Every month, Compliance Week publishes a list of the largest stock option grants and restricted stock awards during the previous period. The data and analysis are provided by compensation research firm Equilar, Inc.

THE DATA

Latest Data

Download Top Equity Awards In August; Prior Months' Data

Data provided by Equilar, Inc., an independent provider of executive and board compensation analysis.

The company can be reached via email or at (650) 286-4512.

Chambers

Topping August's list of option grant recipients was Cisco's president and CEO John Chambers, who received 1.5 million options on Aug. 23. At the stock's $19.18 price on the grant date, the shares are worth more than $28 million.

Interestingly, the options grant to Chambers was one of the first "material agreements" filed on the SEC's new Form 8-K, which was effective on the same day. We covered the disclosure in the August 24 edition of Compliance Week.

Parsons

Two executives at XM Satellite Radio, Chairman Gary Parsons and CEO Hugh Panero, received options on Aug. 6 valued at over $18 million; however, the options cannot be sold unless the stock price goes up 10 percent. "For seven years following the date of grant, shares issued upon exercise of this option may not be sold at any time that the current trading price of the Class A Common Stock does not represent a 10 percent increase over the exercise price.

Apollo Group Chairman and CEO Todd Nelson, second on the list of the largest option grants in August, also had performance-based contingencies tied to his options, which were valued at over $28 million on the date of grant. According to Nelson's Form 4, his options—which vest over four years—could "accelerate if certain operational goals are achieved."

Handler

The largest stock awards went to Richard Handler, chairman and CEO of Jeffries Group, in the form of performance-based restricted stock units valued at $16 million. Also represented in the stock award category were five executives at Cohen & Steers, a REIT that went public in August.

As usual, we've made available a downloadable spreadsheet of the latest data, which includes information from prior months (see box above, right).

Changes In Compensation Strategy

As we've covered extensively in this column in recent months, the past three years have seen an increase in the prevalence of restricted stock in executive compensation plans.

RECENT ADOPTERS

Chart includes examples of companies that added restricted stock to equity compensation plans in August 2004. None awarded restricted shares to more two executives in the previous three years:

Company

RestrictedStock/Units

Options

Ratio

Building Materials Hldg.

38,000

117,000

3.1

Cardinal Health

50,000

1,125,090

22.5

Corinthian Colleges

84,979

594,855

7.0

MIPS Technologies

110,000

380,000

3.5

Quantum

71,226

-

-

Theragenics

48,000

-

-

Source: Equilar

According to an analysis conducted by Equilar, Inc., 37 percent of S&P 500 CEOs received a grant in 2003 as compared to 28.7 percent in 2001. This shift is likely to accelerate in light of FASB's option expensing proposal.

In light of those predictions and to understand how "newly adopting" companies were adding restricted stock to the compensation mix, Equilar analyzed Form 4 filings in August to find companies that provided restricted stock to a broad group of executives in August, but hadn't awarded any to more than two executives in the previous three years.

Among the findings:

Ratios

The top four companies (see chart at right) incorporated restricted stock into their overall equity compensation strategy as they continued to grant stock options.

Two of the four companies had a ratio of awarding close to three options to one share of restricted stock. This 3:1 ratio has been a general rule of thumb in equating the value of options to restricted stock for low-medium volatility stocks. Therefore, those issuing equity awards in this ratio of three stock options to one share of restricted stock are seeking to create a 50/50 balance between the two vehicles.

Restricted Stock Only

Two of the three technology companies on the list (Quantum and Theragenics) didn’t provide a matching option grant to the restricted stock that was awarded in August.

Quantum did however award over 2.5 million options earlier this year to their section 16 officers.

Stock vs. Units

Four of the six companies awarded restricted stock, while the remainder—Cardinal Health and Corinthian Colleges—provided restricted stock units.

Generally speaking, restricted stock awards are actual shares of common stock, while restricted stock "units" are agreements to deliver the shares. RSUs have the benefits of deferred taxation in some cases, and eliminate the administrative burden of "83(b) elections," which let grantees choose to be taxed at stock grant rather than vesting.

Vesting

For those companies that disclosed a vesting period, they were generally in the three to four year range. Only Quantum disclosed a faster cliff vest of 10 months.