Page 552 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

538 The Complete Guide to Executive Compensation

company B have selected completely different objectives. With company A, the appropriate
plan would be nonqualified stock options. With company B, a performance-unit plan
would be logical. All four plans shown in Table 9-14 were discussed in detail in Chapter 8
(“Long-Term Incentives”). Let’s review the basis for the scores.

Stock Option Performance

Selected Objective ISO NQ Share Unit
Company A

1. Identifies with the
1.0 1.0 0.5 0.0
shareholder
6. Requires no special
1.0 1.0 0.0 0.0
target setting
8. Has fixed earnings
0.5 0.5 0.5 0.0
charge
10. Tax deductible
0.0 1.0 1.0 1.0
for company
11. Is not taxable
0.5 0.0 0.0 0.0
to the individual
Total 3.0 3.5 2.0 1.0
Company B

4. Correlates with
corporate 0.5 0.5 1.0 1.0
performance
7. Ties high performer
0.5 0.5 1.0 1.0
to company
9. Has no dilution to
0.0 0.0 0.5 1.0
shareholder equity
13. Requires no
0.5 0.5 1.0 1.0
individual investment
14. No downside risk
0.0 0.0 0.5 1.0
to individual
Total 1.5 1.5 4.0 5.0

Table 9-14. Selected objectives vs. stock options and performance plans
Company A

1. Identifies with the shareholder. Both the incentive stock option (ISO) and non-
qualified stock option (NQ) receive a “1” because full value is based on shareholder-
value increases. The performance-share-plan (PSP) value is partly based on changes