Here comes the sun?


Apologies in advance for the bad cliche, but it was too hard to pass up after reading an item in the proxy that Sun Microsystems (SUNW) filed earlier this week that provides additional insight — and, continuing the bad cliche, sheds new light — on how the company grants stock options. Though more than 115 companies — the majority of them technology companies — have been caught up in the growing stock option scandal according to this chart from the WSJ, Sun is not on that list. Which makes their disclosure even more welcome, because it’s not in response to a scandal. Here’s what they said:

Stock options may be granted by either the Leadership Development and Compensation Committee of the Board of Directors or their delegate, the CEO. The CEO only has authority to grant options to employees below the level of Vice President in an amount not to exceed 50,000 shares. The Board does not grant options, although the LDCC regularly reports its activity, including approval of grants, to the Board.

Timing of Grants. Stock options are typically granted at regularly scheduled, predetermined meetings of the LDCC. These meetings are usually scheduled shortly after the release of quarterly earnings. On limited occasion, grants may occur during an interim meeting of the LDCC, which occurs primarily for the purpose of approving a compensation package for newly hired or promoted executive. The timing of the interim meetings, if they occur, is driven by the activity related to the need for the meeting, not the stock price. Grants made by the CEO occur on the same dates as the LDCC meetings, and the CEO does not have discretion to determine grant dates.

Option Exercise Price. The exercise price of a newly granted option (i.e., not an option assumed in, or granted in relation to, an acquisition) is the closing price on NASDAQ on the date of grant, which is the date of the LDCC meeting.

A quick skim of Sun’s earlier filings shows that this is the first time since 1998 that the company has even mentioned the words “timing of grants”. Though it’s unfortunate that it took a scandal to get companies to be more forthcoming about the way they grant options, any additional disclosure — particularly from a company that hasn’t been caught — is welcome and is certainly worthy of a rare gold star.