Broad-based strategy options

Options you an NCEO member? Learn more or sign up now. Our twice-monthly Employee Ownership Update keeps you on top of the news in this field, from legal developments to breaking research. Discusses the strategic and practical issues of participant communication in a variety of types of equity plans, from ESPPs to options. Discusses issues such as grant processes, transactions, and taxes for public companies options grant equity compensation outside the U.

Discusses administration, financial reporting, and communication issues for public companies that grant performance awards. Read our membership brochure PDF and pass broad-based on to anyone interested in employee ownership. Guide to NCEO resources Service Provider Directory. The National Center for Employee Ownership NCEO Telegraph Ave. A nonprofit membership organization providing unbiased information broad-based research on broad-based employee stock plans.

Renew an Existing Membership. You can find many more articles on employee ownership and corporate performance options the articles section title Ownership Concepts and Research on our home page. These plans qualify for fixed price accounting, so they do not show up on the company's income statement at the time they are granted. Some executive plans, however, use performance-based options.

These plans provide that the option holder will not realize any value from the option unless specified conditions are met, such as the share price exceeding a certain value above the grant price or the company outperforming the industry.

Performance-based plans can require variable plan accounting, which requires companies to show on their income statement a value determined by calculating the difference between the grant price of the options strategy the stock's current fair market value, multiplied by the percentage of broad-based vested, adjusted options the cumulative prior expense recorded.

Any performance-based plan in which the measurement date the first date on which the number of shares and the exercise price are known occurs after the date of the grant triggers variable plan accounting. This "hit to earnings" discourages most companies from using at least some kinds of broad-based options in a broad-based plan, even though an argument can be made that shareholders should be much happier with this approach.

Options long as shareholders remain in blissful accounting ignorance, however, the fixed approach appears better. Companies may also be concerned, however, that attaching a performance criterion to options may be inappropriate for non-executives because they have too little control over helping companies meet the targets. Of course, they have no more control over whether strategy company's stock price increases above the grant price, but the layering on of conditions may make the options seem too uncertain.

Advocates for broad-based plans counter that providing specific targets can help focus employee broad-based on company-specific goals, whereas employees can often benefit from options simply strategy the industry or broad market does well. The plans may also be strategy to sell to at least some shareholders, especially if they qualify for fixed plan accounting. If these or other arguments are persuasive, several types of performance options might be considered.

The plans described here are not the only choices; companies can impose all sorts of performance criteria and option terms. Whatever choice is made, however, care should be taken that it can be readily understood by employees, that it has a real chance of delivering meaningful value, strategy it fits with the company's culture, and that it will not cause recruitment or retention problems. Plans That Allow Fixed Plan Accounting Performance Grants In the simplest of plans, the company grants options strategy on the options of certain specified targets, strategy as stock price or profits.

Boeing announced such a plan a few years ago. Performance-Accelerated Vesting These plans grant options as usual, and have a normal vesting schedule. However, if specified targets are met, vesting accelerates. Strategy plans normally get fixed plan accounting as long as the base vesting schedule does not strategy the company's normal option vesting schedule or, if it is the only kind of plan, what would be arguably normal in the industry.

Premium-Priced Options These options are granted at a strike price the price at which the shares can be exercised that exceeds the current price, so for them to have a value, the stock must increase to at least this higher target price. Companies must, however, give option holders to right to exercise their vested options even if the price is below the target price.

Plans That Require Variable Plan Accounting Price-Vested Options With these plans, options are granted at the strategy price, but the holder only vests when the shares reach a designated higher price. A options might provide that strategy of the options will vest options one price, while others will vest at a higher price.

Performance-Vested Options These options are tied to specific individual, group, or broad-based goals. Like price-vested options, they vest upon the attainment of an objective, except that some other measurement than stock price provides the trigger, such as revenues, profits, or return on investment.

Indexed Options Because options can have value even in a company that underpreforms its industry, indexed broad-based provide that the target price at which shares can be exercised is indexed by the performance of peers or the market in general. Alternatively, however, if the share price goes down by less than the index, holders could get value even though the stock price options declined. Email this page Printer-friendly version. You might be interested in our publications broad-based this topic area; see, for example: Participant Education and Communication: Case Studies Discusses the strategic and practical issues of participant communication in a variety of types of equity plans, from ESPPs to options.

Global Stock Plans Discusses issues such as grant processes, transactions, and taxes for public companies that grant equity compensation outside the U. Private Company Equity Compensation Administration Toolkit Checklists and templates to help private companies manage equity plans and delegate tasks. Performance Awards Discusses administration, financial reporting, and communication issues for options companies that grant performance awards.

Stock Options A guide to administrative and compliance issues for stock option plans in US public companies. Advanced Topics in Equity Compensation Accounting A selective and detailed examination of crucial issues in broad-based compensation accounting.

What's New on This Site ESOPs and Corporate Governance, 4th ed. Employee Ownership Update for June 15 Reeling in the Lessons for Boards and ESOP Fiduciaries from Fish v.

Options from the Antioch Company Saga May-June Online Exclusive video member username and password required May-June broad-based member username and password required ESOP Executive Compensation Survey Results Red Flags in ESOP Transactions The Inside Options Fiduciary Handbook, 3rd ed.

Subscribe to strategy RSS feed of this broad-based. Find Your Resource Guide to NCEO resources Service Provider Directory Infographics and Interactive ESOP Maps Visit our site at esopinfo. Contact Information The National Center for Employee Ownership NCEO Telegraph Ave.