250 THE 2000 TOP 250 - FW Cook · 2016. 3. 28. · based on company proxy statements, annual reports, and 10-K filings. In cases where publicly available infor-mation is unclear,

250Long-Term

and

Stock-Based

Grant

Practices

for

Executives

and

Directors

F R E D E R I C W. C O O K & C O., I N C.F R E D E R I C W. C O O K & C O., I N C.

THE 2000 TOP 250

Long-Term

and

Stock-Based

Grant

Practices

for

Executives

and

Directors

250Long-Term

and

Stock-Based

Grant

Practices

for

Executives

and

Directors

F R E D E R I C W. C O O K & C O., I N C.

THE 2000 TOP 250

2 Frederic W. Cook & Co., Inc.

I N T RO D U C T I O N

OverviewThis report presents information

on long-term incentive and stock-based grant types currently in use forexecutives and non-employee direc-tors of the 250 largest companieshaving one or more class of commonstock included in the Standard &Poor’s 500 Index. Selection of thesecompanies was based on their totalmarket capitalization, i.e., share pricemultiplied by total shares outstand-ing. The information in this report ispresented both in summary form andon a company-by-company basis.

BackgroundSince 1973, Frederic W. Cook &

Co. has published an annual reporton long-term incentive grant prac-tices for executives of the largest U.S.companies. This 2000 report, our28th edition, is based on the 250largest companies as reported in theMarch 27, 2000, issue of BusinessWeek magazine (“The Top Companiesof the S&P500”).

The following topics are coveredin this report:

Executives: • Long-term incentive grants • Stock option features• Payment of annual incentives in

stock • Ownership guidelines

Directors:• Stock-based grants • Payment of retainer and/or fees in

stock • Ownership guidelines

Other Survey ParametersThe information in this report is

based on company proxy statements,annual reports, and 10-K filings. Incases where publicly available infor-mation is unclear, direct inquires aremade to the companies. Definitionsfor each grant type appear in theAppendix. The comparisons to prioryear practices do not reflect a con-stant company population, since, asnoted above, a snapshot of companysize determines inclusion in thisreport. Therefore, “trend” data canbe influenced by changes in the com-pany sample from year-to-year, aswell as actual changes in grant usage.

Executive Long-TermIncentive Grants

The information presentedthroughout this report focuses on theactual usage of long-term incentiveawards, rather than on the company’sability to make a particular type ofgrant. A grant type is considered tobe in use at a particular company ifgrants have been made within theprevious three years, and there is noevidence that its usage has been dis-continued. While most data reflectusage through fiscal year 1999, thesurvey attempts to present more cur-rent grant practices wherever possible.

To be considered a “long-termincentive” for purposes of this report,a grant must possess the followingcharacteristics:

• The grant must generally be madeunder a formal plan or practice,and not be part of an individualagreement, arrangement, or con-tract. Therefore, a grant deter-mined to be made specifically as ahiring incentive or replacement oflost benefits upon hiring or otherunique situations is typicallyexcluded. There are instances,

however, where a specific granttype is reported as being used, eventhough the only grant recipientsappear to be the chief executiveofficer (CEO) and/or other topexecutives and the purpose of thegrant was not determinable. Inthese situations, the grant is typi-cally included.

• The grant must not be merely aform of payment under an annualor other long-term incentive plan.

• The grant type must not be deliv-ered primarily to accommodateforeign tax or securities laws. Forexample, a company that grantsstock appreciation rights (SARs) inforeign countries as an alternativeto the normal award of stockoptions in the U.S. would not beconsidered to grant SARs as along-term incentive.

Non-Employee DirectorStock-Based Grants

With respect to non-employeedirectors, a stock-based grant type isconsidered to be in use at a particularcompany if the most recent disclosureindicates either that the particulargrant type is being used, or that itcould be granted in lieu of any cashretainer, regardless of whether suchelection is actually made. Wherecompanies have disclosed a prospec-tive change in their directors’ com-pensation program, the new awardpractice is reflected rather than themost recent practice.

Frederic W. Cook & Co., Inc. 3

D E F I N I T I O N O F U S A G E


Stock Options are rights to pur-chase company stock at a specifiedexercise price over a stated optionterm, and represent the most widelyused long-term incentive grant typeamong the Top 250 companies; infact, all but one of the companiesgrant stock options. Usage of differ-ent variations of the “plain vanilla”stock option is summarized in greaterdetail on page 6 of this report.

Restricted Stock includes actualshares or share “units” that are earnedsolely by continued employment. Theuse of restricted stock is relatively levelwhen compared with results from theprevious two years of this survey.Currently, fifty-six percent of the Top250 companies use this grant type.

Performance Awards consist ofstock-denominated performance“shares” and cash-denominated perfor-mance “units,” which are earned over a multi-year performance period.Currently, forty-six percent of the Top250 companies use either one or bothof these grant types (3% grant bothtypes), with more companies using per-formance shares than performanceunits. This is a significant decline from

last year’s survey in which fifty-eightpercent of the Top 250 companies usedeither one or both of these grant types.The decline is due to the displacementin this year’s survey population of “oldeconomy” companies with “new econo-my” technology companies that typical-ly use only stock options as a long-termincentive vehicle.

