FREDERIC W. COOK & CO., INC. 250 · Co. has published an annual report on long-term incentive grant prac-tices for executives of the largest U.S. companies. This 2001 report, our

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 2001 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 2001 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 companies inthe Standard & Poor’s 500 Index.Selection of these companies is basedon their total market capitalization,i.e., share price multiplied by totalshares outstanding. The informationin this report is presented both insummary form and on 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 2001 report, ourtwenty-ninth edition, is based on the250 largest companies as reported inthe Special Spring 2001 issue ofBusiness Week magazine (“The TopCompanies of the S&P 500”).

The following topics are coveredin this report:

Executives:• Long-term incentive grants• Stock option variations• Other grant type variations• Payment of annual incentives in

stock

Directors:• Stock-based grants• Elections to receive stock in lieu

of cash

Definitions for each grant typeappear in the Appendix.

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 inquiriesmay be made to the company. Itshould be noted that comparisons toprior year practices do not reflect aconstant company population, since,as noted above, a snapshot of compa-ny size determines inclusion in thisreport. Therefore, “trend” data canbe influenced by changes in the company sample as well as actualchanges in grant practices. A total of fifty-four companies, representingtwenty-two percent of the companiesreviewed, are new to this year’sreport.

Executive Long-TermIncentive Grants

The information presentedthroughout this report focuses onlong-term incentive grants actuallybeing used, rather than on the compa-ny’s ability to make a particular typeof grant. A grant type is consideredto be in use at a particular companyif grants have been made within theprior three years, and there is no evi-dence that this granting practice hasbeen discontinued. While most datareflect usage through fiscal year 2000,the survey attempts to present morecurrent grant practices wherever pos-sible.

For the purpose of this report, a“long-term incentive” grant must possess the following characteristics:

• 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, replacement oflost benefits upon hiring, or otherunique situation is typicallyexcluded. There are instances,

however, where a specific granttype is reported as being used, eventhough the only recipients appearto be the chief executive officer(CEO) and/or other top execu-tives, and the purpose of the grantis not determinable. In these situations, the grant is typicallyincluded.

• 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. is not consid-ered to grant SARs as a long-termincentive.

Non-Employee DirectorStock-Based Grants

With respect to non-employeedirectors, a stock-based grant type isconsidered to be in use if the mostrecent disclosure indicates either thatthe particular grant type is beingused, or that it could be granted inlieu of cash compensation, regardlessof whether such election is actuallymade. Where companies disclose aprospective change in their directors’compensation, the new program,rather than past practice, is reflected.

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 three companies grantstock options. Variations of “plainvanilla” stock options are summarizedin greater detail on page 6 of thisreport.

Restricted Stock includes actualshares or share “units” that are earnedsolely by continued employment.Currently, fifty-one percent of the Top250 companies grant restricted stock.

Performance Awards consist ofstock-denominated performance“shares” and cash-denominated perfor-mance “units,” which are earned overa multi-year performance period.Currently, forty-nine percent of theTop 250 companies use either one orboth of these grant types, with morecompanies using performance sharesthan performance units.

Use of full-value grant types,which include restricted stock and

performance awards, has declined ineach of the last two years as morestock option-only companies joinedthe Top 250. Recent stock marketdeclines may cause this trend toreverse in future years.

55%

38%

32%

24%

17%

Stock Options Restricted Stock Performance Shares

Performance Units

1998 1999 2000

33%

0%

20%

40%

60%

80%

100%

51%56%

20%

99%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 Type2000 1999 1998

Overall: Any Type of Grant 100% 100% 100%(See Appendix Appreciation Grants 99 99 98for definition) Full-Value Grants 69 72 77

By Grant Type: Stock Options 99% 99% 98%• Performance 16 18 20• Premium 9 9 10• Discount 2 2 1• Indexed 0 <1 0

Restricted Stock 51% 56% 55%• PARSAPs 3 4 2

Performance Shares 33% 32% 38%

Performance Units 20% 17% 24%

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

Tandem Grants <1% 1% 2%

Formula-Value Grants <1% <1% 1%


E X E C U T I V E S

Overview – Twenty-two percentof companies with stock optionsincorporate one or more design varia-tions into their stock option grants.The following are the principaloption grant design variations in use at the Top 250 companies:

Performance Stock Options arestock options that have some aspectof their vesting tied to specified per-formance criteria. Sixteen percent ofTop 250 companies use performanceoptions. Of these, sixty-five 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.

