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Compensation  >>   Net Settled Stock Option Exercises Search Discussion Posts
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Net Settled Stock Option Exercises  
Posted: 02/18/2010 03:36pm   52 Views

I am interested in hearing from anybody who has implemented Net-Settled Stock Option Exercises (no output of cash & no sale of shares).  It is my understanding that this might become more popular since ASC 718 (FAS 123R) eliminated the adverse accounting consequences associated with net exercises that existed under APB 25.   We currently allow cashless / same-day-sale exercises and sell to cover, but we do not allow net-settled option exercises.

Did you face any communicatin or administrative complications?

Did you administer the transactions in-house or through a 3rd-party stock administrator?

Did you have a high participation rate?

Any feedback on the pros and cons of your experience is appreciated.


Net Settled Stock Option Exercises  
Posted: 04/13/2010 03:40pm  

Hi David,

Sorry for the delayed response.  I just found this posting.

Net-settled exercises got a lot of attention, but very few companies have actually implemented this as the primary (or only) type of exercise.  While there some great upsides to these, the downsides generally carry more wieght.

  • These programs are not profitable for the main outsourcing providers, stock brokers.  This means that they need to charge more to make up for the lost revenue from the 80-95% same-day sales that were the historical bread-and-butter.
  • They can be expensive for companies.  While there is no cash outlay on the part of the individual, the company does have a cash outlay to the IRS and other tax authorities at the time of exercise.  This means that the company must either have cash available, or plan to have cash when major vesting events take place.
  • Communication is another hurdle.  If you are going to allow this as an additional method, I have found many optionees have a difficult time understanding how this can be better for them than a Same-Day-Sale.  If you are only going to allow this method, many optionees will see this as a take-away.
  • In my experience (more than 15 years dealing almost exclusively with equity compensation) these programs are not used by a majority of participants unless they are forced to use them.

Hope this helps.




Net Settled Stock Option Exercises  
Posted: 04/29/2011 06:54am  

It has been a year since anyone posted to this topic, so I am wondering if anyone has any more experiences with Net Settled Stock Option Exercises to share?  We are considering it and would appreciate seeing more feedback on it, especially from individual companies that have considered it and then decided to do them (or not do them).  Thanks!

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