March 23, 2023
Underwater Equity—Alternatives to a Repricing or Exchange
Pay Governance recently released this viewpoint on alternatives to option repricings. While the article is focused on the biotech sector, in the current market, companies in many industries are grappling with this issue, and Glass Lewis expects an uptick in repricings in 2023. The viewpoints article points out that, while commonly considered, option exchange or repricing programs are seldom pursued. Between 2017 and 2022, only 29 biotech companies sought stockholder approval for an option exchange or repricing program.
The alert goes on to describe a number of alternatives that many companies considered or implemented in 2022 to re-engage employees while managing share usage and cash expenditures. The alternatives include:
– A CEO pool of RSUs for non-executive employees
– Increasing the mix of RSUs in annual equity grants
– Delivering larger annual equity awards to critical talent
– Granting special equity retention awards
– Granting inducement equity awards to newly hired employees
– Allowing employees to elect their mix of equity awards
– Dividing annual grants in two grant dates
– Shortening the vesting period or increasing the frequency of vesting
– Limiting equity eligible employees based on performance and criticality
– An option exchange or repricing
With respect to repricings, Liz recently blogged about the major issues that need to be considered and vetted, including tax and accounting considerations and tender offer rules.
– Meredith Ervine