Micros Systems Inc. amended its stock option plan yesterday after an influential shareholder advisory service contended that its language might allow executives to profit when other shareholders couldn't.
Institutional Shareholder Services Inc. advised shareholders not to vote for a larger amendment to Micros' option plan Nov. 16 if that issue wasn't rectified.
Votes on stock option plans are a routine part of many corporations' annual meetings and rarely contested. But ISS, a Rockville firm that advises large stockholders on how to vote, said the plan language must be changed first so it wouldn't allow the company to alter the price of previously awarded options.
"For employees, repricing activity undermines the concept that stock options are long-term incentives," the report stated.
"For investors, repricing may be a sign that the management has little confidence in the outlook of the company," the report said.
Columbia-based Micros, which produces point-of-sale computer systems for major retailers and hotels, was willing to amend the wording because it never meant to allow repricing, said Thomas L. Patz, executive vice president of strategic initiatives and general counsel.
"We never even interpreted that provision to allow repricing," Patz said. "We immediately said, 'No problem, we will clarify that.'"
The plan has been in place since 1991, and while Micros used to have a repricing provision, it was eliminated in 1996, Patz said.
Patz added that the company has never repriced options.
Stock options allow a holder to buy a set number of shares at a set price once they become vested on a future date.
Options only pay off if the market price of the company's stock is higher than the exercise price contained in the option. By lowering the exercise price of an option, a company could make them worth something to the holder if the stock price declined below the original exercise price.
ISS also objected to a provision that it said would accelerate vesting of stock options after a "change of control" regardless of whether it led to management changes or job losses. ISS supports such provisions only when there is a major change to a company's ownership with corresponding layoffs, according to the report.
Patz disputed that assertion.
"There's no windfall that comes to anyone," Patz said. "Options do vest if there were a change in control, but that's pretty standard."
Patz said ISS didn't express concern over the issue when he followed up with them. He said he expects ISS to support the stock option plan now that the repricing issue has been clarified. ISS officials couldn't be reached for a response.
Micros reported a 41 percent jump in profit for its fiscal first quarter, which ended Sept. 30. Income climbed to $21.3 million, or 51 cents a share, from $15.1 million, or 37 cents a share.