SAN JOSE, Calif., Feb. 9 /PRNewswire-FirstCall/ -- 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.
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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, Aon Consulting's 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."
About the Study
Mutual fund voting data for this study was provided by RiskMetrics Group's
Voting Analytics(R) database. Radford combined these voting results with its
proprietary database of underwater exchange design features gleaned from SEC
tender offer filings.
RiskMetrics' Voting Analytics(R) provides access to the proxy voting
records (as filed with the SEC) of more than 4,000 mutual funds along with the
vote results for proxy proposals at companies in the Russell 3000 Index.
Voting Analytics allows users to search on proposal results and fund votes by
company, proposal type, or by fund or fund family, providing critical insight
into the voting practices of top mutual funds and outcomes at shareholder
meetings.
For more information on underwater options, please visit Radford's
underwater options portal -- a comprehensive resource for human resources,
legal and finance professionals providing guidance on addressing the challenge
of underwater employee stock options. Visit the portal at
http://www.underwaterexchange.com.
About Radford Surveys + Consulting
For more than 30 years, Radford has provided compensation market
intelligence to the technology and life sciences industries. Global survey
databases, which include three million incumbents, offer current, reliable
data to 2,000+ clients. Leveraging Radford survey data, our thought-leading
global Radford Consulting team creates tailored solutions for the toughest
global business and compensation challenges facing companies at all stages of
development. In addition to our consulting team, we also offer equity
valuation assistance via Radford Valuation Services, and leading-edge market
analyses and survey services with Radford Analytic Services. For more
information on Radford, please visit http://www.radford.com.
About Aon Consulting
Aon Consulting Worldwide is among the top global human capital consulting
firms, with 2007 revenues of $1.352 billion and 6,335 professionals in 117
offices worldwide. Aon Consulting is shaping the workplace of the future
through benefits, talent management and rewards strategies and solutions. Aon
Consulting was named the best employee benefit consulting firm by the readers
of Business Insurance magazine in 2006, 2007 and 2008. For more information
on Aon, please visit http://www.aon.mediaroom.com.
About Aon
Aon Corporation (NYSE: AOC) is the leading global provider of risk
management services, insurance and reinsurance brokerage, and human capital
consulting. Through its over 38,000 colleagues worldwide, Aon readily delivers
distinctive client value via innovative and effective risk management and
workforce productivity solutions. Our industry-leading global resources,
technical expertise and industry knowledge are delivered locally through more
than 500 offices in more than 120 countries. Aon was named the world's best
broker by Euromoney magazine's 2008 Insurance Survey. In 2008, Aon ranked
highest on the Business Insurance ranking of the world's largest insurance
brokers based on commercial retail, wholesale, reinsurance and personal lines
brokerage revenues. Aon was also ranked by A.M. Best as the number one
insurance broker based on brokerage revenues in 2007 and 2008, and was voted
best insurance intermediary, best reinsurance intermediary, best employee
benefits consulting firm in 2007 and 2008 by the readers of Business Insurance.
For more information on Aon, log onto http://www.aon.com/.
For more information, contact:
Fabiola A. Price, 408.321.2653, fprice@radford.com
Kelly St. Denis, 408.321.2584, kstdenis@radford.com