Executive Compensation Blog originally appears on CompensationStandards.com
Another action item we suggest you consider before year end (or during year end meetings) is to have the Compensation Committee consider adopting written stock option and other equity award guidelines (if it has not already done so). Written guidelines are a good governance item that reflect positively on the Committee when referred to in the CD&A.
Among the issues that Compensation Committees typically address in these guidelines are the following:
1. A general statement of purpose and list of awards to which the guidelines apply.
2. A description of any delegation of authority to make awards that the Committee has made (e.g., to Chief Executive Officer, the Chief Financial Officer, or the Vice President of Human Resources), and specific limitations on that delegation.
3. Specify that the grant date of any equity awards approved at a meeting of the Committee will be the date of such meeting. Specify that the exercise price (if applicable) for all equity awards will be the closing price on the date of grant. Specify whether the Committee may make awards only during a "window period," or any time other than a "blackout period."
4. Specifically describe the "process" for the proposal of equity grants and the Committee's review and approval.
5. Address when and how the Committee can make awards, e.g., only at meetings of the Committee (including telephonic meetings) and not through action by written consent.
6. Describe the information that the minutes of meetings at which the Committee makes equity awards must include, e.g., the names of the grantees, the number of options or shares granted to each grantee, and the vesting terms.
7. State whether all grants will be made pursuant to a standard form of award agreement previously approved by the Committee.
8. Consider specifying an error correction process.
9. Discuss distribution of Award Agreements or notices.