Shareholders Demand Executive Exclusion, Value Neutrality in Underwater Stock Option Exchange Proposals, According to Aon Consul
09 Febbraio 2009 - 6:00PM
PR Newswire (US)
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. (Logo:
http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO) 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, Kelly St. Denis, 408.321.2584,
http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO
http://photoarchive.ap.org/ DATASOURCE: Aon Corporation CONTACT:
Fabiola A. Price, +1-408-321-2653, , or Kelly St. Denis,
+1-408-321-2584, , both for Aon Corporation Web site:
http://www.aon.com/ http://www.radford.com/
http://www.underwaterexchange.com/
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