Shareholder Forum for Options Policies

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Program Reference


December 6, 2006 Meeting

Forum Projects Defined

Examples of Reasonable Information Requests

Adaptation of Advisory Voting on Compensation Policy

Process for Validation of Marketplace Acceptance

Workshop for Report on Analytical Alternatives


For meeting announcements, see



Issues to be Addressed


See also subsequent

Participant Comments on Forum Objectives

January 19, 2007



Forum Report


Initial Open Meeting of the Options Policies Forum

December 6, 2006


NOTE: Participants are quoted or identified in this report with their explicit permission, according to the Forum’s Conditions of Participation.


            Thanks to all of you who attended the initial open meeting of the Options Policies Forum, and also to everyone else who has been participating in our development of marketplace processes to govern the authorized use of shareholder capital for equity-based compensation.

            A consensus definition of both the Forum’s direction and several specific projects evolved from the informal exchanges of views among meeting participants reflecting a marketplace range of decision-making perspectives, including different sizes, styles and organizational types of investors as well as similarly diverse corporate constituencies.  The scope of the Forum was effectively established at the start of the meeting by Gary Findlay, executive director of the Missouri State Employees Retirement System and past chairman of the Council of Institutional Investors, in statements emphasizing the need for transparency and urging us to “focus on aligning interest without limiting the scope of the alternatives that are available for achieving that goal.”  In that context, continuing discussions led to the development of consensus support for the Forum’s progress with the following:

1.      Examples of reasonable information requests:  While there were significant differences among meeting participants regarding what information would be useful to investors, there was no disagreement at all about a shareholder’s right to obtain the information relevant to investment decisions, assuming provision of the information is reasonable in terms of costs, confidentiality, and other practical considerations.  It was also recognized that well-meaning investors and managers might have legitimate disagreements about what is reasonable, and that it would be desirable to minimize the need for litigated resolutions of those disagreements.  Responding to these observations, a suggestion was made to develop a list of 5 or 10 questions that could serve as examples of what an investor might reasonably ask.  After discussing means of assuring effective review and broad acceptance, including the validation procedures addressed in paragraph #3 below, the idea was supported as an effective marketplace guide that would benefit both investors and managers.

If interested, please offer your suggestions of information that an investor might reasonably request to fully understand a company’s policies relating to options or other equity-based compensation.

2.      US adaptation of advisory voting on compensation policy:  Meeting participants were interested in reports of positive management reactions to the new United Kingdom practice of presenting executive compensation policies for “advisory” votes of shareholders.  Discussions, which included participants with extensive practical experience in the definition, approval and monitoring of compensation plans, generated broad appreciation of the opportunity to use an advisory vote process as a foundation for cooperative communication in the development of policies as well as their presentation, essentially following conventional product development procedures with which most corporate managers are familiar.  Meeting participants concluded that the Forum should support the development of a model for a US marketplace adaptation of the advisory voting practice in a form that would benefit both investors and management, and a representative of Hermes, the UK pension manager, offered to provide an example of a proposal that was prepared as a foundation for private discussions of its adaptation with a US company.  (See the accompanying proposal, with the name of the subject company deleted.)

If interested, please offer your comments on how the advisory voting process should be adapted to US conditions.

3.      Validation of marketplace acceptance:  For any principles to be credibly presented as marketplace determinations of fair play, it was agreed that there should be an actual vote of acceptance by representative groups of both investor and management decision-makers.  Discussions included suggestions of membership organizations that would have the operational ability to poll members and an interest in supporting marketplace alternatives to regulatory processes.  Meeting participants supported Forum efforts to develop appropriate validation procedures that could be applied efficiently to both the sample questions and the model for advisory voting, above, as well as to other marketplace standards.

If interested, please offer your suggestions of organizations with memberships whose polled views of fairness would be a meaningful reflection of marketplace acceptance.

4.      Review of analytical alternatives:  Several meeting participants argued the advantages of alternative analytical standards or methodologies in evaluations of options and other equity-based compensation practices, as well as other aspects of executive compensation.  Note was made, for example, of certain mutual fund reporting requirements that could be adapted to the reporting of operating company executive compensation.  While only some of the meeting participants were familiar with the issues being debated by compensation analysts, there was consensus support for encouraging rigorous professional examination and definition of analytical alternatives as a foundation for healthy marketplace competition.  The Forum will therefore organize a special workshop for qualified professionals to prepare a report on analytical alternatives and associated information reporting requirements.

If interested, please provide a summary of your professional qualifications and interests in the workshop’s objectives.

            Having defined these directions, the Forum will now proceed with the selection of several Corporate Participants based on their ability to provide leadership and perspectives which are relevant to the issues we expect to address.  Suggestions of potentially suitable companies will of course be welcomed.



           GL – 12/12/06


Gary Lutin

Lutin & Company

575 Madison Avenue, 10th Floor

New York, New York 10022

Tel: 212-605-0335

Fax: 212-605-0325




Hermes EOS Form of Proposal for Advisory Vote



RESOLVED, on a motion of Britel Fund Nominees Limited and Hermes Assured Limited (“Hermes”), that the shareholders of [deleted: company name] urge the board of directors to adopt a policy under which shareholders could vote at each annual meeting on an advisory resolution, to be proposed by [deleted: company name]’s management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis).  The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.




Investors are increasingly concerned about executive compensation and lack of disclosure thereof that sometimes appears to be insufficiently aligned with the creation of shareholder value.  Recent media attention on questionable dating of stock options grants by companies has also raised investor concerns.


We believe that existing U.S. corporate governance arrangements, including SEC rules and stock exchange listing standards, do not give shareholders enough mechanisms to provide input to boards on senior executive compensation.  By contrast, public companies in the United Kingdom allow shareholders to cast an advisory vote on the “directors’ remuneration report,” which discloses executive compensation.  Such a vote is not binding, but gives shareholders a clear voice that could help shape senior executive compensation.


Hermes’ experience with this type of vote as UK shareholders has been positive.  Since this rule was introduced in 2002, it has successfully provided shareholders with a basis for dialogue with remuneration committees and boards of companies where there are concerns regarding compensation. While the resolution has been defeated in only a handful of cases, we believe that it has dramatically increased the level and quality of discussion between remuneration committees and investors, and thereby has helped drive more effective remuneration structures.


U.S. stock exchange listing standards  require shareholder approval of equity-based compensation plans, but those plans set only general parameters and accord the compensation committee substantial discretion in making awards and establishing performance thresholds for a particular year.  Shareholders do not have a means to provide ongoing feedback on the application of those general standards to individual pay packages.


Withholding votes from compensation committee members who are standing for reelection is a blunt and inadequate instrument for registering dissatisfaction with the way in which the committee has administered compensation plans and policies in the previous year.


Accordingly, we urge [deleted: company name]’s board to let shareholders express their opinion about senior executive compensation by establishing an annual referendum process.  The results of such a vote would, we think, provide [deleted: company name] with useful information about whether shareholders view the company’s senior executive compensation, as reported each year, to be in shareholders’ best interests.


We urge shareholders to vote for this proposal.





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