Below is a quick primer to head off plan battles. The calculation simply divides a company's earnings by the number of outstanding shares. Overhang is not just a term used by rock climbers or plastic surgeons. The term represents a percentage, usually based on the number of options authorized plus a number of unexercised granted options divided by the number of outstanding shares.
Overhang measures the dilutive impact of a new or amended stock plan.
A debate exists on the significance of dilution or overhang in the voting decisions of institutional investors. It has become the touchstone used to vote against plans that are perceived to have become too greedy at shareholder expense. Almost all of the companies that received at least a 40 percent negative vote in 1996 had a potential dilution of 10 percent or higher. If Necessary You need to know your current and proposed overhang percentage because this will often predict initial shareholder reaction to the plan. You should adjust your request if the math reveals that you are asking shareholders to authorize more than 5 percent of the outstanding stock.