In October, I posted a suggestion (see More from the Annual NASPP Conference) that companies consider revising their equity plans and procedures to provide for the automatic exercise of in-the-money stock options that are about to expire. Executives who hold their vested options as long as possible often seem to encounter a blackout period when the options are due to expire. Additionally, one of the most common sources of litigation is current or former employees whose in-the-money stock options expire unexercised. Companies usually win these lawsuits, but wouldn’t it be nice to avoid the time and expense, not to mention hurt feelings, entirely?
Some companies have drafted their plans and/or award agreements to provide that any stock option or SAR that is in-the-money on the date it otherwise would expire will automatically be exercised. And stock plan administrators are ready, willing, and able to assist. For example, long time NASPP member Emily Cervino of Fidelity Stock Plan Services reports that as of November 2017, 99 Fidelity clients had activated this functionality, and nearly $488 million, representing $293 million after tax in proceeds, had been delivered to participants through exercises triggered automatically at expiration. She tells me that there have been a total of 13,000 executions completed since inception. Surely something for companies to consider this fall/winter.
Of course, if non-qualified stock options are taxable at the time vesting, rather than exercise, as proposed in the House Tax Bill, this will greatly reduce the use of options—or at least ensure that no one will hold their options until the expiration date.
We expect a proposed Tax Bill from the Senate tomorrow, and are told to expect significant differences from the House Bill, so stay tuned.