Premium and Discount StockOptions have an exercise price aboveor below the market price at grant,respectively. Nine percent of Top250 companies use premium options.Use of discount options continues tobe rare (only 2% of Top 250 compa-nies), assumedly due to negativeaccounting consequences.

Indexed Stock Options areoptions that have an exercise pricethat may fluctuate above or belowmarket value at grant, depending onthe company's stock price perfor-

mance relative to a specified index or the movement of the index itself.There are no indexed stock optionsreported in this survey, assumedly dueto negative accounting consequences.

Executive Stock Option Variations

1998 1999 2000

0%

5%

10%

15%

20%

25%

20%

18%

16%

10%9% 9%

1%2% 2%


Executive Stock Option Variations – Top 250 Companies Using

Performance StockOptions:

Performance Vesting -

Premium Stock Options:

Discount StockOptions:

Performance Accelerated Vesting -

Becton, DickinsonCitigroupColgate-PalmoliveConocoDow Chemical

DuPontFirst DataHartford Financial

Services GroupHershey Foods

Hewlett-PackardHoneywell InternationalKeyCorpMBNA

Sears, RoebuckSt. Paul CompaniesUnocal

AllerganAmerican ExpressBaxter InternationalBristol-Myers SquibbCapital One FinancialChironClorox

DeereFranklin ResourcesHartford Financial

Services GroupHeinz (H.J.)Hewlett-ParkardJ.P. Morgan Chase

KrogerLehman Brothers HoldingsRaytheonRockwell InternationalStarbucksSyscoTyco International

U.S. BancorpUnion PacificUSA EducationWaste ManagementWilliams CompaniesXcel Energy

Air Products & ChemicalsAllerganAOL Time WarnerArcher Daniels MidlandBank of AmericaBaxter International

ChubbCloroxCoca-Cola EnterprisesColgate-PalmoliveComcastDeere

Disney (Walt)DuPontFederated Department StoresFirst DataGapGlobal Crossing

KeyCorpPNC Financial Services

GroupSears, RoebuckTyco InternationalUnocal

CalpineCendant

EMCGlobal Crossing

Hewlett-Packard Network Appliance


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 250 companies:

Stock Appreciation Rights(“SARs”) are rights to receive at exer-cise the increase between the grant priceand the market price of a share of stock.There are different types of SARs thatcan be granted. Tandem SARs aregranted in combination with stockoptions, with the exercise of one cancel-ing the other. Freestanding SARs pro-vide for a payment equal to the appreci-ation on “phantom” shares, withoutregard to any stock option, and additiveSARs are rights granted in addition to astock option. Currently, two percent ofthe Top 250 companies use tandemSARs. There are no freestanding oradditive SARs reported in this survey.

Performance-AcceleratedRestricted Stock Award Plans(“PARSAPs”) represent grants ofrestricted stock or stock units in whichtime-based restrictions may be acceler-ated by attainment of specified perfor-mance objectives. Currently, three percent of the Top 250 companies grant PARSAPs.

Tandem Grants represent thesimultaneous award of two grant types (other than tandem stockoptions/SARs) where the exercise or vesting of one grant type cancels the other. Only International Papermakes tandem grants, using restrictedstock and stock options.

Formula-Value Grants have a valuebased on a formula relating to financial

measures, rather than the market valueof company stock. Formula-value grantscan be in the form of an “appreciationright” or a “full-value” grant. OnlyJohnson & Johnson makes formula-value grants, using a formula based onnet asset value and a capitalized value of earnings averaged over five years.

4%

2%

1% 1%

<1%

1998 1999 2000

4%

2%

3%

<1%

0%

1%

2%

3%

4%

5%

6%

2%

3%

<1%

Other Executive Grant Type Variations


SARs:• Tandem Comcast Philip Morris USX-Marathon Group

Ford Motor

PARSAPs: Duke Energy Hartford Financial Mellon FinancialElectronic Data Systems Services Group MotorolaEnron Masco U.S. Bancorp

Tandem Grants:• Stock Options/

Performance Units 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

Annual incentives paid in stockor stock options seek to further alignexecutive pay with shareholder inter-ests and provide increased retention.Of the Top 250 companies, fifteenpercent have disclosed provisions formandatory payment of annual incen-tives in some form of equity-basedvehicle. In addition, many compa-nies allow executives to voluntarilyreceive stock grants in lieu of cashcompensation. These programs offereither full-value stock (often throughdeferral plans) or stock options, andmay provide a premium to encourageparticipation.

