(June 29, 2009): A recent article, Option repricing at issue: Canada Resists; Falling shares present problem for compensation, (National Post, June 3, 2009), pointed out that stock option exchanges are being considered in boardrooms in the U.S. and Canada as directors grapple with equity-based compensation in light of last year’s market plummet.

When the exercise price of existing stock options is higher than the current stock price, a stock option exchange may be considered to trade employees’ existing stock options for a smaller number of new stock options with a lower exercise price.

The article said, “What may be more appealing to all stakeholders than a cash bonus or a straight repricing is exchanging the existing options for a smaller number of new options at a lower exercise price. That's a route proposed recently by various U. S. issuers, including Starbucks Corp. and Motorola Inc.”

Wayne Kozun, Senior Vice-President for Public Equities, said this solution may not be a good alternative for shareholders. “Exchanges may sound like a panacea – but as often happens, the devil is in the details,” said Mr. Kozun. He explained that stock option exchanges may be cost-neutral from a dilution perspective if they are done properly, but that this approach will not necessarily tie future compensation payments to company and market outperformance. “In the end, that’s what shareholders want: pay for performance.”

The article noted that the corporate governance policies of Teachers’, other Canadian institutional shareholders, and the Canadian Coalition for Good Governance oppose re-pricing. Early in 2009, we communicated with directors and issued a news release to explain our position.

“We oppose re-pricing of stock options – we have not changed our position,” said Mr. Kozun. “We urge boards to carefully consider the long-term compensation structure that will encourage people to create real value, and will avoid paying bonuses simply when the stock price rebounds in line with the market,” he added.

Teachers’ has consistently voted against re-pricing in 2009 and has voted against more than 100 compensation proposals so far this year.

Contact:

Deborah Allan
Director, Communications and Media Relations
Ontario Teachers' Pension Plan
(416) 730-5347
deborah_allan@otpp.com