What Is an Omnibus Stock Plan?

An omnibus stock plan comprises a number of different programs that encompass a range of employee, executive, board member and consultant incentives. These cover common and preferred stock, options and bonuses generally tied to performance. The key driver of these plans is to align the financial interests of all who work for the company with those of shareholders. While some companies limit such plans to top executives and board members, more corporations are realizing the benefits of omnibus stock plans.

Advertisement

Number of Shares

An omnibus stock plan typically begins with the maximum number of shares allocated under the plan, which can include restricted stock, remaining awards from previous plans, share buybacks and additional authorized stock. This share limit represents a crucial consideration, so that all plan participants as well as shareholders may make informed investment decisions. An open-ended plan without stock limits could well cause unanticipated share dilution in the stakes held by existing stockholders.

Advertisement

Stock Options and Restricted Stock Awards

The allocation of stock options represents a contract that a corporation issues under an omnibus stock plan, which gives the recipient the right, but not the obligation, to buy a fixed number of shares within a set time frame. For example, Company A may grant Employee B the right to buy 100 shares at $50 per share anytime from the present to three years in the future, with the stock currently trading at $40. If the stock rises to $70 in the following year, the options grant is then worth $2,000 -- the difference between the $50 exercise cost and current market price. Similarly, a restricted stock award may take effect only upon a predetermined rise in the company's shares or at a certain point in the future.

Advertisement

Performance Awards and Bonus Shares

Omnibus stock plans are designed to closely align all interests toward the success of the company; if the business does well, so do the plan participants and other shareholders. Performance awards may take the form of stock grants if the company achieves specific revenue targets or percentage increases in per-share earnings. Bonus shares may come into play as awards on top of other performance-based incentives that further sweeten the pot for financial rewards.

Stock Appreciation Rights

Stock appreciation rights represent an element of some omnibus stock plans that reward participants not necessarily on revenue and net-income targets, but on the rise in publicly traded company stock. This is a key distinction, as stock can rise for any number of reasons beyond current financial reports, such as rumors of takeovers or firm offers, new products and services, or the anticipation of general economic growth. In these instances, actual earnings may be lackluster but those holding stock appreciation rights can nonetheless significantly benefit.

Advertisement

references