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What has authorities particularly busy is a fast-expanding review of practices such as option backdating and spring loading.While NYCERS equity exposure to Apple is large in absolute terms, it is small compared to the equity interests held by institutional investors such as Fidelity Management & Research (60,316,011 shares as of September 30, 2006) or Alliance Bernstein L. If the market interprets a particular practice as far removed from economic reality and/or regulators start sniffing around, defined benefit and defined contribution participants stand to lose a bundle.In order to reduce the likelihood of an adverse outcome due to investing in company stock, pension fiduciaries must carefully consider relevant risk factors.
Click here to read "Will Executive Option Issues Drive the Next Wave of Pension Litigation? When the compensation committee and the pension investment committee are one in the same, will individuals who approve the granting of executive options be able to support an arm's length assessment of company stock as a viable defined contribution plan choice?The answer is not necessarily "no" but it does pose some added complexities.reporter Jessie Seyfer describes a judge's refusal to dismiss the case, with significant focus surrounding the issue of material economic harm to shareholders. " Should pension fiduciaries ask to meet with the compensation committee and more thoroughly vet company stock risk factors related to option awards for those at the top of the management ladder? Not addressed in the article but an interesting point to ponder relates to possible conflicts of interest. In the wake of several stories about 401(k) stock drop litigation, one connects the backdating - company stock dots by asking: "How much extra homework should pension fiduciaries undertake before recommending company stock (if at all) when the terms of prevailing option awards are misunderstood, questionable or insufficiently transparent?With more than 120 companies being asked questions about their respective option practices, there is surely much more to say on this topic!
It's hard to pick up a newspaper these days without reading some story about stock options - when they are granted, how often they are repriced, what portion of an executive's total compensation they represent and so on.