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.

THE DATA

Latest Data

View The Top Equity Awards Made In May 2005

Archived Data

View The Equity Awards From Each Month In 2004

Source

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

Termeer

The largest option grant in May went to Henri Termeer, the chairman, president and CEO of $2.2 billion biotechnology firm Genzyme. On May 26, Termeer was granted 425,000 options worth more than $26 million, based on the grant date stock price of $62.98. The announcement came one month after the company announced that first quarter 2005 revenue had increased 28 percent to $629.9 million, from $491.3 million in the same quarter last year.

Termeer's May grant was down from the 460,000 options he was granted during the same month in 2004; back then, the company's stock was at $43.90, and the grant was valued at $20.2 million.

3M Chairman and CEO James McNerney was another executive who saw a decrease in the number and value of options granted in May 2005. On May 11, 2004, McNerney was granted 375,000 options valued at $31.7 million, based on a grant date stock price of $84.40. This year, McNerney was granted 270,160 options valued at $20.7 million, based on a grant date stock price of $76.80.

Also experiencing a decrease in was Adobe Systems CEO Bruce Chizen. The 450,000 options granted to him on May 19, 2004, were valued at nearly $20 million; however, the options granted May 24, 2005, were valued at $13.8 million.

Eller

The largest stock award in May 2005 went to Timothy Eller, CEO of $12.9 billion home builder Centex Corp. On May 12, Eller was awarded 185,163 shares valued at more than $10.6 million, based on the award date stock price of $57.36. Though Eller did not make our "top 10" list during the month of May last year, his stock award in 2005 was accompanied by a large option grant valued at more than $12 million; on the same day as his stock award, he was also granted 216,000 options.

A spreadsheet of the "top 10" grants and awards from May 2005 and previous months can be downloaded from the box above, right; also available is data from 2004.

Option Terms Continue Decline

According to the Form 4 analysis conducted Equilar, the May 2005 data demonstrate that companies are significantly reducing the terms of their option grants.

SHORTER TERMS

Term Length

Percent

Ten years

55.5%

Seven years

21.7%

Five years

5.5%

Eight years

4.1%

Six years

3.0%

Source: Equilar, Inc. Remaining 10.2 percent allocated to "other" term lengths, including 0-4 years.

The analysis of more than 1,300 derivative awards made to executives in May found that only 55.5 percent of option grants made over that period had a term of 10 years. Seven years was the next most frequently cited option term length, with a cluster in the five to eight year range (see box at left for details).

Johnson

In fact, several companies that issued seven-year terms in May, 2005, had granted options with 10-year term lengths during the previous three years. $8.4 billion H.J. Heinz, for example, granted options to nine executives on May 17, 2005, with a term length of seven years. Among those receiving options with such terms was the food marketer's Chairman and CEO William Johnson, whose 356,615 options were valued at more than $13 million based on a May 17 grant date stock price of $37.18.

Payless Shoesource was another company that shortened the term length of options to seven years. The same was the case at cotton breeder Delta and Pine Land Company, which granted options to thirteen executives on May 18, 2005, with a term of seven years.

Premium Priced

As Equilar has pointed out in previous months' analysis, several companies awarded premium-priced options to executives. Typically, these options are awarded at an exercise price that exceeds the stock price on grant date.

Applied Micro Circuits, for example, granted options on May 31, 2005, to the vice president and general manager of its "Communication Business Unit" at an exercise price of $3.15, which was 10 percent higher than the $2.86 stock price on the grant date. One-third of the executive’s options were at premium price, with the other 2/3 granted at fair market value.

Drug development services firm SFBC International granted stock options to five executives on May 17, 2005, with an exercise price set at an 18 percent premium over the $32.18 stock price on the date of grant.

And, in one of the more interesting May 2005 grants, Delta & Pine Land granted four sets of options to thirteen executives on May 18, 2005. One grant was made at fair market value, while the other three sets had exercise prices at a 5 percent, 9 percent, and 14 percent premium to the $26.43 stock price on the grant date. Each of the premium priced options was immediately vested.

Performance-Based

Companies also continue to grant performance-based options, including those that offer "performance-accelerated" and "performance-retracted" vesting.

$1.8 billion Massey Energy, for example, granted performance-accelerated options to its CEO and president on May 1, 2005. According to the executive's Form 4, his stock options vest and become exercisable beginning on November 15, 2008; "however, they may vest and become exercisable prior to such date if certain Company performance targets are met.”

E*Trade Financial granted options to six executives on May 3, 2005, that become vested and exercisable in four equal annual installments beginning on the first anniversary of the grant date. However, the executives' Form 4 filings note that "the individual's right to vest in some or all of the options terminates immediately upon a determination by the compensation committee (ratified by the board of directors) that performance metrics for 2005 have not been met.”

According to Equilar, performance-based criteria were not limited to stock options. Several executives received restricted stock or restricted stock units with performance-based metrics.

$871.4 million restaurant operator O’Charleys, for example, granted restricted shares to seven executives on May 12, 2005. The shares vest "over a period of three years, subject to the issuer achieving targeted growth in earnings per share.”

On May 24, 2005, U.S. Steel granted performance-based restricted stock to seven executives that vest "1/2 in 2007 and 1/2 in 2008 subject to 2005 performance and continued employment.”

And on May 10, 2005, automotive service provider Midas granted restricted stock to eight executives where vesting accelerates in years where the company’s total shareholder return exceeds the S&P 500 index. According to the executives' Form 4 filings, “These shares vest on the seventh anniversary of the date of grant. However, an amount equal to 33 1/3 percent of all of the shares granted shall immediately vest on each anniversary of the date of grant if, on such anniversary date, the total shareholder return on the Company's Common Stock during the immediately preceding 12 month period exceeds the total shareholder return of the Standard and Poor's 500 Stock Index for the same period.”

A downloadable spreadsheet of the top 10 option grants and stock awards from May 2005 is available from the box above, right.