I have been participating in the Virtual NACD Summit 2020 over the last few weeks, as some of you probably are. As with the NASPP and CompensationStandards.com conferences, many of the sessions have been extremely interesting. And boards’ reactions to the COVID-19 pandemic have dominated the discussion. In this regard, one of the developments I have found most interesting — and unexpected — was the number of compensation committees that have begun to award stock options again during the last six months (or increased the percentage of their equity awards that they were making in options). These were actual compensation committee members, not consultants or lawyers expressing an opinion or recommendation.
Nearly all of the directors/committee members speaking on this issue acknowledged that their committees’ use of options had declined significantly over the last 10 years (or even stopped). However, under the current, unprecedented circumstances, many now believe the time is right for options as an incentive award. The three reasons for the renewed use of stock options cited by the committee members were (i) the simplicity of options, (ii) options reward of performance over time, and (iii) options’ pure alignment with stockholders’ interests (notwithstanding the seeming inability of ISS and Glass Lewis to comprehend this simple and universally recognized point).
Interestingly, I did not hear a single compensation committee member refer to the “benefit” of awarding options at a time when the company’s stock price was at a 52-week or historic low as a reason for awarding them. Their focus was on stockholders’ interests, not on rewarding the executives.
-Mike Melbinger, CompensationStandards.com October 30, 2020
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