53%

40% 38%

24% 24%

Stock Options Restricted Stock Performance Shares

Performance Units

1997 1998 1999

32%

0%

20%

40%

60%

80%

100%

56%55%

17%

98%98% 99%

E X E C U T I V E S

Summary of Major Executive Long-Term Incentive Grant Types In Use


Summary of Executive Long-Term Incentive Grants

Percent of Companies Using Grant Type1999 1998 1997

Overall: Any Type of Grant 100% 100% 100%(See Appendix Appreciation Grants 99 98 98for definition) Full-Value Grants 72 77 78

Other Grants 17 21 24

By Grant Type: Stock Options 99% 98% 98%• Performance 18 20 19• Restoration (Reload) 18 19 19• Premium 9 10 8• Discount 2 1 1• Dividend Rights 2 4 4• Indexed <1 0 <1

Restricted Stock 56% 55% 53%• PARSAPs 4 2 3

Performance Shares 32% 38% 40%• Dividend Rights 15 15 16

Performance Units 17% 24% 24%

SARs 3% 4% 5%• Tandem 2 1 3• Freestanding 1 3 2• Additive 0 0 0

Tandem Grants 1% 2% 2%

Formula-Value Grants <1% 1% 1%


E X E C U T I V E S

Overview – Thirty-seven percentof companies with stock options haveincorporated one or more design vari-ations into their stock option grants.The following are the principaloption grant design variations in useat the Top 250 companies:

Performance Stock Options arestock options that have some aspectof their vesting tied to specified per-formance criteria. Eighteen percent ofTop 250 companies use performanceoptions. Of these, seventy-six percentuse performance criteria to acceleratethe vesting schedule, thus preservingfavorable “fixed” accounting treat-ment under APB Opinion No. 25.The remaining companies use perfor-mance-vesting options that are for-feited if the performance criteria arenot met.

Restoration (Reload) StockOptions are options granted with afeature that typically allows for addi-tional options to be granted toreplace or “restore” the already-ownedshares exchanged in a “stock-for-stock” exercise.(1) They are designedto encourage management stock

ownership. (In fact, forty-six percentof the Top 250 companies withrestoration option programs havepublicly disclosed formal stock own-ership guidelines.) Eighteen percentof Top 250 companies use restorationoptions.

Premium and Discount StockOptions have an exercise price aboveor below the market price at grant,respectively. Nine percent of Top 250companies use premium options. Useof discount options continues to berare (only 2% of Top 250 companies).

Executive Stock Option Variations

1997 1998 1999

0%

5%

10%

15%

20%

25%

19%

8%

10%

1% 1%

20%19%

18%

9%

18%19%

2%

(1) A method of stock option exercise in which an executive is allowed to deliver already owned stock, instead of paying cash,to exercise a stock option.


Executive Stock Option Variations – Top 250 Companies Using

Performance StockOptions:

Performance Vesting -

Restoration StockOptions:

Premium Stock Options:

Discount StockOptions:

Performance Accelerated Vesting -

AlltelBank of AmericaCapital One FinancialCitigroup

Colgate-PalmoliveConocoDow Chemical

Hartford Financial ServicesHoneywell InternationalMasco

PECO EnergySyscoTime Warner

Adobe SystemsAlcan AluminumAmerican ExpressAmgenAvery DennisonBaker HughesBaxter InternationalBristol-Myers SquibbCapital One Financial

ChevronCloroxDeereDuPontEnronFirst DataFranklin ResourcesHartford Financial ServicesHeinz (H.J.)

KrogerLehman Brothers HoldingsLexmark Intl. GroupMellon FinancialMicron TechnologyPE CorporationRalston PurinaRockwell InternationalSara Lee

Seagate TechnologySears, RoebuckSprintU.S. BancorpUnion PacificUnited TechnologiesWaste ManagementWilliams Cos.

ADC TelecommunicationsAmerica OnlineBank of AmericaBaxter InternationalCBSCitrix Systems

CloroxCoca-Cola EnterprisesColgate-PalmoliveComcastDeereDisney (Walt)

DuPontFederated Department StoresFirst DataGapGlobal CrossingKeyCorp

PNC BankSeagate TechnologySears, RoebuckTime Warner

Dell ComputerEMC

GapGlobal Crossing

Hewlett-Packard Network Appliance

Abbott LaboratoriesAlcan AluminumAlcoaAllstateAmerican ExpressAmerican GeneralAmgenAT&TBank OneBell AtlanticBurlington Northern Santa FeCapital One Financial

CBSChubbCignaCitigroupColgate-PalmoliveCompuwareCorningDuPontFirst UnionFleetBoston FinancialGeneral MillsHoneywell International

International PaperKelloggMascoMcGraw-HillMellon FinancialMinnesota Mining & Mfg.Morgan Stanley Dean WitterNational CityNortel NetworksPhilip MorrisPharmaciaPNC Bank

PPG IndustriesRalston PurinaSara LeeSears, RoebuckSprint TexacoTribuneTyco Intl.U.S. BancorpWells Fargo


E X E C U T I V E S

Overview - There are limitedinstances where other grant type variations(listed below) are in use at the Top 250companies:

Stock Appreciation Rights(“SARs”) are rights to receive at exercisethe increase between the grant price andthe market price of a share of stock.Currently, three percent of the Top 250companies use this type of grant. Usage ofSARs continues to decrease when com-pared with the results from the previoustwo years of this survey (4% and 5% for1998 and 1997, respectively.) There aredifferent types of SARs that can be grant-ed. Tandem SARs are granted in “tandem”with stock options, with the exercise of onecanceling the other. Freestanding SARsprovide for a payment equal to the appreci-ation on “phantom” shares, without regardto any stock option, and additive SARs are rights granted in addition to a stockoption. There are no additive SARs reported in this survey.

