This excerpt taken from the VRSN DEF 14A filed Apr 10, 2006.
The 1998 Equity Incentive Plan and 2001 Stock Incentive Plan under which equity-based awards were made in 2005 provide for the granting of long-term incentives for all employees including executive officers. The Committee believes that equity-based compensation in the form of stock options, restricted stock units and restricted stock awards links the interests of executive officers with the long-term interests of VeriSigns stockholders and encourages executive officer retention. Equity-based awards have value for executive officers only if the individual remains an employee of VeriSign for the period required for the award to vest, and, in the case of stock options, only if the price of VeriSigns stock increases above the fair market value on the grant date.
In 2005, stock options and restricted stock units were granted to executive officers based on the individuals ability to contribute to the Companys future success, as well as past performance and to maintain consistency within the executive officers peer group. In 2005, the Committee also considered the number of unvested option shares held by the executive officer as of the date of grant. Stock options have an exercise price equal to fair market value at the date of grant and vest over a four-year period with 25% of the options vesting on the first anniversary of the grant and the remaining options vesting ratably each quarter thereafter until fully vested. Restricted stock units generally vest over four years as follows: 10% on the first anniversary of the grant, 20% on the second anniversary of the grant, 30% on the third anniversary of the grant and 40% on the fourth anniversary of the grant. Restricted share awards generally vest on the second anniversary of the issuance, after which two-thirds of the shares may be sold or otherwise transferred and the remaining one-third of the shares may be sold or otherwise transferred on or after the third anniversary of the issuance.
On December 29, 2005, VeriSign accelerated approximately 8.8 million outstanding stock options with an exercise price greater than $24.99 previously granted to employees, executive officers and Directors of VeriSign. The purpose of the acceleration was to enable the Company to avoid recognizing compensation expense associated with these options in future periods under Statement of Financial Accounting Standards No. 123R (SFAS 123R). In approving the acceleration, the Board considered the anticipated effect on the Companys financial results, stockholder value and employee morale and retention. The executive management team and the Committee believe that the acceleration was in the best interest of stockholders as it will reduce the Companys reported compensation expense beginning in 2006 under SFAS 123R. As a result of the acceleration, VeriSign expects to reduce the stock option expense it otherwise would have been required to record by approximately $27.7 million in 2006. In addition, the acceleration was accompanied by restrictions imposed on any shares purchased through the exercise of accelerated options. These restrictions will prevent the sale of any such shares prior to the date such shares would have originally vested had the optionee been employed on such date (whether or not the optionee is actually an employee at that time).
For 2006, the Committee considered changes to the long-term incentive program in light of the accounting changes imposed by SFAS 123R. After review the Committee has decided to continue to award stock options and restricted stock units to executive officers and alter the mix of awards so that executive officers will receive approximately 75% of the value of their equity-based incentive grants in the form of stock options and 25% in the form of restricted stock units. The Committee believes that this change will improve executive retention and provide enhanced incentive value in the long-term incentive program. Stock options and restricted stock units will continue to vest as described above.