More restricted stock and stock option plan participants know their vesting schedules
(88 percent, up 10 points from last year).
By making regular annual awards of multiple vehicles, with differing vesting schedules
and complimentary performance metrics, Boards can ensure that executives remain focused and engaged on delivering returns to shareholders over the long-term.
Private letter rulings and IRC Section 83 provide some guidance regarding what might constitute a substantial risk of forfeiture under plans that use something other than simple service-based vesting schedules
Are there more appropriate vesting schedules
and option terms that could be put in place?
Attribution period of policy for awards: For awards with graded vesting schedules
(an award vests 25 percent per year over a four-year period), companies are permitted as an accounting policy election to recognize compensation cost ratably or by vesting tranche.
Theory meets reality in the plan document, which outlines the plan's specific features--such as vesting schedules
and the use of investment advisers.
However, an age-weighted formula could trigger "top-heavy" minimum contributions and faster vesting schedules
- usually four years, with the bulk of the shares or options vesting in the fourth year - encourage the best performers to stay.
Defined contribution plans often have more liberal vesting schedules
, compared with defined benefit plans.
Private letter rulings and IRC Section 83 provide some guidance regarding what may constitute a substantial risk of forfeiture under plans that use something other than simple service-based vesting schedules
References to holdings include shares of common stock, options, phantom stock units and restricted shares regardless of vesting schedules
Plus, companies whose awards are based on graded vesting schedules
may need to pick separate assumptions for the options that vest each year (tranches).