Performance AcceleratedRestricted Stock Award Plans(“PARSAPs”) represent grants of restrict-ed stock or stock units in which time-basedrestrictions may be accelerated by attain-ment of specified performance objectives.

Currently, four percent of the Top 250companies grant PARSAPs, an increase inusage when compared with a prevalence oftwo percent in 1998.

Formula-Value Grants have a valuebased on a formula rather than the marketvalue of company stock, e.g., Johnson &Johnson uses a formula based on net assetvalue and a capitalized value of earningsaveraged over five years. Formula-value

grants can be in the form of an “apprecia-tion right” or a “full value” grant. Only onecompany (less than 1% of the Top 250companies) makes formula-value grants.

Tandem Grants represent the simul-taneous award of two grant types (otherthan tandem stock options/SARs) wherethe exercise or vesting of one grant typecancels the other. Only one percent of theTop 250 companies make tandem grants.

3%

2% 2%

1% 1%

1997 1998 1999

4%

5%

3%

1%

0%

1%

2%

3%

4%

5%

6%

4%

2%

<1%

Other Executive Grant Type Variations


SARs:• Tandem American Express Comcast Philip Morris

Becton, Dickinson Ford Motor USX

• Freestanding Adobe Systems Wachovia

PARSAPs: Circuit City FleetBoston Financial MascoDuke Energy Lowe’s Mellon FinancialElectronic Data Systems Lucent Technologies Staples

Tandem Grants:• Stock Options/

Performance Units Bestfoods Ford Motor

• Stock Options/Restricted Stock International Paper

Formula Value Grants: Johnson & Johnson

Executive Grant Type Variations – Top 250 Companies Using


E X E C U T I V E S

Overview - Dividend rightsenable the recipient to receive anamount equal to the dividends paidon a specified number of shares ofcompany stock. These may be “real”dividends when actual shares areissued, or dividend “equivalents”when share “units” or stock optionsare involved. As summarized below,dividend rights are almost alwaysattached to another long-term incen-tive grant type.(1) As shown on page 5of this report, overall usage is decreas-ing, from four percent in 1998 totwo percent in 1999. “Stand-alone”dividend equivalent rights are notcurrently used by any of the compa-nies in the Top 250.

Performance Shares withDividend Rights are awarded byforty-six percent of the companiesgranting performance shares (14% ofthe Top 250 companies.)

Stock Options with DividendEquivalent Rights are awarded byonly five of the 249 companies grant-ing stock options (2%). Their usecontinues to be concentrated in high-er-dividend-yield companies to cap-ture total shareholder return.

Formula Value Grants withDividend Equivalent Rights areused by the one Top 250 company(Johnson & Johnson) that uses for-mula value grants.

Dividend Right Variations

4%

1% 1%

1997 1998 1999

15%16%

14%

<1%0%

3%

6%

9%

12%

15%

18%

2%

4%

(1) For purposes of this report, dividend rights are assumed to be granted with restricted stock and, therefore, are not trackedseparately.


Performance Shareswith Dividend Rights:

Adobe Systems

American General

Bank of New York

Bank One

Bestfoods

Boeing

Campbell Soup

Chase Manhattan

Chubb

Colgate-Palmolive

ConAgra

Deere

Dow Chemical

Duke Energy

Eastman Kodak

Enron

Ford Motor

GTE

Hewlett-Packard

International Paper

Lowe’s

Marriott Intl.

McGraw-Hill

Mellon Financial

PE Corporation

PG&E

PPG Industries

Sara Lee

Sears, Roebuck

Texaco

Texas Instruments

Texas Utilities

Tyco International

Union Carbide

USX

Wrigley, (Wm.) Jr.

Xerox

Stock Options withDividend Rights:

Alcoa

Atlantic Richfield

Edison International(1) Southern Company United Technologies

Formula Value Grantswith Dividend Rights:

Johnson & Johnson

Executive Dividend Right Variations – Top 250 Companies Using

(1) With additional performance criteria


E X E C U T I V E S

Annual incentives paid in stockor stock options continue to increasein prevalence as companies seek to fur-ther align executive pay with increasesin shareholder value. Of the Top 250companies, thirty percent (28% wasreported in last year’s survey) have dis-closed provisions for payment ofannual incentives in some form ofequity-based vehicle. Following arethe typical provisions found:

• Mandatory payments in stock typi-cally represent a specified percentof the award payout, as determinedby the company’s compensationcommittee. Thirty-nine companies(16%) disclosed that they pay atleast a portion of annual incentivesin shares of stock or stock options,and twenty-one percent of thosecompanies provide for elective pay-ments in stock for the balance ofthe award.

• Elective payments typically allow theexecutive to choose payment instock of up to 100% of the annualincentive amount. Forty-threecompanies (17%) disclosed thatthey allow executives to receive atleast a portion of annual incentivesin shares of stock or stock options.

– Inducements are offered by fifty-five percent of the companiesusing stock for payment ofannual bonuses to promoteelective payments in stock oroptions. For example, GeneralMills offers a premium, inwhich the company matchesone restricted share for everyfour restricted shares elected inlieu of cash payment of bonus.Some companies, such as DellComputer, achieve the sameobjective by offering discountsfrom the stock market value toencourage elective payments instock.

