At myStockOptions.com, we see and hear a lot of media coverage and commentaries involving equity compensation. Indeed, part of our daily routine here is staying plugged into news and trends in stock compensation that may affect our content. In this blog piece, we present some of the interesting stories and snippets that have come our way over the past few months.
In the shareholder-dominated world of publicly traded companies, "pay for performance" continues to be the rallying cry for equity compensation. Apple Insider details a recent payout of shares to Apple's CEO, Tim Cook, after the company met the performance goals attached to his restricted stock units (RSUs). For this slice of Mr. Cook's RSU grant to fully vest, Apple's total shareholder return (TSR) had to rank in the top third of the S&P 500 between 25 Aug. 2013 and 24 Aug. 2015. Apple's TSR performance of 76.76% during that period placed 46th out of 458 companies, putting it in the 90th percentile. If Apple's TSR had been in the middle third, the award would have been reduced to 50%, and the award would have been zero if TSR had ended up in the bottom third. Details of the grant terms occur in Mr. Cook's Form 4 filing.
As reported by The Detroit News, General Motors has made its first option grants since the company emerged from bankruptcy in 2009. At least for senior executives, the GM grants have some interesting performance-based quirks not often found in option grants (see the related 8-K filing and grant agreement form). Time-based vesting applies to 40% of each grant, with a vesting date of February 15, 2017. The remaining 60% of each grant vests over the following three years in 20% annual installments, provided the company's TSR meets or exceeds the median of a peer group of automotive companies during the period from the grant date through December 31 of the year preceding each vesting date. The awards also include explicit noncompete and nonsolicitation restrictions: for one year after they leave the company, the executives are not allowed to join a competitor or recruit employees away from GM.
Why are performance-based stock options somewhat rare? Our FAQ on them explains.
Google's move to split into an array of businesses (e.g. Nest, Calico, Google X) under a parent company called Alphabet has spawned much media attention. The coverage includes a commentary in Wired that ponders the shift's impact on Google's stock compensation. Although these companies currently trade under the Google stock symbol, the Wired writer believes that each will eventually be able to grant its own subsidiary-specific stock options. The writer predicts that these separate businesses will be spun off into their own publicly traded companies, potentially boosting the upside of the grants.
In a feature on John Mackey, the CEO of Whole Foods, Fortune has drawn attention to an unusual practice involving stock options at the company. Famously, Mr. Mackey leads the company on a salary of just $1 per year, and he forgoes stock options. Whole Foods donates to one of its foundations the options that it otherwise would have granted to him. (myStockOptions.com has in-depth content on donating stock options and company stock to charitable foundations.)
Pre-IPO Companies: Uber, Airbnb, And Twitter
An article in The New York Times notes that the so-called unicorns of the pre-IPO world, i.e. fast-growing startups with valuations of at least $1 billion (such as Uber and Airbnb), are using RSUs to recruit talent from established public companies such as Google. The NYT writer explains the approach:
"To snag employees from large rivals, unicorns have a simple recruiting pitch: They are on a path to success, as illustrated by their rising valuations. Many offer generous equity packages of restricted stock units that can later translate to big paydays for employees if the unicorn goes public or is sold—a lure that neither Google nor any other public tech company can dangle."
Journalists continue to watch the transition from options to RSUs at young technology companies. In a blog commentary, The Wall Street Journal observes that while Twitter employees have felt the decline of the company's stock price, having RSUs instead of options has spared them from worse agony.
Our section Pre-IPO has articles and FAQs on equity compensation at privately held companies.
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