2010 Burn Rate Calculator Available

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I finally had some time to work out the automation details on my burn rate calculator spreadsheet.  I’ve uploaded it for folks to use to my Excel Tools page under Reference Materials.  Because I don’t want you to have to spend a lot of time hunting for that, just click on the following link to pull it up directly:

Link to 2010 Burn Rate Calculator

Suggestions or ideas on how this could be improved are always welcome!

Special Report: Equity Plan Proposal Failures: 2007-2009

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The Special Report: Equity Plan Proposal Failures: 2007-2009, Lessons to Consider When Requesting Shares, has been posted on the Special Reports page of this blog under “Reference Materials.”

(Note: you’ll need to have the password to access this page. The password is available to anyone who signs up for Ed’s weekly newsletter in the left-hand side-bar. The password will be automatically e-mailed to you upon sign-up)

In this Special Report, Ed Hauder of Exequity and Reid Pearson of The Altman Group examine the 38 equity plan proposals that failed out of approximately 2,200 total proposals put forward by Russell 3000 companies from 2007 through 2009. The authors detail several lessons for companies to consider when requesting shares, the most significant of which are to ensure that both dilution and burn rate are not excessive.

The Special Report also looks at the success rates of RiskMetrics/ISS’ against vote recommendations for equity plan proposals and finds that they vary, sometimes significantly, based on the industry group. Similarly, the percent of equity plan proposals that failed varies based on industry group. Companies that are considering requesting shareholders to approve additional shares for their equity compensation plans will have a better idea of the challenges they face after reading this Special Report. 


Sample RMG Burn Rate Commitment Language

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Last week I blogged about the new burn rate commitments that RiskMetrics Group’s (RMG’s) Research Group was accepting.  Thanks to a reader, I’m now able to share sample burn rate commitment language that was supported by RMG:

The Company commits to a three-year average burn rate for the years 2010, 2011 and 2012 not to exceed the higher of two percent of the Company’s weighted average common shares outstanding or the blended mean plus one standard deviation of the Company’s GICS group for 2009 and 2010.  The blended mean plus one standard deviation for 2009 and 2010 is equal to X% (GICS cap of Y% in 2009 and Z% in 2010).  For purposes of this burn rate calculation, each stock option award granted will count as 1.0 shares while each Full Value Award granted will count as 2.5 shares.


1. The blended mean plus one standard deviation (X) is the average of the 2009 (Y) and 2010 (Z) brun rate means plus one standard deviation for the Company’s GICS industry group per RMG’s Burn Rate Tables for 2009 and 2010.

2. The count for Full Value Awards (2.5) was established based on RMG’s currently-calculated volatility for the company (i.e., the volatility calculated by RMG for purposes of analyzing the company’s 2010 proxy proposals)  and RMG’s 2010 Burn Rate multiplier table.


Another Burn Rate Commitment RiskMetrics Should Consider

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Well, as expected, RiskMetrics Research Group is being a little flexible when it comes to companies’ burn rate commitments for 2010 (for the full details, read this blog entry). But, as I indicated, given the speculative nature of two of the new allowable options, I don’t think many companies will easily undertake such commitments.

After giving this some thought, it seems to me that what RiskMetrics needs to do is provide an interim commitment equal to their current 3-year average burn rate or the applicable cap for their GICS under the 2010 caps, which would apply until either (1) the 2011 Burn Rate caps are typically produced and released, or (2) the 2011 Burn Rates and caps are produced on an accelerated basis, say by June 30, 2010, or September 1, 2010. This would allow companies to commit to maintaining the burn rate at a reasonable level for a short period of time (no more than 1 year) until such time that RiskMetrics can pull, clean and assemble the 2011 Burn Rate Data.  At that point, companies could then commit to either (1) maintaining their Burn Rate for the remaining portion of the 3 year period to the new 2011 Burn Rate cap, or (2) one of the other alternatives already set forth. This would enable companies to be in a better position to evaluate what they were committing to before obligating themselves.  If not, and companies need RiskMetrics approval, I foresee a greater number of companies utilizing cash-settled equity vehicles such as cash-settled SARs and cash-settled RSUs, which don’t count towards burn rate as calculated by RiskMetrics.