Following are the typical charac-teristics of mandatory payments instock:

• Payment in stock or stock units typically represent a specified percentage of the award payout, as determined by the company’sCompensation Committee.Thirty-five companies (14%) disclose that they pay at least aportion of annual incentives inshares of stock or stock units.

• Payment in stock options is less common than payment in stock or stock units, with six companies(2%) providing for mandatorypayment in options.

Executive Annual Incentives Paid In Stock or Stock Options


Stock or Stock Units:

American Home ProductsBank OneBoeingCarnivalCignaCitigroupComputer Associates

InternationalConocoDuPont

El Paso EnergyElectronic Data SystemsFirst UnionFranklin ResourcesGannettHalliburtonHCAJ.P. Morgan ChaseJohnson & JohnsonKeyCorp

Lehman Brothers HoldingsMarriott InternationalMascoMellon FinancialMerrill LynchMinnesota Mining &

ManufacturingMorgan StanleyNational CityPPG Industries

Procter & GambleProvidian FinancialTXUTyco InternationalUnocalUSA EducationWilliams Companies

Stock Options:

AESBristol-Myers Squibb

CalpineMerrill Lynch

Morgan Stanley Procter & Gamble

Mandatory Payment of Annual Incentives in Stock or Stock Options – Top 250 Companies Using


D I R E C TO R S

Overview – Ninety-six percent ofthe Top 250 companies pay all or aportion of their non-employee direc-tors’ compensation in stock or stockoptions.

Stock Options continue toincrease in use, with seventy-three percent of the Top 250 companiesgranting stock options. Most stockoption grants to non-employee directors are “plain-vanilla” stockoptions.

Restricted Stock/Deferred StockUnit grants are currently used by forty-four percent of the Top 250companies. These shares are restrictedfrom sale or transfer, usually untilretirement from the Board.

Unrestricted Stock is granted by twenty percent of the Top 250companies. These shares are free ofany transferability restrictions and aretypically granted in lieu of all or aportion of the cash annual retainer.

72%

49%44%

1998 1999 200096%

93%96%

73%

0%

20%

40%

60%

80%

100%

67%68%

44%

25%21%20%

69%

58%

Summary of Director Stock-Based Grants


Elections to Receive Stock areoffered by sixty-seven 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 companiesencourage directors to acquire compa-ny stock through discounted stockpurchase or stock matching programs.• Deferred Stock Units allow cash

compensation to be deferred asstock units. Actual shares and accu-mulated dividends are typically paidout upon retirement or anotherspecified date.

• Stock Options may be elected in lieuof cash compensation, e.g., at anexchange ratio of three or four dol-lars of option face value for eachdollar forgone.

• Restricted or Unrestricted Stock issimply the election to be paid inshares instead of cash.

15% 16%

5% 4%

1998 1999 2000

56%

61%

56%

18%

12%

8%

2%

0%

10%

20%

30%

40%

50%

60%

70%

7%


Company

Stoc

k O

ptio

ns

SAR

s

Res

tric

ted

Stoc

kPe

rfor

man

ceSh

ares

Perf

orm

ance

Unit

s

Oth

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Typ

es

Stoc

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Res

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ted

Stk.

