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On the heels of the announcement that WorldCom directors agreed to pay $18 million out of their own pockets to settle a lawsuit, it was announced that Enron directors have agreed to pay $13 million personally as part of a settlement reached in October (like the WorldCom settlement, the Enron settlement still needs court approval).

We will be posting analyses of these settlements soon in the “Hot Topics” area of CompensationStandards.com. And we have launched a “Form 8-K Disclosure” Practice Area on that site that includes a number of recently filed 8-Ks that are relevant to the Bonus Segment of the January 13th webcast – “What NOW Needs to Be Disclosed in the Proxy Statement” – during which Alan Dye will cover the SEC Staff’s latest positions on 8-K compensation disclosures.

To gain access to this critical webcast, enter a No-Risk Trial today! If you are undecided, don’t forget our unconditional full refund policy: If at any time you are not completely satisfied with CompensationStandards.com, simply tell us and we will refund the entire cost of the year’s subscription.

Slow Death for CalPERS and CalSTERS?

Last week, it was reported that California Governor Schwarzenegger endorsed plans to partially phase out the California state defined-benefit public pension plans (e.g., CALPERS and California State Teachers’ Retirement System) to 401(k) type plans. A state lawmaker and a taxpayers group has filed a proposed ballot initiative that would require new hires to participate in 401(k) type defined-contribution plans, possibly as early as 2007. Also, current employees would be able to transfer their retirement benefits into a 401(k) type plan.

This movement towards defined contribution plans has profound implications for shareholder activism as state funds traditionally have been among the more active investors – and money managers for mutual funds have not been.

Another Day, Another Blog

On CompensationStandards.com, Mike Melbinger of Winston & Strawn has picked up the mantle and begun blogging on his Melbinger’s Compensation Blog. Below is one of Mike’s first entries:

Open Market Purchases Under Formula Plans

In drafting a new equity incentive plan for an NYSE-listed client, we encountered a question about the formula plan rules under FAQ D-1 of the shareholder approval rules. The company wants (and provides in its shareholder approved plan) to add back shares that are repurchased by the company using the cash paid upon the exercise of options. The question was: how closely do we need to match the open market purchases we make (or have made) with the cash we have received (or will receive) from option exercises?

Specifically, we wondered:

– whether there was some temporal requirement to match the proceeds with the purchases (i.e., could we get replenishment credit for shares purchased in the open market in the second quarter of 2004, even if there were no proceeds from option exercises until the third quarter of 2005)?

– Do we only look at this on a quarter-by-quarter basis, or a year-by-year basis, and match cash proceeds and purchases within the quarter (or year) without regard to the specific date on which the proceeds/purchases occurred?

– If there were excess cash proceeds for any quarter, could we carry those over to the next quarter? Could we carry over excess purchases?

– Could we take cash proceeds from a current quarter and match them against purchases made in a prior quarter?

We discussed these questions with an attorney for the NYSE, who advised that company can choose any logical, workable arrangement that it desires. We agreed that the company would want to include in the plan or committee procedures, some specifics about cash received during what period, purchases made during what period, etc. – so it can accurately ascertain how many shares are to be considered available under the plan at any given time.

We also considered that it might be difficult to match purchases made in a prior period with cash received in a subsequent period, because the company would be making purchases without knowing how much cash it had to fund them.

However, even in this situation, the company probably could create a formula that includes in the plan only such number of previously purchased shares as are covered by subsequently collected money.

The “formula” we would include in the plan is that there will be added to the plan a number of shares that can be purchased in the market by the company with the cash received from option exercises.