This excerpt taken from the PBI DEF 14A filed Apr 3, 2007.
2006 Long-Term Incentive Payout (Cash Incentive Units 2004-2006 Performance Period)
The following table outlines the long-term CIU targets for each of the named executive officers for the 2004-2006 performance period and the actual CIUs earned and paid in February 2007.
Stock Options. It is the companys policy that stock options are granted only at an exercise price equal to the market price of the stock on the date of grant. In accordance with our Stock Plan, the market price is the average of the high and low prices at which Pitney Bowes stock was traded on the New York Stock Exchange on the date of grant. The Pitney Bowes Inc. 2007 Stock Plan defines market price as the closing price for Pitney Bowes stock on the New York Stock Exchange on the date of grant. The Pitney Bowes Inc. 2007 Stock Plan is subject to approval by the stockholders; see page 24 under the heading Proposal 3: Approval of the Pitney Bowes Inc. 2007 Stock Plan.
In 2006, 1,922,500 options were granted on February 13 with an exercise price of $42.62, the average of the high and low trading prices of Pitney Bowes common stock on that date. The closing market price for Pitney Bowes stock was $42.51 on that date. Options typically have a ten-year exercise period. Generally, nonquali-fied stock options become exercisable ratably (25% each year) over the first four years following the date of grant and incentive stock options become exercisable after four years. We typically grant options on the same date as the meeting of the Committee in February each year. This is typically after our fourth quarter earnings release has been widely disseminated.
The independent members of the board of directors are responsible for option grants to the companys chief executive officer and chief operating officer. The Committee is responsible for grants to all of the other executive officers of the company. An annual grant of stock options is made to executives at the Committees or, in the case of the chief executive officer and chief operating officer, the boards, meeting during the first quarter of the year. The Committee may, from time to time, grant options to new executive hires; these grants are typically made at the Committees next regularly scheduled meeting. In special circumstances, the Committee may determine that it is appropriate to make additional grants to executives (other than the chief executive officer and the chief operating officer) during the course of the year; these grants are made at a Committee meeting. Also, in accordance with Delaware law, the board has delegated to the chief executive officer and the chief human resources officer authority to grant stock options within pre-established guidelines to employees at the level of vice president and below. The Committee reviews any grants made pursuant to this delegation at its next regularly scheduled meeting.
The companys stock price must increase in order for stock option grantees to realize any benefit. When the stock price increases, both stockholders and stock option grantees will benefit.