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Def

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d St

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Unre

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Stoc

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Def

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dSt

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Unit

sO

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Ele

ctiv

eG

rant

s

Appreciation

EXECUTIVE LONG-TERM INCENTIVE GRANTS DIRECTOR STOCK-BASED GRANTS

Full-Value Other Mandatory Elective

Summary of Executive andDirector Grant Type Usage by Company

ABBOTT LABORATORIES ● ● ● ● Options

ADC TELECOMMUNICATIONS ● ●

AES ● ● ● Options

AFLAC ● ●

AGILENT TECHNOLOGIES ● ● Options

AIR PRODUCTS & CHEMICALS ● ● ● ● ●

ALBERTSON'S ● ● ● ● Options

ALCOA ● ● ●

ALLERGAN ● ● ● ●

ALLSTATE ● ● ● ● ● ● Stock

ALLTEL ● ● ● ● Rest. Stock

ALTERA ● ●

ALZA ● ● ●

AMERICAN ELECTRIC POWER ● ● ● ● Stock

AMERICAN EXPRESS ● ● ● ● ● ● ●

AMERICAN GENERAL ● ● ● ● ● ●

AMERICAN HOME PRODUCTS ● ● ● ● ●

AMERICAN INTERNATIONAL GROUP ● ● ● ●

AMGEN ● ●

ANADARKO PETROLEUM ● ● ● ● Stock

ANALOG DEVICES ● ● ●

ANHEUSER-BUSCH ● ● ● Stock

AOL TIME WARNER ● ●

AON ● ● ● ●

APPLIED MATERIALS ● ●

ARCHER DANIELS MIDLAND ● ●

AT&T ● ● ● ● ● ●

AUTOMATIC DATA PROCESSING ● ● ●

AVON PRODUCTS ● ● ● ● ●

BAKER HUGHES ● ● ● ●

BANK OF AMERICA ● ● ● ●

BANK OF NEW YORK ● ● ● ● ●


Company

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SAR

s

Res

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Appreciation




BANK ONE ● ● ● ● ●

BAXTER INTERNATIONAL ● ●

BB&T ● ● Options

BECTON, DICKINSON ● ● ● ●

BELLSOUTH ● ● ● ● ● ●

BEST BUY ● ● ●

BIOGEN ● ●

BOEING ● ● ● ● ● ●

BRISTOL-MYERS SQUIBB ● ● ● ● ● ●

BROADCOM ● ●

BURLINGTON NORTHERN SANTE FE ● ● ● ● ● Rest. Stock

BURLINGTON RESOURCES ● ● ● ● ●

CALPINE ● ● Options

CAMPBELL SOUP ● ● ● ● ● ●

CAPITAL ONE FINANCIAL ● ● Options

CARDINAL HEALTH ● ● ● ●

CARNIVAL ● ● ●

CATERPILLAR ● ● ● ● ● Stock

CENDANT ● ● ● ●

CHEVRON ● ● ● ●

CHIRON ● ●

CHUBB ● ● ● ● ●

CIGNA ● ● ● ● ● ● Stock

CISCO SYSTEMS ● ●

CITIGROUP ● ● ● ● ● Options

CLEAR CHANNEL COMMUNICATIONS ● ●

CLOROX ● ● ● ● ● Stock

COCA-COLA ● ● ● ● ● ●

COCA-COLA ENTERPRISES ● ● ● ● ● ●

COLGATE-PALMOLIVE ● ● ● ● ● ● Stock

COMCAST ● ● ● ●

COMERICA ● ● ● ● ● ●

Options/Stock

Options/Stock

Company

Stoc

k O

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ns

SAR

s

Res

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ares

Perf

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COMPAQ COMPUTER ● ● ● ● Options

