Item 3 Approval of an Amendment to the BlackRock, Inc. Second Amended and Restated 1999 Stock Award and Incentive Plan
BlackRock is asking shareholders to approve an amendment to the Stock Plan (the “Stock Plan Amendment”) to increase the number of shares of common stock, par value $0.01 per share, authorized for issuance under the Stock Plan from 34,500,000 to 41,500,000 shares. The Board believes that the existing number of shares available under the Stock Plan will not be sufficient to meet BlackRock’s anticipated needs to support our equity compensation plan beyond 2018.
The increase in the number of shares available under the Stock Plan will allow the Board to continue to provide equity incentive awards as part of our pay-for-performance compensation program. The Board also believes that the combination of short-term and long-term incentives is essential to maintain a competitive compensation program aligned with shareholder interests and attract, reward and retain top talent.
The Stock Plan enables the Compensation Committee to make discretionary stock option, stock appreciation, restricted stock, restricted stock unit, dividend equivalent and other long-term stock-based or cash-based awards to selected employees and non-employee directors of, and other individuals performing advisory or consulting services to, BlackRock and its present or future affiliates.
This proposal is being submitted to BlackRock’s shareholders in compliance with the NYSE Corporate Governance Standards concerning shareholder approval of equity compensation plans and/or material revisions to these plans.
While equity incentive awards are an important part of our pay-for-performance compensation program, the Board and the Compensation Committee are mindful of their responsibility to our shareholders to exercise judgment in granting equity-based awards. We review a number of metrics to assess the cumulative impact of our equity compensation programs, including burn rate and overhang.
The annual share usage under the Stock Plan for the last three fiscal years was as follows:
1. Burn rate represents (a) (i) stock options granted plus (ii) restricted stock and restricted stock units granted plus (iii) performance-based awards granted divided by (b) the basic weighted average common shares outstanding for the applicable fiscal year.
2. Overhang represents (a) total plan shares divided by (b) (i) total plan shares plus (ii) common shares outstanding, where (a) total plan shares equals the sum of (i) the number of shares available for future grants plus (ii) the number of options outstanding plus (iii) restricted stock and restricted stock units outstanding plus (iv) performance-based awards outstanding.
3. 2017 burn rate figures include the performance-based stock options that were granted in the fourth quarter of 2017 in connection with the implementation of a key strategic part of BlackRock’s long-term management succession plans. Performance-based stock options represented about 60% of the total awards granted in 2017, which materially impacted the 2017 burn rate and is not representative of our annual usage. To the extent the performance-based stock options are excluded from the calculation, the 2017 burn rate would be 0.86%. We expect the burn rate to more closely approximate our 2015 and 2016 levels in the future.
Summary of the Material Features of the Stock Plan and Stock Plan Amendment
The following summary of the material features of the Stock Plan, as amended by the Stock Plan Amendment, does not purport to be complete and is qualified by the specific provisions of the Stock Plan and the Stock Plan Amendment, copies of which are available to any shareholder of BlackRock upon written request to the Corporate Secretary of BlackRock at BlackRock’s principal executive offices. Requests for copies should be addressed to:
Attn: Corporate Secretary
40 East 52nd Street
New York, New York 10022
A copy of the Stock Plan is also included as Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and filed with the SEC on February 26, 2016. Please also see Annex B for a copy of the Stock Plan Amendment.
An aggregate of 34,500,000 shares of common stock is currently authorized for issuance under the Stock Plan. As of March 31, 2018, awards representing 5,288,393 shares of common stock were outstanding under the Stock Plan (which, for BPIP Awards, includes the base number of RSUs granted) and 1,469,022 shares of common stock remained available for grant. If BlackRock shareholders approve this proposal, an aggregate of 41,500,000 shares of BlackRock common stock will be authorized for grant under the Stock Plan and 8,469,022 shares of common stock will remain available for grant.
Annual Limits: No more than 4,000,000 shares of common stock may be covered by stock-based awards granted to any single individual in any plan year under the Stock Plan. In addition, the aggregate maximum value of all awards granted to non-employee director in any plan year under the Stock Plan (including any awards made at the election of a non-employee director in lieu of cash retainer fees) may not exceed $2,000,000.
