Why do companies allow executives to choose to pay cash or shares upon exercise of ESOs or vesting of RSUs

Many equity compensation plans and grant agreements allow companies to give the choice to the executives to pay cash or deliver shares to pay the exercise prices to the company . The companies also allow the delivery of shares for tax withholdings, with the companies then paying the taxes in cash to the IRS.

Many companies give discretion to the company to choose between cash or shares as payment of the exercise price of tax withholding.

Most of those plans and grant agreements are approved by the Board of Directors or the Compensation Committee.

The question arises: Why are the executives given discretion and why are the companies given discretion. Cui Bono?

Does the company benefit or does the grantee benefit?

Does the executive have a benefit if he/she can decide the timing and the method of payments, which the issuer must accept?

Can the executive, for example the CEO and President, influence the company's discretionary decision?

Is the company facilitating trading on inside information, by giving the discretion to the executive, which the company must accept?

The answers to the questions above are:

a) the grantee benefits and

b) the answers is yes to the other three.

How much extra is the cost of giving discretion to the executives?

Answer: It is not a small benefit.

Edited Thu, Dec 21, 2017 6:23 AM

Post Reply

You must be logged in and a member of this Groupsite in order to post a reply to this topic.
To post a reply, contact your group manager(s) Join this Groupsite


ECE - Equity Compensation Experts
Powered by Groupsite.com

Visibility Public Membership By Invitation or Approved Request Default Profile Professional

Your Status Not Logged-In