COMPUTER ASSOCIATES INTERNATIONAL ● ● ● ●

COMPUTER SCIENCES ● ●

COMVERSE TECHNOLOGY ● ●

CONAGRA FOODS ● ● ● ●

CONOCO ● ● ● ●

CORNING ● ● ● ● ●

COSTCO WHOLESALE ● ●

CVS ● ● ● ● ● Stock

DANAHER ● ●

DEERE ● ● ● ● ●

DELL COMPUTER ● ● ● Options

DISNEY (WALT) ● ● ● Stock

DOMINION RESOURCES ● ● ● ● ● ● ●

DOW CHEMICAL ● ● ● ● ●

DUKE ENERGY ● ● ● PARSAP ● ● ● Stock

DUPONT ● ● ● ●

DYNEGY ● ● ● Stock

EASTMAN KODAK ● ● ● ● ● ● ●

EL PASO ENERGY ● ● ● ● ● ● ●

ELECTRONIC DATA SYSTEMS ● PARSAP ● ● ● Options

EMC ● ●

EMERSON ELECTRIC ● ● ● ● ●

ENRON ● ● ● ● PARSAP ● ● Options

ENTERGY ● ● ● ● ●

EXELON ● ● ● ● ● Stock

EXXONMOBIL ● ● ● ● ●

FANNIE MAE ● ● ● ● ●

FEDERATED DEPARTMENT STORES ● ● ● ● ● ●

FEDEX ● ● ● ●

FIFTH THIRD BANCORP ● ● ●

FIRST DATA ● ● ● Options


Company

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FIRST UNION ● ● ● ●

FLEETBOSTON FINANCIAL ● ● ● ● ●

FORD MOTOR ● ● ● ● ● ●

FOREST LABORATORIES ● ●

FPL GROUP ● ● ● ●

FRANKLIN RESOURCES ● ● ●

FREDDIE MAC ● ● ● ● ● Stock

GANNETT ● ● ● ●

GAP ● ● ● Options

GENERAL DYNAMICS ● ● ● ● Stock

GENERAL ELECTRIC ● ● ● ● ● ● ●

GENERAL MILLS ● ● ● ● ● Stock

GENERAL MOTORS ● ● ● ● ●

GILLETTE ● ● ● ●

GLOBAL CROSSING ● ● ●

GOLDEN WEST FINANCIAL ●

GUIDANT ● ● ● ●

HALLIBURTON ● ● ● ● ●

HARLEY-DAVIDSON ● ● Stock

HARTFORD FINANCIAL SERVICES GROUP ● ● ● PARSAP ● ●

HCA ● ● ● ● ●

HEINZ (H.J.) ● ●

HERSHEY FOODS ● ● ● ● Stock

HEWLETT-PACKARD ● ● ● ● ●

HOME DEPOT ● ● ● ●

HONEYWELL INTERNATIONAL ● ● ● ● ●

HOUSEHOLD INTERNATIONAL ● ● ● ●

ILLINOIS TOOL WORKS ● ● ● Stock

INTEL ● ● ●

IBM ● ● ● ● ● ●

INTERNATIONAL PAPER ● ● ● Tandem ● ●

INTERPUBLIC GROUP ● ● ● ● ● ●

Options/Stock

Company

Stoc

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SAR

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INTUIT ● ●

J.P. MORGAN CHASE ● ● ● ● ●

JDS UNIPHASE ● ●

JOHNSON & JOHNSON ● Formula-Value ● ● ● ●

KELLOGG ● ● ● ● ●

KEYCORP ● ● ● ●

KIMBERLY-CLARK ● ● ● ● ● Options

KOHL'S ● ●

KROGER ● ● ● ●

LEHMAN BROTHERS HOLDINGS ● ● ● ● Options

LILLY (ELI) ● ● ● ● ● ●

LINCOLN NATIONAL ● ● ● ● ●

LINEAR TECHNOLOGY ● ●

LOCKHEED MARTIN ● ● ● ● ● ●

LOEWS ● ● Options

LOWE'S ● ● ●

LUCENT TECHNOLOGIES ● ● ● ●

MARRIOTT INTERNATIONAL ● ● ● ● ●

MARSH & MCLENNAN ● ● ● ● Stock

MASCO ● ● ● PARSAP ● ●

MAXIM INTEGRATED PRODUCTS ● ●

MAY DEPARTMENT STORES ● ● ● ● ●

MBNA ● ● ●

MCDONALD'S ● ● ● ● ●

MCGRAW-HILL ● ● ● ●

MCKESSON HBOC ● ● ● ● ● ● Options

MEDIMMUNE ● ●

MEDTRONIC ● ● ● ● ● Options

MELLON FINANCIAL ● ● ● PARSAP ●

MERCK ● ● ● ●

MERRILL LYNCH ● ● ● ● ●

METLIFE ● ● ● ● Stock

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MICRON TECHNOLOGY ● ● ● Stock

