SEC Approves New Stock Option Market Listing Rules

June 30, 2003 ( - The Securities and Exchange Commission (SEC) has rubber stamped new listing recommendations made by the major markets and ordered listed companies in the United States to gain shareholder approval for new stock option plans, or significant changes to existing plans.

The new rules apply to companies that are listed on the New York Stock Exchange (NYSE) and the NASDAQ, and are tailored to help restrict the generous stock option awards corporate executives were receiving without prior shareholder approval, according to a Reuters report.

“These rule changes are an important step by our nation’s principal markets,” SEC Chairman William Donaldson said in a statement. “They have responded to the commission’s call for an increased shareholder voice in the equity compensation practices of listed companies and I applaud them.”

Corporate stock option plans have attracted criticism from shareholder activists who complain that the repricing of stock options or issuing a generous set of new options in response to a drop in their stock’s price unfairly favors the executives.  The new rules would let shareholders reject such changes.

However, the new regulations are not universal. Loopholes would exempt some plans from shareholder votes, including:

  • signing bonuses, or “inducement awards,” for new executive hires
  • some plans related to mergers and acquisitions
  • some employee pension plans
  • the exchanges’ non-US. companies.

Also included in the new regulations is a broker-voting rule that prevents NYSE-member brokerage firms from voting on behalf of shareholders in equity-compensation matters unless the shareholders have given voting instructions.