• Payment in stock options is less com-mon than payment in stock orstock units, with twelve companies(5%) allowing elective payment inoptions, and two (1%) withmandatory payment in options.

• Percent of bonus paid in stock typi-cally falls in the range of twentypercent to thirty percent of bonusfor mandatory plans.

Executive Annual Incentives Paid In Stock Awards


Payment in Stock or Stock Units• MandatoryAmerican Home ProductsBoeingCarnivalCBSChase ManhattanCignaCitigroupComputer AssociatesConexant SystemsConoco

DuPontEl Paso EnergyElectronic Data SystemsFranklin ResourcesFleetBoston FinancialGannettGTEHalliburtonJohnson & JohnsonKeyCorp

Lehman Brothers HoldingsMarriott InternationalMellon FinancialMerrill LynchMinnesota Mining & Mfg.MolexMorgan (J.P.)Morgan Stanley Dean WitterNational CityPPG Industries

Procter & GambleProvidian FinancialRohm & HaasTexas UtilitiesTextronTyco InternationalUnicomWilliams Cos.

Payment in Stock Options• MandatoryAES Procter & Gamble

• ElectiveAlcan AluminumAlcoaAmerican Home ProductsAssociates First CapitalBest BuyBoeingBurlington Northern Santa FeChevronClorox

Columbia/HCA HealthcareComputer SciencesCVSDell ComputerDuPontGeneral MillsGTEHartford Financial ServicesMarsh & McLennan

MBNAMellon FinancialQualcommQuaker OatsRadioShackRalston PurinaSafewaySBC CommunicationsSeagram

Sears, RoebuckSyscoTextronUnicomUnion CarbideUnion PacificWeyerhaeuserWilliams Cos.Wrigley (Wm.) Jr.

• ElectiveADC TelecommunicationsCapital One FinancialComputer Sciences

CVSDell ComputerFranklin Resources

KelloggMedtronicNetwork Appliance

PG&ESBC Communications Sprint

Executive Annual Incentive Variations – Top 250 Companies


E X E C U T I V E S

Overview – Thirty-three percentof the Top 250 companies have for-mal stock ownership guidelines thatrequire executives to own a certainamount of company stock. (Webelieve, however, that the percent ofTop 250 companies with ownershipguidelines is higher than thirty-threepercent because disclosure of guide-lines is voluntary.) Guidelines aretypically stated as a multiple of salaryor as a specific number of shares.The following describes the preva-lence of the types of ownership guide-lines at Top 250 companies(1):

• Multiple of salary guidelines are themost common approach, with sev-enty-six percent of the companieswith ownership guidelines adopt-ing this approach. Only two per-cent of companies with ownershipguidelines state their requirementsas a multiple of annual compensa-tion, e.g., salary plus target bonus.

• Number of share guidelines are usedby eight percent of the Top 250companies with formal ownershipguidelines.

• Retention ratio guidelines thatrequire executives to retain a certainpercentage of option profit sharesor earned shares from long-termincentive plans are used by five per-cent of the Top 250 companieswith formal ownership guidelines.

Executive Stock Ownership Guidelines

(1) Eight percent of companies did not disclose the type of ownership guidelines


Multiple of Salary

ADC TelecommunicationsAllstateAmerican ExpressAmerican GeneralAmerican Home ProductsAssociates First CapitalAT&TBaker HughesBank OneBecton, DickinsonBellSouthBestfoodsBoeingBurlington Northern Santa FeCampbell SoupCigna

CloroxCoca-ColaCoca-Cola EnterprisesComcastConocoDeereDominion ResourcesDow ChemicalDuPontEastman KodakElectronic Data SystemsEnronFord MotorGannettGeneral MotorsGTE

Hartford Financial ServicesHousehold InternationalIllinois Tool WorksKelloggKeyCorpKimberly-ClarkLockheed MartinMarriott InternationalMasco May Department StoresMcDonald’sMotorolaNortel NetworksPE CorporationPECO EnergyPfizer

PG&EPitney BowesProcter & GambleRockwell InternationalRohm & HaasScientific-AtlantaSears, RoebuckTextronTransocean Sedco ForexTribuneUnion CarbideUnion PacificUnisysWeyerhaeuserXerox

Multiple of Annual Compensation

Hewlett-Packard IBM

Number of Shares

Alcoa Caterpillar

Compaq ComputerDuke Energy

National CitySara Lee

Sun Microsystems

Retention Ratio

Citigroup General Mills Merck Wells Fargo

Executive Stock Ownership Guidelines – Top 250 Companies


D I R E C TO R S

Overview – Ninety-six percent ofthe Top 250 companies compensatenon-employee directors using a formof stock-based grants. Director grantusage continues to increase for stockoptions. Usage of restricted stock ordeferred stock units and unrestrictedstock is decreasing when comparedwith last year’s survey results. Both ofthese trends may be attributed to the

inclusion in this year’s survey of more“new economy” technology companiesthat use stock options only for direc-tor grants.

Stock Options continue to signifi-cantly increase in use, with sixty-ninepercent of the Top 250 companiesmaking grants. Most stock optiongrants to non-employee directors are“plain-vanilla” stock options. The

following are some variations to thetypical “plain-vanilla” stock optiongrant:

• Performance Options have a compa-ny performance goal that must beachieved before directors receiveoption grants or before the optionsbecome exercisable. Only two per-cent of the Top 250 companiesgrant performance options todirectors. Computer Associatesdetermines the number of optionsto grant based on the company’sattainment of ROE objectives.ADC Telecommunications andSysco must have ten percentgrowth in ROE and EPS, respec-tively, over the prior year for thedirectors to receive option grants.Capital One Financial grantedoptions that vest based on theachievement of stock price objectives.

