While Nokia's stock has rebounded from a low of $1.63 to hit current levels of $2.11, overall the stock has been a disaster. As a result, previously issued and un-exercised stock options are underwater requiring Nokia's Board to make some adjustments. A stock option is a financial instrument that gives the holder the right to buy or sell a stock at a set price for a certain period of time. In the case of company-issued stock options, they are usually given to key employees that a company wants to retain, and offer the ability to buy shares at a discount for a period of time. When the underlying stock is falling, the potential reward drops until in some cases, the price of the stock is well under the price at which the option can be exercised making the options worthless. While the options can be changed to lower the exercise price, that has been a controversial move over the years. Another tactic is to increase the number of options issued, increasing the potential for a windfall if the stock rebounds.
Nokia's stock has been in freefall
Nokia's Board has just increased the number of stock options that will be issued under the Nokia Equity Program 2012 from 8.5 million to 12 million. Nokia's Board can raise the number of options outstanding to a maximum of 35 million based on previously approved documents. Where Nokia is making a prudent decision is with its statement that none of the additional options will be awarded to CEO Stephen Elop or other members of Nokia's Leadership Team. Instead, these potentially valuable options will be awarded to key senior level employees who have been given the responsibility of implementing Nokia's strategy to turn the company around. In effect, this aligns the success of these employees with the success of the company which would then be reflected in the company's stock, making the options more valuable.
Under the Stock Options Plan 2011, options can be issued through 2013 with 50% of the options vesting three years after they are granted with the remaining 50% vesting the following year.
Espoo, Finland - Nokia announced today that its Board of Directors authorized an adjustment to the planned maximum number of stock options it will grant in 2012 under the Nokia Stock Option Plan 2011, which was approved at the Annual General Meeting 2011.
Nokia increased the planned maximum number of stock options to be granted under the Nokia Equity Program 2012 from approximately 8.5 million to approximately 11.5 million. This adjusted planned maximum of approximately 11.5 million stock options to be granted in 2012 is within the maximum number of 35 million stock options available for grant under the Stock Option Plan 2011 approved by the Annual General Meeting 2011.
None of these additional stock options will be granted to the CEO and the Nokia Leadership Team members but rather to key senior level employees who are critical in carrying forward Nokia's strategy. We believe this is a prudent use of stock options, also designed to align the interests of these key employees with those of the shareholders. Any realization of the value from the stock option awards is dependent on successful execution of the strategy and a sustainable share price growth over the long term.
Stock options can be granted under the Stock Option Plan 2011 until the end of 2013 and they have a vesting period of 50 percent of stock options vesting three years after grant and the remaining 50 percent vesting four years from grant.
As of December 31, 2011, the total maximum dilution effect of Nokia's equity program then outstanding, assuming that the performance shares would be delivered at maximum level, was approximately 1.8 percent. The potential maximum effect of the Nokia Equity Program 2012 announced in January 2012, assuming delivery at maximum level and including the increased planned maximum of approximately 11.5 million stock options, would be approximately another 1.6 percent.
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