These are options granted to executives just prior to favorable announcements relating to the company which are likely to jump the market price above the strike price set forth in the options themselves; executives wake up one day soon to find themselves “in the money.”

It is not surprising that, last week, the SEC issued guidance requiring companies to make disclosure to the public of the facts surrounding the wholly anticipated increase in share price and the expected immediate added compensation value to the executive optionee.  Disclosure now should disclose this “additional value” accruing to the executive.

Express disclosure of this sort of course is not viewed favorably by investors, who likely find the practice a bit “fast” albeit not illegal.  (Whether proxy advisory firms find it problematical is another issue; surely these firms do fine-line math on compensation and thus are not unfamiliar with the arrangement.)  Certainly there is enough of a stigma to these options that the current SEC was motivated to seek disclosure in hopes of curtailing the practice, although history tells us that disclosure itself does not necessarily result in deterrence in the current environment.