Employment Law Attorneys

NYSE & Nasdaq Adopt New Rules for Stock-Based Compensation Plans2 min read

The New York Stock Exchange and the Nasdaq Stock Market have adopted rules requiring companies to get shareholder approval for stock-based compensation plans.
The organization that makes accounting rules in the United States is widely expected to require companies to expense stock options, which would reduce reported earnings.
Those two changes could alter the makeup of executive compensation, according to specialists in the field. Paul Hodgson, who analyzes executive compensation for the Corporate Library, expects companies to start relying more heavily on cash bonuses and long-term stock awards and less on stock options. That’s because “stock options are in bad odor at the moment,” and he expects companies will have to expense them. Numerous companies have already switched from reporting the cost of options in footnotes to subtracting the expense from earnings. Either is acceptable under current accounting rules.
David Simmons, an executive compensation specialist in Atlanta at the consulting firm of Watson Wyatt Worldside, also looks for other forms of compensation to become more important. He thinks restricted shares, which are awarded conditionally based on performance targets, will be used more heavily.
The new rules set by the Nasdaq and the New York Stock Exchange cover stock awards for a broad base of corporate employees that previously were exempt from a shareholder vote.
And it may be getting more difficult to convince shareholders they should approve plans that could add even more shares to the number outstanding.
“We’ve seen shareholders beginning to get more sensitive to dilution when they’ve been asked to approve a new infusion of share or new plans,” said Simmons.
Dilution is the watering down of a shareholder’s ownership in a company when new shares are issued. In effect, it means a shareholder has a smaller piece of the same pie.
That may make companies more conservative about offering options to employees, Simmons said.
David McNaughton writes for The Atlanta Journal-Constitution. E-mail: dmcnaughton(at)ajc.com
Copyright 2003 Cox Enterprises, Inc.
Cox News Service
July 24, 2003 Thursday