The number of shares of common stock authorized for issuance under the Stock Plan, as well as the number of shares subject to outstanding awards and the annual limitation on grants to any single individual, are subject to equitable adjustment upon the occurrence of any stock dividend or other distribution, recapitalization, stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange or other similar corporate transaction or event.
The closing price of a share of the common stock on the NYSE on March 29, 2018 was $541.72.
Stock Plan Administration
The Compensation Committee administers the Stock Plan. The Compensation Committee consists exclusively of directors who are “non-employee directors” for purposes of Rule 16b-3 of the Exchange Act and “outside directors” for purposes of Section 162(m) of the Internal Revenue Code. The Compensation Committee has authority under the Stock Plan to:
- Determine the persons to whom awards will be granted,
- Determine the terms and conditions (including any applicable performance criteria) of the awards, and
- Prescribe, amend and rescind rules and regulations relating to the Stock Plan.
Grants of awards may be made under the Stock Plan to (i) employees of BlackRock or any of its affiliates, (ii) non-employee members of the Board and (iii) other individuals performing advisory or consulting services for BlackRock or any of its affiliates, in each case as determined and designated by the Compensation Committee. In exercising its discretion to select eligible individuals to participate in the Stock Plan, the Compensation Committee takes into account, among other factors, the need to incentivize eligible individuals to continue as employees, members of the Board, or other service providers, increase their efforts on behalf of BlackRock, and promote the success of BlackRock’s business.
As of March 31, 2018, (i) approximately 14,000 employees of BlackRock and its affiliates were eligible for awards under the Stock Plan, of which 3,428 had been selected by the Compensation Committee for participation in and had received awards under the Stock Plan, (ii) 17 non-employee members of the Board were eligible for awards under the Stock Plan, of which 17 had been selected by the Compensation Committee for participation in and had received awards under the Stock Plan and (iii) 6 independent contractors were eligible for awards under the Stock Plan, of which 6 had been selected by the Compensation Committee for participation in and had received awards under the Stock Plan.
Stock Options and Appreciation Rights
Stock option awards may be either “incentive stock options,” as defined in Section 422 of the Internal Revenue Code, or nonqualified stock options. Incentive stock options may be granted only to employees. The exercise price of an option may not be less than the fair market value per share of common stock on the date of grant (except for options assumed in a corporate transaction). The Compensation Committee may provide for payment of the exercise price of a stock option in cash or cash equivalents, by an exchange of stock previously owned by the grantee or through a broker-dealer facilitated cashless exercise procedure.
Stock appreciation rights may be granted alone or together with stock options. A stock appreciation right is a right to be paid an amount equal to the excess of the fair market value of a share of common stock on the date the stock appreciation right is exercised over either the fair market value of a share of common stock on the date of grant (in case of a free-standing stock appreciation right) or the exercise price of the related stock option (in case of a tandem stock appreciation right). Payment can be made in cash, common stock or both, as specified in the award agreement or as determined by the Compensation Committee.
Stock options and stock appreciation rights are exercisable at such times and upon such conditions as the Compensation Committee may determine, as reflected in the applicable award agreement. The Compensation Committee determines the exercise period except that, in the case of an option, the exercise period may not exceed ten years from the date of grant of the option.
Except to the extent that the Compensation Committee or applicable award agreement provides otherwise, in the event of the termination of employment of an employee or other service relationship, the right to exercise stock options and stock appreciation rights held by such employee or other service provider will cease.
Dividend equivalent rights may not be granted with respect to options or stock appreciation rights.
