Nasdaq Approves Shareholder Approval Rules for Stock Option Plans; NYSE Considering Even Tougher Rules

The Nasdaq stock exchange has passed a rule that would require more stock option plans to seek shareholder approval. The New York Stock Exchange is expected to follow suit with similar rules. A Nasdaq press release notes that its current rules "generally require shareholder approval for all plans in which officers and directors participate." The rules exempt plans in which a majority of the participants are not officers or directors. In its new rules, shareholder approval would be required for all plans in which directors and/or officers participate. The rules preserve an existing exemption for plans that provide "inducement grants to new executive officers, but conditioned such grants upon the approval of an independent compensation committee or a majority of the company's independent directors." ESOPs would be exempted from the new requirements, however.

The New York Stock Exchange has proposed stricter rules, requiring that all new equity compensation plans have shareholder approval. Presumably, this would include ESOPs and well as stock options and other plans. Moreover, could only vote on customer shares if they had specific directions from customers on those shares. Brokers traditionally have been more likely to support management. The proposal is still subject to comment and could be changed before a final vote, probably later this summer. Both the NASDAQ and NYSE proposals, which are part of larger proposed changes on corporate governance, would then be submitted to the Securities and Exchange Commission for further review and comment.

Meanwhile, Sen. Carl Levin (D-MI) has introduced the Shareholder Bill of Rights (S. 2460) that, among other things, requires shareholder approval for any plan in which employees receive stock options unless these plans are treated as an expense on the company's income statement.