The Advisors' Blog

As we note in our checklist on share counting (and in our Form S-8 handbook on TheCorporateCounsel.net), the methodology for counting share usage against a plan’s share pool may not necessarily be the same as counting shares for Form S-8 purposes – and this is something that can cause confusion from time to time.

One wrinkle where I have experienced some clients wanting to “shoot the messenger” is in counting restricted stock units against the registered share pool at the time of grant. A lot of folks have interpreted the rules to say that all RSU grants count against S-8 capacity – even if the award is later forfeited and the underlying shares again become available for grant under the plan’s recycling provisions. But there has been room for ambiguity and therefore some variances in practice. Ali Nardali of K&L Gates informed us of a recent conversation with the SEC’s Office of Chief Counsel, where OCC informally shared this view:

An RSU must be counted against the Form S-8 registered share capacity at the time of grant. If the RSU is later forfeited and the underlying share becomes available for reissuance under the plan, any subsequent RSU granted over that share must again be counted against S-8 capacity. In effect, each grant event – not each underlying share – triggers a deduction from the S-8 share registration.

Some companies don’t worry too much about this because their plans have evergreen features that result in regularly registering new shares for issuance and having plenty of headroom. For others who need to track usage more carefully, this is why some companies register “extra” shares on the Form S-8 – i.e., a number that is greater than what the plan document indicates. The OCC clarification also serves as a reminder that the S-8 should be on file before RSUs are granted.

At least one comment letter that was submitted in connection with the Commission’s “executive compensation” review called for the Commission to align the treatment of RSUs under Rule 701 and Form S-8 with the treatment of options under those rules – so the “date of sale” would be the vesting date (or later settlement), similar to the “exercise date” for options. If the Commission did that, it would correct difficulties that this issue causes for newly public companies and would resolve this share-counting issue for Form S-8. Fingers crossed!

– Liz Dunshee