Human Capital & Careers

Monday-morning Options Morass

Announcements from Monster Worldwide, Broadcom, Equinix, Comverse Technology, and Applied Micro Circuits.
Stephen TaubJune 12, 2006

One of the more persistent items on Corporate America’s agenda resurfaced on Monday with a host of announcements regarding stock-option awards. In addition, the nation’s largest pension fund is calling on more than two dozen companies to address the matter publicly, and the Senate Finance Committee plans to address the matter, at least briefly, on Tuesday.

• Monster Worldwide fired off a press release Monday morning to announce that a committee of independent directors is reviewing all stock options issued by the company, which operates the Monster.com job-search website.

The announcement apparently came in response to a page-one story in The Wall Street Journal, which pointed out that company executives frequently were granted options dated just before sharp run-ups in Monster’s share price. In its statement, the company stressed the broad-based structure of its stock-option incentive plan, which it reportedly uses to attract and retain employees, to recognize individual performance, and in conjunction with strategic acquisitions.

Later Monday, the company announced that it received a subpoena from the U.S. Attorney’s Office for the Southern District of New York requesting information regarding its options grants.

• Also on Monday, Broadcom disclosed that it is the subject of an informal inquiry by the Securities and Exchange Commission regarding its option-grant practices. The semiconductor maker added that on May 18, it initiated its own review in response to “various reports raising speculation about a few corporate stock option grants” made to Broadcom employees in 2000 and 2002. The company is being conducted by outside legal counsel reporting to the audit committee and senior management.

Like Monster, Broadcom stressed that its stock-option program is broad-based. “Substantially all U.S. domestic and most international employees” receive periodic equity awards “to provide incentive compensation in a form that aligns their interests with those of Broadcom’s shareholders,” according to the company. Historically, about 95 percent of such shares were awarded to employees below the level of executive officer, the company added.

• Equinix, a provider of network-neutral data centers and Internet exchange services, disclosed Monday that its audit committee is reviewing the company’s stock-option practices and related accounting. The company added that it requested the internal review following the release of a third-party report regarding the timing and pricing of stock option grants at a large number of public companies. “Independent counsel and advisors are assisting the audit committee with this review,” added Equinix.

• Comverse Technology announced Monday that it would delay the filing of its April 30 quarterly report as a result of an ongoing review by a special committee of the company’s stock-option grants.

• Applied Micro Circuits, a maker of microprocessors, storage products, and other network equipment, disclosed Monday that the SEC has launched an informal inquiry into its past stock-option practices. As a result, the company added, it will not file its 10-K on time.

• Last Friday the California Public Employees’ Retirement System asked 25 companies to independently investigate media reports of employee stock-option backdating and disclose all findings publicly. CalPERS also requested disclosure of any new company policies for determining option-grant dates.

“Stock option backdating potentially threatens the credibility, governance, and performance of companies,” said chief investment officer Russell Read, in a statement. “We hope the SEC will continue to investigate because it imperils the creation and sustainability of long-term value for shareowners.”

The 25 companies named by CalPERS are Affiliated Computer Services, Altera, American Tower, Analog Devices, Brooks Automation, Caremark, Comverse Technology, F5 Networks, Jabil Circuit, KLA-Tencor, Maxim Integrated Products, McAfee, Meade Instruments, Medarex, Nvidia, Openwave Systems, Power Integrations, RSA Security, Safenet, Semtech, Sepracor, Sycamore Networks, Trident Microsystems, UnitedHealth Group, and Vitesse Semiconductor.

• Finally, The Wall Street Journal reported that on Tuesday, a hearing of the Senate Finance Committee will include a discussion of “the backdating of stock options for executives’ benefit.”