As welcome as this measure is, the proposal raises a number of questions about the deferral's mechanics. The employee must designate the shares or particular securities to which the deferral applies. Changing the vesting period yields dramatic results. Assume that options for 20,000 shares granted to employee B at the same time vest 50-50 in years 1 and 2. Similarly, the 10,000 shares vesting in year 2 are also eligible for the deferral, and there is no related security that was subject to the deferral and vested in year 2.
More complexity arises if the options are exercised at different times and prices.
Assume that A exercises his options at different times in year 2. Finance is currently attempting to resolve the appropriate level of designation flexibility. Other unresolved issues include reporting requirements, withholding requirements, and ordering rules for the disposition of shares that are identical properties.