• Restoration Options are granted todirectors at Abbott Laboratories,Allstate, Chubb, Sara Lee, U.S.Bancorp and Wells Fargo.

• Tandem SARs are granted withdirector stock options atBellSouth.

Summary of Director Stock-Based Grants

68%

52%47% 49%

1997 1998 199993%91%96%

69%

0%

20%

40%

60%

80%

100%

68%72%

44%

22%25%

21%

58%


Restricted Stock/Deferred StockUnit grants decreased in use whencompared with last year; they are cur-rently used by forty-four percent ofthe Top 250 companies. These sharesare restricted from sale or transfer,usually until retirement from theBoard.

Unrestricted Stock grants alsodecreased in use when compared withlast year; they are currently granted bytwenty-one percent of the Top 250companies. These shares are free ofany transferability restrictions and aretypically granted in lieu of a portionor the entire cash annual retainer.

Elections to Receive Stock areoffered by sixty-eight percent of theTop 250 companies. Under any ofthe variations identified below, direc-tors may elect to convert all or a por-tion of their cash retainers and feesinto company stock. Some companiesinduce directors to purchase companystock through discounted stock pur-chase programs or stock matchingprograms.

• Deferred Stock Units allow cashdeferrals into an unfunded account

denominated in company stock.Stock price appreciation and divi-dends typically accumulate to bepaid out upon retirement oranother specified date.

• Stock Options are also offered inplace of cash and occasionally at anexchange ratio of three or four dol-lars of option face value for eachdollar forgone. BellSouth has a

program where directors receiveone additional option share forevery two shares owned in excessof a specified ownership level, i.e.,shares worth five times the annualretainer.

• Restricted or Unrestricted Stock issimply the receipt of commonshares in place of cash.

12%15%

5% 5%

1997 1998 199961%

59%56%

16%

8%7%4%

0%

10%

20%

30%

40%

50%

60%

70%

7%


D I R E C TO R S

Overview – Thirteen percent ofthe Top 250 companies have stockownership guidelines that requiredirectors to own a certain amount ofcompany stock. The followingdescribes the prevalence of the typesof ownership guidelines at Top 250companies:

• Multiple of retainer is the mostcommon type of ownership guide-line in place for directors. Fiftypercent of companies with directorownership guidelines state therequirement as a multiple of annu-al retainer. Only two companies(6%), Comcast and Ford Motor,with director ownership guidelinesstate the requirement as a multipleof annual retainer plus meetingfees.

• Number of shares ownership guide-lines are used by twenty-eight per-cent of the Top 250 companieswith director ownership guidelines.

• Other types of director ownershipguidelines include a retention ratioapproach or specific dollar valuerequirements and are used by six-teen percent of companies withdirector ownership guidelines. Forexample, Citigroup directors arerequired to hold 75% of sharespreviously granted, the same as forexecutive officers.

