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December 22, 2001
SEC Ordering More Stock Option Disclosure
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Securities and Exchange Commission has voted unanimously to require companies to disclose more clearly a number of details that will help investors keep tabs on how stock options are doled out and how those options could affect earnings.

For the first time, companies also must disclose stock option plans they have set up without shareholder approval.

The San Jose Mercury News reports that such stock-option plans have become common in recent years. One of three public high-tech companies surveyed has adopted such a plan, a sixfold increase since 1995, according to iQuantic Buck, a San Francisco consulting company.

"We clearly welcome the information," said Patrick S. McGurn, a director for Institutional Shareholder Services in Rockville, Md. His company advises about 10,000 large shareholders such as pensions and mutual funds. "We're able to ferret out the information by looking at SEC filings. But this will allow us to spend more time analyzing and less time on detective work."

The ruling highlights the tension that has intensified as stock options have become a popular way for companies to motivate and keep workers, according to the News. On one side are the companies that have handed out options to as many as 12 million Americans nationwide and to one of three households in Santa Clara County. On the other side are investors who complain that stock options water down their holdings.

Currently, investors must pore over proxies and footnotes to extract relevant details about stock-option plans. The new rules will require companies to clearly spell out such details as how many shares they may grant and how many options employees exercised the past year. This will help investors calculate how much their stake can be diluted as workers exercise options.

These details must be listed in the annual report, as well as proxies whenever a compensation plan is up for a shareholder vote. Companies must provide similar details about plans they adopted without getting shareholder approval.

The SEC made a concession for companies that have dozens of options programs because they have acquired competitors. They can combine related plans rather than break them out individually.

The changes, which were proposed almost a year ago but shelved after SEC Commissioner Arthur Levitt retired in February, will take effect in the second quarter of next year.

That will be too late for many companies that file in the spring. But SEC Chairman Harvey Pitt encouraged companies to report the data voluntary before then.

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