The Advisors' Blog

A member asked the following question in our “Q&A Forum” (#1518):

A client has a grant policy that allows for grants a few times a year at set times. They have asked if they can and should make an exception to this policy and grant on a different date to a new executive they are hiring instead of making the exec wait. I don’t like the precedent this would set or the possible future disclosure if this person becomes an NEO or the potential for investors to say that they are gaming the system. Am I being too conservative?

Here was John’s response:

Many equity compensation award policies address grants to new hires, and those policies often accommodate off-cycle grants of that type. I think the practice described in a Mercer publication summarizes the approach taken by most companies:

“For off-cycle grants (e.g., new hire, promotion, and retention awards), the policy will typically specify monthly or quarterly dates for approval, particularly for grants to non-executives. Companies sometimes make exceptions to this cadence to recruit or retain key executives or other employees.”

These grant procedures are all the more important given the “new” requirements under Item 402(x) to discuss policies and practices on the timing of awards of options in relation to the disclosure of material nonpublic information and provide tabular disclosure regarding option awards granted to NEOs contemporaneous with the release of material nonpublic information. 

– Meredith Ervine