Director Stock Ownership Guidelines


Multiple of Annual Retainer

AT&T

Becton, Dickinson

BellSouth

Chubb

General Mills

Hewlett-Packard

Honeywell International

Illinois Tool Works

Kellogg

May Department Stores

McDonald’s

Scientific-Atlanta

Tribune

U.S. Bancorp

Unisys

Wells Fargo

Multiple of Annual Retainer and Meeting Fees

Ford Motor Comcast

Number of Shares

Campbell Soup

Compaq Computer

Dow Chemical

Duke Energy

Kroger

National City

Nortel Networks

PECO Energy

Safeway

Retention Ratio

Citigroup

Director Stock Ownership Guidelines – Top 250 Companies


Company

Stoc

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EXECUTIVE LONG-TERM INCENTIVE GRANTS DIRECTOR STOCK-BASED GRANTS

Full Value Other Grants Automatic ElectiveOwnershipGuidelines

Summary of Executiveand Director Grant TypeUsage by Company

3COM X X X

ABBOTT LABORATORIES X X X X Options X

ADC TELECOMMUNICATIONS X X X

ADOBE SYSTEMS X X X X X X

AES X X X

AFLAC X X

ALBERTSON'S X X X Options

ALCAN ALUMINIUM X X

ALCOA X X X X

ALLSTATE X X X X X X X

ALLTEL X X X X Rest. Stock

AMERICA ONLINE X X

AMERICAN EXPRESS X X X X X X X X X

AMERICAN GENERAL X X X X X X X X

AMERICAN HOME PRODUCTS X X X X X X

AMERICAN INTL GROUP X X X X

AMGEN X X

AMR X X X X X X

ANALOG DEVICES X X X

ANHEUSER-BUSCH X X X

APPLE COMPUTER X X

APPLIED MATERIALS X X

ASSOCIATES FIRST CAPITAL X X X X X

AT&T X X X X X X X

ATLANTIC RICHFIELD X X X X X X

AUTOMATIC DATA PROCESSING X X X

AVERY DENNISON X X X X X X

BAKER HUGHES X X X X X

BANK OF AMERICA X X X X

BANK OF NEW YORK X X X X X X

BANK ONE X X X X X X X Options X

BAXTER INTERNATIONAL X X X


Company

Stoc

k O

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ns

SAR

s

Res

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Perf

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Appreciation




BB&T X X Options

BECTON, DICKINSON X X X Stock X X

BELL ATLANTIC X X X

BELLSOUTH X X X X X X X X

BEST BUY X X X

BESTFOODS X X X X Tandem X X X

BIOGEN X X X

BMC SOFTWARE X X X

BOEING X X X X X X X X

BOSTON SCIENTIFIC X X X X

BRISTOL-MYERS SQUIBB X X X X X X X X

BURLINGTON NORTHERN SANTE FE X X X X X Rest. Stock X

CABLETRON SYSTEMS X X

CAMPBELL SOUP X X X X X X X X

CAPITAL ONE FINANCIAL X X X

CARDINAL HEALTH X X X

CARNIVAL X X X

CATERPILLAR X X X X X Stock X

CBS X X X X

CENDANT X X X X

CHASE MANHATTAN X X X X X X

CHEVRON X X X X

CHUBB X X X X X X X

CIGNA X X X X X Stock X

CIRCUIT CITY X PARSAP X

CISCO SYSTEMS X X

CITIGROUP X X X X X X

CITRIX SYSTEMS X X

CLEAR CHANNEL COMM. X X

CLOROX X X X X X X Stock X

COASTAL X X X X X

COCA-COLA X X X X X X


Company

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COCA-COLA ENTERPRISES X X X X X X X

COLGATE-PALMOLIVE X X X X X X X Stock

COLUMBIA/HCA HEALTHCARE X X X X X

COMCAST X X X X X

COMPAQ COMPUTER X X X Options X X

COMPUTER ASSOCIATES INTL. X X X

COMPUTER SCIENCES X X

COMPUWARE X X X

COMVERSE TECHNOLOGY X X

CONAGRA X X X X X X X

CONEXANT SYSTEMS X X X Rest. Stock

CONOCO X X X X X X

CORNING X X X X X

COSTCO X X

CVS X X X X X Stock X

DEERE X X X X X X X

DELL COMPUTER X X X Options

DELPHI AUTOMOTIVE SYSTEMS X X X X X

DISNEY (WALT) X X X Stock

DOMINION RESOURCES X X X X X X X X

DOVER X X X

DOW CHEMICAL X X X X X X X X

DUKE ENERGY X X X X PARSAP X X X X X

DUPONT X X X X X X

EASTMAN KODAK X X X X X X X X

EDISON INTERNATIONAL X X X

EL PASO ENERGY X X X X X X

ELECTRONIC DATA SYSTEMS X PARSAP X X X Options X

EMC X X

EMERSON ELECTRIC X X X X X

ENRON X X X X X X X Options X

EXXON MOBIL X X X X


Company

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FANNIE MAE X X X X X

FEDERATED DEPT STORES X X X X X X

FEDEX X X X X

FIFTH THIRD BANCORP X X X

FIRST DATA X X X Options

FIRST UNION X X X X

FIRSTAR X X X X

FLEETBOSTON FINANCIAL X X X PARSAP X X X X

FORD MOTOR X X X X X X Tandem X X X X

FPL GROUP X X X X

FRANKLIN RESOURCES X X X

FREDDIE MAC X X X X X

GANNETT X X X X

GAP X X X Options

GATEWAY X X X

GENERAL DYNAMICS X X X X Stock

GENERAL ELECTRIC X X X X X X

GENERAL MILLS X X X X X Stock X X

GENERAL MOTORS X X X X X X

GILLETTE X X X X

GLOBAL CROSSING X X X

GTE X X X X X X

GUIDANT X X X X

HALLIBURTON X X X X

HARLEY-DAVIDSON X X Stock

HARTFORD FINANCIAL SERVICES X X X X X X

HEINZ (H.J.) X X

HEWLETT-PACKARD X X X X X X X X

HOME DEPOT X X Rest. Stock

HONEYWELL INTERNATIONAL X X X X X X X

HOUSEHOLD INTERNATIONAL X X X X Options/Stk. X

IBM X X X X X X X


Company

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ILLINOIS TOOL WORKS X X Stock X X

INTEL X X X

INTERNATIONAL PAPER X X X X Tandem X X

INTERPUBLIC GROUP X X X X X X

JOHNSON & JOHNSON X X Formula Value X X X

KANSAS CITY SOUTHERN X X

KELLOGG X X X X X

KEYCORP X X X X X

KIMBERLY-CLARK X X X X X

KLA-TENCOR X X X

KOHL'S X X

KROGER X X X X X

LEHMAN BROTHERS HOLDINGS X X X Options

LEXMARK INTL GROUP X X X X

LILLY (ELI) X X X X X X

LIMITED X X X X X

LOCKHEED MARTIN X X X X X X X

LOWE'S X X X PARSAP X X Stock

LSI LOGIC X X

LUCENT TECHNOLOGIES X X X PARSAP X X Options

MARRIOTT INTERNATIONAL X X X X X X X

MARSH & MCLENNAN X X X

MASCO X X PARSAP X X X

MAY DEPARTMENT STORES X X X X X X X

MBNA X X X

MCDONALD'S X X X X X X X

MCGRAW-HILL X X X X X

MCI WORLDCOM X X X Stock

MEDTRONIC X X X X X Options

MELLON FINANCIAL X X X X PARSAP X

MERCK X X X X

MERRILL LYNCH X X X X


Company

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MICRON TECHNOLOGY X X X Rest. Stock

