How will the elimination of the forfeiture rate discount impact award values in 2007?
A.) Currently, ISS applies a discount (capped at 8 percent) to all award values equal to the company’s three-year historical forfeiture rate. For companies with Feb. 01, 2007 and later meeting dates, this discount will not longer be applied to any award type. Depending on the company’s historical forfeiture rate, stock option and SAR award values may increase by 0 to 8 percent. For example, if a stock option has a binomial model fair value of $100 and the company’s historical forfeiture rate is 4 percent, the award value used in calculating SVT would be $100 x 0.96 = $96. Going forward however, ISS will use the undiscounted binomial value of $100 to calculate SVT. Full-value award will not be impacted by this change since all such awards will be valued at the company’s 200-day average stock price irrespective of the company’s historical forfeiture rate. The rationale for eliminating the forfeiture rate discount is to align our methodology with that of FAS 123(R). While FAS 123(R) permi
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