The February 17, 2009 Employee Ownership Update is online and discusses the following:
-
More Than Half of Best Companies to Work for Have Broad-Based Employee Ownership
-
BLS Data on Stock Option Participation Show Little Change
-
Radford Research Shows Equity Award Exchange Patterns
The Update notes that 57% of the 100 Best Companies to Work for 2009 have broad-based employee ownership plans:
Six
of the companies—W.L. Gore & Associates, PCL Construction
Enterprises, TDIndustries, Burns & McDonnell, CH2M Hill, and Publix
Super Markets—are majority owned by their employees. Nine have only an employee stock purchase plan (ESPP), 11 have ESOPs,
17 have option and/or restricted stock programs covering most
employees, and one has a direct stock purchase program and internal
market (CH2M Hill). The number of companies using restricted stock has
gone up sharply from prior years, while the number of companies with
only ESPPs has declined.
The Update also discusses the results of the National Compensation Survey (NCS), an annual survey performed by Bureau of Labor Statistics:
The
National Compensation Survey (NCS) provides comprehensive measures of
occupational earnings, compensation cost trends, the incidence of
benefits, and detailed benefit provisions. This bulletin presents
estimates of the incidence of benefits for the Nation. The estimates
include benefits for workers by ownership within the U.S. economy in
2008—civilian, private, and State and local government—and by various
occupational and establishment characteristics. The civilian economy,
by NCS definition, excludes Federal government, agricultural, and
household workers.
The Employee Benefits Survey,
a survey of compensation and benefits practices, found that the
percentage of workers receiving stock options has remained unchanged:
The percentage of workers receiving stock options in 2008 was unchanged from previous years,
according to the Bureau of Labor Statistics. Its March 2008 data show
that 8% of the 107 million private sector workers surveyed received
options (more may be eligible but not have received them that year).
This is essentially the same percentage it has been for the last few
years given the margin of error in the survey. That suggests that
broad-based equity plans, contrary to conventional wisdom, are not a
relic of the past.
It also provides a link to Radford's Underwater Exchange Portal, a resource for providing guidance on underwater employee stock options, and the results of a recent survey on stock option exchanges. Shareholders
Demand Executive Exclusion, Value Neutrality in Underwater Stock Option
Exchange Proposals, According to Aon Consulting's Radford Research provides more details:
San Jose, Calif. – February 9, 2009 – With a surge in the number of underwater stock option exchange proposals, four shareholder-friendly design features are gaining consistent institutional investor approval,
according to a new study conducted by Aon Consulting's Radford Surveys
+ Consulting. This study identifies the exchange design elements in
mutual fund voting patterns that figured most prominently in successful
approvals, and analyzes voting results for specific investors,
industries and timing considerations.
These
four shareholder-friendly approaches include: option holder
eligibility; grant eligibility; old-to-new award exchange ratios; and
new award vesting requirements. Approval
rates were higher when any of the four design features complied with
the shareholder-friendly approach vs. non-compliance. Further, the
highest approval rates (79 percent of proposals) came when all four
design features followed the shareholder-friendly approach.
"Repricings elicit a negative connotation and some Directors and executives have automatically pigeon-holed them as being bad,"
said Brett Harsen, vice president, Radford Surveys + Consulting and
study author. "This research demonstrates an approval rate of nearly 80
percent for these new responsibly-balanced proposals, and we believe
that will be a surprise to many."
The following describes each of the four design features in detail:
Exclusion of Board and Named Executive Officers (NEOs)
Sixty-two
percent of programs excluding Board members and NEOs gained approval,
compared to only 18 percent that included them. In fact, 60 percent of
the mutual funds in this analysis voted against any program brought to
them that included the Board and NEOs.
Price floor above the 52-week high stock price
Starting
in 2008, institutional investor advisory firm RiskMetrics Group added
to their voting guidelines that no options priced under the company's
52-week stock price high should be eligible for exchange, as they have
reasonable probability of coming back in the money in the foreseeable
future. According to Radford's analysis of historic voting patterns
against the 52-week test, this feature is the least sensitive predictor
of approval rates with 59 percent approval when programs comply and 41
percent approval when they do not.
Value neutral exchange rate
Returning
an equal or lesser award value to option holders as a result of the
exchange clearly was a deciding factor to shareholders in the Radford
study. While 54 percent of programs using approximate value-neutral
exchange rates gained approval, very few (two percent) were approved
using a ratio (or ratios) that added value to the employee's holdings
as a result of the exchange.
Reset vesting
The
Radford research also found programs that reset vesting had an approval
rate of 57 percent, compared to those that mapped vesting, which saw
only 18 percent approval.
While
these four design elements featured prominently in successful exchange
proposals, more mature organizations that are largely held by
institutional investors must be careful when using recent underwater
option exchanges filed with the SEC as best practices benchmarks,
according to Harsen.
"Many recent exchanges filed with the SEC
were executed by smaller companies that could afford to be more
aggressive because they were closely held by a group of more familiar
investors," notes Harsen. "For more mature companies, it's critical
that they look at preferences of institutional shareholders reflective
of their actual investor base."