MICROSOFT X X

MINNESOTA MINING & MFG. X X X X Stock

MOLEX X X X

MORGAN (J.P.) X X X X X

MORGAN STANLEY DEAN WITTER X X X X X Options

MOTOROLA X X X X X X X X

NATIONAL CITY X X X X X X

NATIONAL SEMICONDUCTOR X X X X Stock

NETWORK APPLIANCE X X

NEW YORK TIMES X X X

NEXTEL COMMUNICATIONS X X X

NIKE X X X

NORTEL NETWORKS X X X X X X

NORTHERN TRUST X X X X X

NOVELL X X X

OMNICOM GROUP X X X X Stock

ORACLE X X

PARAMETRIC TECHNOLOGY X X

PAYCHEX X

PE CORPORATION X X X X X X X X X X

PECO ENERGY X X X Stock X X

PEPSICO X X X Stock

PFIZER X X X X X X

PG&E X X X X X X X

PHARMACIA X X X X X X

PHILIP MORRIS X X X X X X X

PHILLIPS PETROLEUM X X X X Rest. Stock

PITNEY BOWES X X X Options X X

PNC BANK X X X X X X X

PPG INDUSTRIES X X X X X

PROCTER & GAMBLE X X X X Stock X


Company

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PROVIDIAN FINANCIAL X X X X Stock

QUAKER OATS X X X X X Options X

QUALCOMM X X

RADIOSHACK X X X Stock

RALSTON PURINA X X X X X

ROCKWELL INTERNATIONAL X X X X X Rest. Stock X

ROHM & HAAS X X X X X X

SAFEWAY X X X X

SARA LEE X X X X X X Options X

SBC COMMUNICATIONS X X X X X Stock

SCHERING-PLOUGH X X X X X X

SCHLUMBERGER X

SCHWAB (CHARLES) X X X X Options

SCIENTIFIC-ATLANTA X X X X X X X Stock X X

SEAGATE TECHNOLOGY X X X Options

SEAGRAM X X X X Stock

SEARS, ROEBUCK X X X X X X X X

SOLECTRON X X

SOUTHERN COMPANY X X X X X

SOUTHWEST AIRLINES X

SPRINT X X X X Stock

STAPLES X PARSAP X X

STATE STREET X X X X Stock

SUN MICROSYSTEMS X X X X

SUNTRUST BANKS X X X

SYSCO X X X X Stock

TARGET X X X Stock

TELLABS X X X

TERADYNE X X

TEXACO X X X X X X Stock

TEXAS INSTRUMENTS X X X X X X X

TEXAS UTILITIES X X X X


Company

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TEXTRON X X X X X X

TIME WARNER X X X X

TRANSOCEAN SEDCO FOREX X X X X X

TRIBUNE X X X X X X

TYCO INTERNATIONAL X X X X X Options

U.S. BANCORP X X X Stock X

UNICOM X X X X X Stock

UNION CARBIDE X X X X X X

UNION PACIFIC X X X X X

UNISYS X X X X X

UNITED HEALTHCARE X X

UNITED TECHNOLOGIES X X X X X X

USX X X X X X X

VIACOM X X X

WACHOVIA X X X X X

WALGREEN X X X X

WAL-MART STORES X X X X X

WASHINGTON MUTUAL X X X X

WASTE MANAGEMENT X X X X

WELLS FARGO X X X X X X X

WEYERHAEUSER X X X X

WILLIAMS COS. X X X X X Stock

WRIGLEY (WM.) JR. X X X X X X

XEROX X X X X X X Rest. Stock X

XILINX X X

YAHOO X X


A P P E N D I X

Grant Type ClassificationsFor purposes of this report, grant

types are classified according to howvalue is delivered to the recipient, dif-ferentiating between “appreciation”grants, “full-value” grants, and“other” grants as summarized below:

Appreciation Grants: • Stock Options • Stock Appreciation Rights (SARs)

Full-Value Grants: • Performance Units • Performance Shares • Restricted Stock • Performance Accelerated Restricted

Stock Award Plans (PARSAPs)

Other Grants: • Dividend Rights • Formula-Value Grants

Appreciation grants typically haveno intrinsic value at the time of grantand depend upon the appreciation ofa company’s stock price to delivervalue to the recipient. Full-valuegrants, on the other hand, have value

at the time of grant and may eitherincrease or decrease in value depend-ing on company performance and/orsubsequent changes in stock price.The “other grants” classification rep-resents a catchall category for awardsthat are neither pure appreciation norfull-value grants.

Definitions for each of the abovegrant types, as well as other granttype variations, appear on the follow-ing pages of this Appendix.

Classification of Grant Types


Appreciation GrantsStock Options are rights to pur-

chase shares of company stock at aspecified price over a stated period,usually ten or less years. Typically,the option price is 100 percent ofmarket value at the time of grant, butseveral variations of this ‘plain-vanil-la” type option are frequently used inpractice:

• Performance-Accelerated StockOptions (“PASOPs”) are optionsthat have a set vesting schedule,but the option may be exercisedprior to the set vesting if specifiedperformance criteria are met, e.g.,attaining specific stock price goals.Options with performance-acceler-ated vesting provisions becomeexercisable later in their optionterm, regardless of attaining theperformance goals, to secure favor-able accounting treatment.

