Washington (July 1, 2003) -- The Securities and Exchange Commission approved measures that require companies who trade on the New York Stock Exchange and Nasdaq to get shareholder approval before granting any equity compensation plans including stock options.
Stock option grants establish a fixed price for buying future shares in an issuing company. They have been have been widely used as executive compensation by a host of “New Economy” and tech-sector companies. However, they have come under fire from critics in the wake of recent accounting scandals at WorldCom and Enron, who charge that grant options often lead to a company to exaggerate profits.
In a statement, SEC chairman William Donaldson said, "These rule changes are an important step by our nation's principal markets. They have responded to the Commission's call for an increased shareholder voice in the equity compensation practices of listed companies."
The new SEC guidelines also require companies to get shareholder approval before changing the exercise price of existing option grants.
-- WebCPA staff
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