The majority of established companies have overhang equal to 5 percent to 10 percent of total shares. In recent years, more established companies have begun to increase overhang percentages. In the Northwest, Weyerhaeuser's overhang is about 5 percent, Boeing's is 8 percent, Costco's is 9 percent and Microsoft's is a whopping 33 percent. Most companies have annual award guidelines for stock options that are based on a fixed number of shares, a predetermined multiple of salary or a present value based on option pricing models. Stock grants are generally valued much higher than options, hence, one share of a grant may replace three or four optioned shares.
Investors are concerned about both dilution and value transfer.
Most options have vesting schedules, performance shares are determined over a time frame and restricted stock awards have a period over which restrictions lapse. Ten years ago, five-year programs were by far the most prevalent. With the health of the economy in general and the stock market in particular, many investors have become concerned that executives are cashing in stock obtained under stock-based compensation programs rather than retaining it. In order to reinforce stockholders' desires to see senior management actually own stock, thus fully aligning their interests with those of investors, there has been a dramatic increase in the number of companies that have established ownership guidelines for executives. These guidelines impact both the executive and the company.