ISS' Governance Research Service took a look to see if any companies who've made such announcements this month have had shareholder proposals in the past on related issues. Of 15 companies examined, two have had shareholder proposals related to options. In 2005, 58.2 percent of shareholders of Altera voted in favor of a shareholder proposal seeking option expensing. The company had urged shareholders to vote against the proposal, arguing that, "At a time when the public seems to be demanding consistency in financial reporting and more ease in comparing companies' financial statements, we believe that adopting the . . . .proposal could have the opposite effect." The proponent of the proposal, a fund affiliated with the United Brotherhood of Carpenters and Joiners, contended that Altera had been active in attempting to modify FASB ruling requiring the expensing of options. The vote for this proposal at Altera was slightly below average of 59.9 percent for the 11 similar proposals that came to a vote last year; two proposals garnered more than 70 percent support. On May 8, 2006, Altera announced that its board had established a special committee of independent directors, assisted by independent legal counsel and outside accounting experts, to review the company's historical stock option practices and related accounting.

The vote on a 2002 proposal at Juniper Networks on a repricing proposal, on the other hand, was the highest in recent years. On May 22, Juniper, of Sunnyvale, California, announced that the company had received a request for information from the office of the U.S. Attorney for the Eastern District of New York relating to the company's stock option grants. A company press release said Juniper is "actively involved" in responding to the request and that the board's audit committee, assisted by independent counsel and advisers, is reviewing the company's historical stock option granting practices.

The shareholder proposal against repricing followed an opportunity given to employees, including executives, in October and November 2001, to exchange their 1999 and 2000 stock options with exercise prices exceeding $10/share, for options issued six months and one day after the date of cancellation. (These six month-plus-one-day repricings were not unusual at the time, with the timing designed to avoid unfavorable accounting consequences that had at that time been put in place for option repricing.) Chairman and CEO Scott Kriens, for example, elected to exchange a total of 2.2 million options granted in 1999 and 2000 for an equal number of option shares issued on or after May 28, 2002, with the exercise price of the new options to be set at the fair market value of the company's stock on the date of grant. Kriens received his replacement grant on May 28, with the exercise price set at that day's closing price, $10.31 -- which in this case turned out to be the highest price the company's stock would see for quite some time. A few months later in July 2002, Kriens received another option covering 550,000 shares, exercisable at $5.69 per share.

Meanwhile, the New York State Retirement Fund filed a shareholder proposal voted on at the company's 2002 annual meeting, urging the adoption of a policy that Juniper wouldn't reprice (or terminate and later re-grant) any options to lower the exercise price without shareholder approval. The fund argued that since shareholders had suffered from a steep loss in the stock price, "the incentive should be for management to increase the long-term performance of Juniper rather than increase their opportunity to gain personally from a decline in market value." Nearly half the shares voted at the 2002 meeting supported the proposal: that 45.6 percent is the highest level of support any anti-repricing proposal has earned since that date.

Although Kriens participated in the repricing and has received several large stock option grants over the ensuing years as well, he does not appear to have reaped much benefit from these grants to date. The company's proxy statements over the past five years indicate that he has not exercised any stock options during that time, although the stock moved close to $30 per share during 2004. It recently closed at $15.03, however. The executive who exercised the most options during that period was James Dolce, Jr., who became a vice president of the company in July 2002, when Juniper acquired Unisphere Networks. Since then, Dolce has exercised 2.6 million option shares, realizing net gains of over $43 million dollars. In January 2006, the company announced that Dolce would be leaving the company, "to pursue personal interests outside of Juniper."

With analysts now scrambling to identify potential "backdaters" who may come under SEC scrutiny -- so they can exit the stock before it tumbles -- companies would do well to beef up their option controls and reassure shareholders that their grant practices are sound.