MICROSOFT ● ●

MINNESOTA MINING & MANUFACTURING ● ● ● ● Stock

MORGAN STANLEY ● ● ● ● ●

MOTOROLA ● ● ● PARSAP ● ● ● ● Stock

NABORS INDUSTRIES ● ●

NATIONAL CITY ● ● ● ●

NETWORK APPLIANCE ● ●

NEXTEL COMMUNICATIONS ● ● ●

NIKE ● ● ●

NORTEL NETWORKS ● ● ●

NORTHERN TRUST ● ● ● ● ●

OCCIDENTAL PETROLEUM ● ● ● ●

OMNICOM GROUP ● ● ● ● Stock

ORACLE ● ●

PALM ● ●

PAYCHEX ●

PEOPLESOFT ● ●

PEPSICO ● ● ● ●

PFIZER ● ● ● ● ●

PHARMACIA ● ● ● ● ●

PHILIP MORRIS ● ● ● ● ● ● ●

PHILLIPS PETROLEUM ● ● ● ● ●

PITNEY BOWES ● ● ● Options

PNC FINANCIAL SERVICES GROUP ● ● ● ● ● ●

PPG INDUSTRIES ● ● ● ● ●

PROCTER & GAMBLE ● ● ● ● Stock

PROGRESS ENERGY ● ● ● ● ●

PROVIDIAN FINANCIAL ● ● ● ● Stock

PUBLIC SERVICE ENTERPRISE GROUP ● ● ●

QUAKER OATS ● ● ● ● ● Options

QUALCOMM ● ●

Options/Stock

Options/Stock

Rest. Stock/Stock

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QWEST COMMUNICATIONS INTERNATIONAL ● ● ● ● Stock

RALSTON PURINA ● ● ● ● ●

RAYTHEON ● ● ●

RELIANT ENERGY ● ● ● ●

ROCKWELL INTERNATIONAL ● ● ● ● ● Rest. Stock

SAFEWAY ● ● ●

SANMINA ● ●

SARA LEE ● ● ● ● ●

SBC COMMUNICATIONS ● ● ● ● Stock

SCHERING-PLOUGH ● ● ● ● ● ●

SCHLUMBERGER ●

SCHWAB (CHARLES) ● ● ● ● Options

SEARS, ROEBUCK ● ● ● ● ● ●

SIEBEL SYSTEMS ● ●

SOLECTRON ● ●

SOUTHERN COMPANY ● ● ● ● ● ●

SOUTHWEST AIRLINES ● ●

SPRINT FON/PCS ● ● ● Stock

ST. PAUL COMPANIES ● ● ● ● ● ●

STARBUCKS ● ●

STATE STREET ● ● ● ● Stock

STRYKER ● ●

SUN MICROSYSTEMS ● ● ●

SUNTRUST BANKS ● ● ● ●

SYSCO ● ● ● ● Stock

TARGET ● ● ● Stock

TELLABS ● ● ●

TENET HEALTHCARE ● ●

TEXACO ● ● ● ● ● Stock

TEXAS INSTRUMENTS ● ● ● ● ● ●

TJX ● ● ● ● ●

TRANSOCEAN SEDCO FOREX ● ● ● ●

Options/Stock

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TRIBUNE ● ● ● ●

TXU ● ● ●

TYCO INTERNATIONAL ● ● ● ● Options

U.S. BANCORP ● ● PARSAP ● Stock

UNION PACIFIC ● ● ● ● ● ● ●

UNITED TECHNOLOGIES ● ● ● ● ● Options

UNITEDHEALTH GROUP ● ● ●

UNOCAL ● ● ● ● ● ● Rest. Stock

USA EDUCATION ● ● ● ●

USX-MARATHON GROUP ● ● ● ● ●

VERITAS SOFTWARE ● ●

VERIZON COMMUNICATIONS ● ● ● ● ●

VIACOM ● ● ●

WACHOVIA ● ● ● ●

WALGREEN ● ● ● ●

WAL-MART STORES ● ● ● ● ●

WASHINGTON MUTUAL ● ● ●

WASTE MANAGEMENT ● ● ●

WELLS FARGO ● ● ● ● ●

WEYERHAEUSER ● ● ●

WILLIAMS COMPANIES ● ● ● ● ● Stock

WORLDCOM ● ● Stock

WRIGLEY (WM.) JR. ● ● ● ● ●

XCEL ENERGY ● ● ● ● ●

XILINX ● ●

YAHOO ● ●


A P P E N D I X

Grant Type ClassificationsFor the purpose of this report,

grant types are classified according tohow value is delivered to the recipi-ent, differentiating between “appreci-ation” grants, “full-value” grants, and“formula-value” grants as summarizedbelow:

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

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

Restricted Stock Award Plans (PARSAPs)

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 valueat the time of grant and may eitherincrease or decrease in value depend-ing on company performance and/orsubsequent changes in stock price.Formula-value grants use financialmeasures instead of stock price todetermine value and may be either anappreciation grant or a full-valuegrant.

