Repricing refers to a practice that companies are increasingly using when a company has issued stock options and the company's stock price then drops, making the options less valuable. Companies claim the practice is necessary to retain the appropriate level of incentive compensation. A growing number of shareholders view the practice as unfair to existing owners. Late last year SWIB contacted 22 companies, encouraging them to adopt a policy requiring shareholder approval of any option repricings. Most adopted a policy but for those that did not, SWIB filed a proxy resolution seeking to amend the company's by-laws to require shareholder approval of repricing.
Shareholders generally have the right to bring such by-law amendments under state law.
The SEC overlooked the state law right of shareholders to amend by-laws and simply agreed that option repricing relates to ordinary business. We are very concerned that this ruling is flawed in two very important respects, said SWIB Investment Director John Nelson. We think the courts will agree. Second and most importantly to me as an owner, option repricing is clearly not a general compensation matter. The amount of so called compensation being awarded through options is virtually open-ended to begin with.