• Performance-Vesting Stock Optionsare similar to performance-acceler-ated stock options as their vestingor exercise price is subject to specif-ic performance criteria. The differ-

ence is that these awards are con-sidered to have “vesting with teeth”because the options are forfeited ifthe performance criteria are notmet prior to or by the end of theoption term. These grants are typi-cally larger than a normal grant asthere is more risk tied to the award.They do not receive favorableaccounting treatment and thereforeare generally limited to the CEOand other senior executives.

• Premium Stock Options are optionsthat have an exercise price abovemarket value at the time of grant.

• Discount Stock Options are optionsthat have an exercise price belowmarket value at the time of grant.

• Restoration Stock Options (some-times referred to as “reload” stockoptions) are stock options grantedas a result of exercising stockoptions using already-owned sharesin a stock-for-stock exercise. Thesize of the additional stock optiongrant is equal to the number ofshares used to pay the exerciseprice, with the new exercise priceset at the current market value and

a term equal to that remaining onthe original options.

• Indexed Stock Options are optionsthat have an exercise price thatmay fluctuate above or below mar-ket value at grant, depending onthe company’s stock price perfor-mance relative to a specified indexor the movement of the indexitself. Indexed options differ fromperformance options in that theexercise price of indexed optionstypically remains variable until theoption is exercised.

Definition of Grant Types


A P P E N D I X

Stock Appreciation Rights(“SARs”) are rights to receive theincrease between the grant price andmarket price of the company stock.This survey covers three types of mar-ket-based SARs:

• Tandem SARs are rights to receivethe gain on a stock option in lieuof exercising the option, with theexercise of one canceling the other.

• Freestanding SARs are rights toreceive the gain on a “phantom”stock option. Freestanding SARsare granted independently fromstock options and, therefore, theexercise of the SAR does not cancelany outstanding stock options.

• Additive SARs are rights granted inaddition to a stock option. In mostcases, the exercise of the underlyingoption triggers the SAR paymentand the two are paid simultaneous-ly (unlike tandem SARs where theexercise of the stock option willcancel the SAR payment and viceversa). Additive SARs are typicallyused to offset income taxes on therelated stock option gain, as well asthe tax on the SAR payment.

Full-Value GrantsPerformance Units are grants of

cash or dollar-denominated unitswhose payment or value are contin-gent on performance against prede-termined objectives over a multi-yearperiod of time. Actual payouts maybe in cash or stock.

Performance Shares are grants ofactual shares of stock or stock “units”whose payment is contingent on per-formance as measured against prede-termined objects over a multi-yearperiod of time; same as performanceunits except that the value paid fluc-tuates with stock price changes aswell as performance against objec-tives. The payout may be settled incash or stock.

Restricted Stock consists ofgrants of actual shares of stock orstock “units” subject to restrictionsand risk of forfeiture until vested bycontinued employment; typically, div-idends or dividend equivalents arepaid during the restriction period.

Performance-AcceleratedRestricted Stock Award Plans(“PARSAPs”), also known as time-accelerated restricted stock award

plans (“TARSAPs”), are grants ofrestricted stock that may vest earlyupon attainment of specified perfor-mance objectives. Otherwise, a time-vesting schedule would remain ineffect.

Other GrantsDividend Rights are rights to

receive dividends or the equivalent ofdividends paid on a specified numberof company shares, and are usuallygranted in conjunction with othergrant types, e.g., stock options andperformance shares.

Formula-Value Grants are rightsto receive value based on a formularather than the market value of com-pany stock, e.g., book value per share.Final value delivered is the apprecia-tion over the initial grant value andthe value of the grant at exercise, likea SAR, or can be the value of a fullformula-derived “share,” resemblingrestricted stock.

Definition of Grant Types


C O M PA N Y P RO F I L E

Frederic W. Cook & Co., Inc.provides management compensationconsulting services to business clients.Formed in 1973, our firm has servedover 1,200 corporations in a widevariety of industries from our officesin New York, Chicago, and LosAngeles. Our primary focus is onperformance-based compensationprograms which help companiesattract and retain key employees,motivate and reward them forimproved performance, and aligntheir interests with shareholders. Ourrange of consulting services encom-passes the following:

• Total Compensation Reviews• Strategic Incentives• Specific Plan Reviews• Restructuring Incentives• Competitive Comparisons• Incentive Grant Guidelines• Executive Ownership Programs• All-Employee Incentive Plans• Directors’ Remuneration• Internet Programs• Performance Measurement• Recruitment/Retention Incentives• Change-in-Control Protection• Compensation Committee Advisor• Stock Option Enhancements

Our offices are located:New York90 Park Avenue35th floorNew York, New York 10016

212-986-6330 phone212-986-3836 fax

Chicago19 South LaSalle StreetSuite 400Chicago, Illinois 60603

312-332-0910 phone312-332-0647 fax

Los Angeles2029 Century Park EastSuite 1130Los Angeles, California 90067

310-277-5070 phone310-277-5068 fax

Web site addresses: www.fredericwcook.com

orwww.fwcook.com

This report was prepared by Robert S.Timmerman in our New York office,with research assistance from KristinCicciari, David Cole, James Kim,Richard Kimball, Malia Mixon, MarkMerrigan and David Yang. Questionsand/or comments should be directed toMr. Timmerman.

Documents

250 THE 2000 TOP 250 - FW Cook · 2016. 3. 28. · based on company proxy statements, annual reports, and 10-K filings. In cases where publicly available infor-mation is unclear,