Overview

For an early read on 2006 stock-based compensation trends, Equilar completed an analysis of new equity awards as disclosed in Form 4 filings at Silicon Valley’s 150 largest companies (as determined by The San Jose Mercury News). Form 4 filings provide real-time information on the prevalence and nature of equity-based pay as grants occur, well in advance of proxy filings. For this analysis, Equilar reviewed new awards filed between January 1, 2006 and November 30, 2006 for all Section 16 officers at Silicon Valley’s largest companies. Also, for comparison purposes, Equilar reviewed Form 4 filings for the same 11-month period in 2005.

Key Findings

Total Options and Restricted Stock are Down…
Compared to the first 11 months of 2005, the first 11 months of 2006 saw fewer stock options and restricted shares awarded to executive officers at Silicon Valley 150 firms. The total number of stock options awarded fell by 1.3 percent, and the total number of restricted shares awarded fell by 4.0 percent.

RSUs Help to Offset Declines in Options and Restricted Stock…
The total number of restricted stock units (RSUs) awarded to Silicon Valley 150 executives increased by 128.6 percent from 2005 to 2006. However, RSUs accounted for only 6.7 percent of the total number of shares awarded in the first 11 months of 2006.

Grants to CEOs are Up…
Despite an overall decline in the total number of stock options and restricted shares awarded to Silicon Valley executives, the total number of options and restricted shares awarded to CEOs increased from 2005 to 2006, rising by 21.7 percent and 18.2 percent, respectively.

Median Grant Sizes for CEO Options Fall…
The median size of CEO stock option grants (on a grant-by-grant basis, not aggregated for each executive) decreased by 16.7 percent, falling from a median of 120,000 shares in the first 11 months of 2005 to a median of 100,000 shares in 2006.

Median Grant Sizes for CEO Restricted Stock Climb…
The median size of CEO restricted stock grants (on a grant-by-grant basis, not aggregated for each executive) increased by 100.0 percent, jumping from a median of 10,000 shares in the first 11 months of 2005 to a median of 20,000 shares in 2006.

Summary Data

All Executives

The following chart provides a breakdown of the total shares granted to all Section 16 officers at Silicon Valley 150 companies in the first 11 months of 2005 and 2006.

As the data demonstrates, stock options still account for the vast majority of shares granted to Silicon Valley executives, although restricted stock and RSU grants are an increasingly important part of equity-based compensation. In 2006, stock options represented 81.3 percent of all shares awarded while restricted stock and RSUs covered 18.4 percent of all shares awarded.

Chief Executives

The following chart provides a breakdown of the total shares granted to chief executives at Silicon Valley 150 companies in the first 11 months of 2005 and 2006.

For CEOs, overall patterns in equity-based compensation remained fairly stable between 2005 and 2006. The prevalence of stock options among all shares awarded fell from 81.1 percent in 2005 to 80.9 percent in 2006. Restricted stock and RSU grants increased in prevalence from 16.8 percent of all shares awarded to 18.8 percent.

Stock Option Awards

• From 2005 to 2006, the total number of stock options awarded to executive officers at Silicon Valley 150 firms decreased by 1.3 percent. In real terms, total stock options awarded fell from approximately 119.5 million shares in 2005 to 117.9 million shares in 2006.



• While there was an overall decline in options awarded to executive officers, CEOs actually saw a 21.7 percent increase from 2005 to 2006 in the total number of stock options granted. For CEOs, the total number of stock options awarded increased from approximately 38.7 million shares in 2005 to 47.1 million shares in 2006.
  
  For all other executives, the total number of stock options awarded fell by 12.6 percent, decreasing from approximately 80.9 million shares in 2005 to 70.7 million shares in 2006.



• With respect to CEOs, the increase in the total number of stock option shares awarded can be largely attributed to several mega grants made in 2006. In 2006, three CEOs received option grants in excess of 5.0 million shares and an additional seven chief executives received a grant equal to or greater than 1.0 million shares. By comparison, in 2005, no chief executive received a grant of over 2.0 million shares, and only nine received a grant equal to or greater than 1.0 million shares.



• The median size of CEO stock option grants (on a grant-by-grant basis, not aggregated for each executive) decreased by 16.7 percent, falling from a median of 120,000 shares in the first 11 months of 2005 to a median of 100,000 shares for the same period in 2006.

Restricted Stock Awards

• Similar to stock options, in the first 11 months of 2006, Silicon Valley 150 executives received 4.0 percent fewer restricted shares than during the same period in 2005. Total restricted shares awarded dropped from approximately 17.7 million shares in 2005 to 17.0 million shares in 2006.



• Following stock option trends, while there was an overall decline in the number of restricted shares awarded to executive officers, CEOs experienced an 18.2 percent increase from 2005 to 2006 in the total number of restricted shares they received. For all other executives, the number of restricted shares granted fell by 17.6 percent over the same timeframe.



• The median size of CEO restricted stock grants (on a grant-by-grant basis, not aggregated for each executive) increased by 100.0 percent, jumping from a median of 10,000 shares in the first 11 months of 2005 to a median of 20,000 shares in the first 11 months of 2006.

Restricted Stock Unit Awards

• In the first 11 months of 2006, the number of RSUs awarded increased significantly across all groups of executives in the Silicon Valley 150. For all executives, the number of RSUs awarded grew from approximately 4.2 million shares in 2005 to 9.7 million shares in 2006, a dramatic increase of 128.6 percent.



• Furthermore, from 2005 to 2006, growth in total RSUs awarded was fairly uniform among CEOs and other executives, climbing 117.5 percent and 134.6 percent, respectively. Total CEO RSU awards increased from approximately 1.5 million shares to 3.2 million shares, and total other executive RSU awards increased from approximately 2.7 million shares to 6.4 million shares.



• The median size of CEO RSU grants (on a grant-by-grant basis, not aggregated for each executive) declined by 54.5 percent, falling from a median of 71,500 shares in 2005 to a median of 32,500 shares in 2006.
  
  However, this decline can be explained in part by a significant increase in the number of individuals receiving RSU grants. In 2005, seven Silicon Valley 150 CEOs received RSU grants, as compared to 20 Silicon Valley 150 CEOs in 2006.

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