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

Appreciation GrantsStock Options are rights to purchaseshares of company stock at a specifiedprice over a stated period, usually ten orfewer years. Typically, the option price is100 percent of market value at the timeof grant, but several variations of this“plain-vanilla” type option are frequentlyused in practice:• Performance-Accelerated Stock Options

(“PASOPs”) are options that have a setvesting schedule, but may be exercisedearlier if specified performance criteriaare met, e.g., attaining specific stockprice goals. Options with perfor-mance-accelerated vesting provisionsbecome exercisable later in theiroption term, regardless of attaining theperformance goals, and receive favor-able “fixed” accounting treatment.

• Performance-Vesting Stock Options areconsidered to have “vesting withteeth,” because the options are for-feited if a predetermined performancecriteria are not met prior to or by theend of the option term. These grantsare typically larger than normal grantsas there is more risk tied to theaward. They do not receive favorableaccounting treatment and, therefore,are generally limited to the CEO andother senior executives.

Classification of Grant Types Definition of Grant Types


• Premium Stock Options are optionsthat have an exercise price above mar-ket value at the time of grant.

• Discount Stock Options are optionsthat have an exercise price below mar-ket value at the time of grant.

• Indexed Stock Options are options thathave an exercise price that may fluc-tuate above or below market value atgrant, depending on the company'sstock price performance relative to aspecified index or the movement ofthe index itself. Indexed options dif-fer from performance options in thatthe exercise price of indexed optionstypically remains variable until theoption is exercised. These optionsalso do not receive favorable account-ing treatment.

Stock Appreciation Rights (“SARs”) arerights to receive the increase between thegrant price and market price of the com-pany stock. This survey covers threetypes of market-based SARs:• Tandem SARs are rights to receive the

gain on a stock option in lieu of exer-cising the option, with the exercise ofone canceling the other.

• Freestanding SARs are rights to receivethe gain on a “phantom” stockoption. Freestanding SARs are grant-

ed independently from stock optionsand, therefore, the exercise of theSAR does not cancel any outstandingstock options.

• Additive SARs are rights granted inaddition to a stock option. In mostcases, the exercise of the underlyingoption triggers the SAR payment andthe two are paid simultaneously(unlike tandem SARs where the exer-cise of the stock option will cancelthe SAR payment and vice versa).Additive SARs are typically used tooffset income taxes on the relatedstock option gain as well as the tax on the SAR payment.

Full-Value GrantsRestricted Stock consists of grants ofactual shares of stock or stock “units”subject to restrictions and risk of forfei-ture until vested by continued employ-ment. Typically, dividends or dividendequivalents are paid during the restrictionperiod, either currently or reinvested andsubject to the same restrictions and riskof forfeiture.Performance-Accelerated RestrictedStock Award Plans (“PARSAPs”), alsoknown as time-accelerated restrictedstock award plans (“TARSAPs”), aregrants of restricted stock that may vest

early upon attainment of specified perfor-mance objectives. Otherwise, a time-vesting schedule remains in effect.Performance Units are grants of cash ordollar-denominated units whose paymentor value is contingent on performanceagainst predetermined objectives over amulti-year period of time. Actual pay-outs may be in cash or stock.Performance Shares are grants of actualshares of stock or stock “units” whosepayment is contingent on performance asmeasured against predetermined objectsover a multi-year period of time, thesame as performance units except that thevalue paid fluctuates with stock pricechanges as well as performance againstobjectives. The payout may be settled incash or stock.

Formula-Value GrantsFormula-Value Grants are rights toreceive value based on a formula usingfinancial measures rather than the marketvalue of company stock, e.g., book valueper share. Final value delivered is eitherthe appreciation of the value of the grantat exercise over the initial grant value,like a SAR, or the full value of a formula-derived “share,” resemblingrestricted stock.


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. Our range of consulting servicesencompasses 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• Mergers & Acquisitions• Performance Measurement• Recruitment/Retention Incentives• Change-in-Control Protection• Compensation Committee Advisor• Stock Option Enhancements

Our office locations:

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 address: www.fwcook.com

This report was prepared by David Cole in our New York office,with research assistance from Erin Bass-Goldberg, Michael Chavira,Kristin Cicciari, Scott Evenson, JamesKim, Richard Kimball, Malia Mixon,Michael Reznick, Joanne Reierson,Louis Taormina, Michael Thompson,and David Yang. Questions and/orcomments should be directed to Mr. Cole.

Documents

FREDERIC W. COOK & CO., INC. 250 · Co. has published an annual report on long-term incentive grant prac-tices for executives of the largest U.S. companies. This 2001 report, our