The Advisors' Blog

– Ed Hauder, Exequity

Well, as expected, RiskMetrics Research Group is being a little flexible when it comes to companies’ burn rate commitments for 2010 (for the full details, read this prior blog entry). But, as I indicated, given the speculative nature of two of the new allowable options, I don’t think many companies will easily undertake such commitments.

After giving this some thought, it seems to me that what RiskMetrics needs to do is provide an interim commitment equal to their current 3-year average burn rate or the applicable cap for their GICS under the 2010 caps, which would apply until either (1) the 2011 Burn Rate caps are typically produced and released, or (2) the 2011 Burn Rates and caps are produced on an accelerated basis, say by June 30, 2010, or September 1, 2010.

This would allow companies to commit to maintaining the burn rate at a reasonable level for a short period of time (no more than 1 year) until such time that RiskMetrics can pull, clean and assemble the 2011 Burn Rate Data. At that point, companies could then commit to either (1) maintaining their Burn Rate for the remaining portion of the 3 year period to the new 2011 Burn Rate cap, or (2) one of the other alternatives already set forth. This would enable companies to be in a better position to evaluate what they were committing to before obligating themselves. If not, and companies need RiskMetrics approval, I foresee a greater number of companies utilizing cash-settled equity vehicles such as cash-settled SARs and cash-settled RSUs, which don’t count towards burn rate as calculated by RiskMetrics.