition

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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Our standard introductory guide for company owners, managers, and advisors is The Stock Options Book, which covers a multitude of issues relating to stock options and stock purchase plans. This book goes a step beyond The Stock Options Book with extensive information on particular issues such as securities laws. (Many people get both books; for example, the Certified Equity Professional Institute has adopted both as texts for all three levels of its program.) The book addresses administration, state securities laws, federal securities laws, preparing for an IPO, handling death under a stock option plan, stock options and divorce, evergreen provisions, underwater options and repricing, designing and implementing an employee stock purchase plan (ESPP), the role of the transfer agent, annual meetings, and plan design and communication issues. A lengthy glossary and an index round out the book. In the 13th edition, most of the book (chapters 1, 2, 3, 4, 6, and 9, plus the glossary) has been revised and expanded to bring it up to date as of late 2015. The remaining material needed no changes. Additionally, a new chapter on annual meetings (chapter 11) has been added.

Publication Details

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
Annual Meetings
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.

From Chapter 11, "Annual Meetings"

Historically, past typical mailings of proxy materials have been conducted with mailing a "full set" of proxy materials consisting of a financial report (annual report or Form 10-K), a proxy statement, a proxy card, and a return envelope. An increasing more popular and cost effective method being used more often now is mailing a "Notice of Internet Availability," which is a single-page notice informing the shareholder of the meeting details, voting items, a URL address where they may view the financial document and proxy statement, and further instructions on how to vote their shares. Mailing a Notice of Internet Availability requires that the notices be completely mailed 40 days before the meeting date. It is important to know that a commencement or partial mailing on the 40th day does not comply with the rules. Another type of distribution method is to use electronic distribution of a notice of the annual meeting and proxy materials. This method usually requires receiving consent from shareholders and for them to provide their email addresses. This method is very helpful for employee plans such as a 401(k), whereas if the company uses email as the usual method of communicating to their employees, e-proxy emails can be sent to them without explicit consent. Please check with the plan trustee to find whether the trustee will allow either a Notice of Internet Availability or e-distribution because there may be ERISA concerns disallowing such media to be used.