Restricted Stock and Restricted Stock Units
An Restricted Stock award is an award of common stock and an Restricted Stock Unit award is an award of the right to receive cash or common stock at a future date. In each case, the award is subject to restrictions on transferability and such other restrictions, if any, as the Compensation Committee may impose at the date of grant. The restrictions may lapse separately or in combination at such times, under such circumstances, including, without limitation, a specified period of employment or the satisfaction of pre-established performance goals, in such installments, or otherwise, as the Compensation Committee may determine. Except to the extent provided in the applicable award agreement, a participant granted Restricted Stock will have all of the rights of a shareholder, including, without limitation, the right to vote and the right to accrue dividends equal to the dividends paid on shares of common stock. If provided in the applicable award agreement, a holder of Restricted Stock Units will be entitled to dividend equivalents with respect to such RSUs. Dividends or dividend equivalents accrued with respect to Restricted Stock or Restricted Stock Units, respectively, will be paid out only if, and to the extent that, the underlying Restricted Stock or Restricted Stock Unit vests.
Upon termination of employment or other service relationship during the applicable restriction period, shares of Restricted Stock, Restricted Stock Units and accrued but unpaid dividends or dividend equivalents, as applicable, that are subject to restrictions will be forfeited unless the award agreement provides otherwise. Subject to the terms of the Stock Plan, the Compensation Committee can determine that restrictions or forfeiture conditions relating to Restricted Stock or Restricted Stock Units will be waived in whole or in part in the event of terminations resulting from specified causes and the Compensation Committee may in other cases waive in whole or in part the forfeiture of Restricted Stock or Restricted Stock Units.
Other Stock-Based or Cash-Based Awards
The Compensation Committee is also authorized to grant “other stock-based awards” and “cash-based awards”. The Compensation Committee will determine the form of other stock-based awards and cash-based awards that may be awarded under the Stock Plan, as well as all of the terms and conditions applicable to these awards, including whether the vesting or payment of an award will be based on the attainment of one or more performance goals. Other stock-based awards will be valued in whole or in part by reference to, or will be otherwise based on, shares of common stock. Other stock-based awards may be granted alone or in addition to other awards under the Stock Plan. The maximum payment that any executive officer may receive pursuant to a “cash-based award” that is subject to performance goals in any plan year shall be $10,000,000.
An award granted under the Stock Plan after it becomes effective will not vest prior to the first anniversary of the date of grant of the Award. However, the Compensation Committee may grant awards that vest within one year following the date of grant under the following circumstances:
- Due to the grantee’s retirement, death, disability, leave of absence, termination of employment, or upon the sale or other disposition of a grantee’s Employer or any other similar event, as determined by the Compensation Committee;
- In accordance with terms described below under the caption “Change in Control”; or
- As a substitute award in replacement of an award scheduled to vest within one year following the date of grant of such substitute award.
Under the Stock Plan, up to 5% of the shares of stock authorized for issuance under the Plan may provide for vesting within one year following the date of grant.
Change in Control
Unless otherwise provided in an award agreement or other agreement between the Company and the grantee, in the event of a “change in control” (as defined in the Stock Plan):
- With respect to each outstanding award granted after the effective date that is assumed or substituted in connection with the change in control, if the grantee’s employment is terminated by the Company or its successor or an affiliate without cause (as defined in the applicable award agreement) within the 12-month period following the change in control, then the awards held by the grantee will become fully vested (and any performance conditions applicable to such awards will be deemed to have been achieved at target level); and
- Any outstanding awards granted after the effective date that are not assumed or substituted in connection with the change in control will become fully vested upon the change in control (with any performance conditions applicable to such awards deemed to have been achieved at target level).
An award will be considered assumed or substituted in connection with a change in control if, following the change in control, the award is of substantially comparable value and remains subject to substantially the same terms and conditions that were applicable to the award prior to the change in control; provided, that, if applicable, following the change in control, an award will be deemed assumed if it relates to shares of stock of the acquiring or ultimate parent entity.
To the extent the Compensation Committee grants an award under the Stock Plan with payment or vesting based on the attainment of one or more performance goals, such payment or vesting is permitted if, and only to the extent that, the performance goals established by the Compensation Committee are met. The performance goals may relate to the performance of BlackRock, a subsidiary, affiliate, division or strategic business unit or any combination thereof.
The performance goals will be based on one or more of the following criteria:
Where applicable, the performance goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to the performance of BlackRock relative to a market index, a group of other companies or a combination thereof, all as determined by the Compensation Committee. The performance goals may include a threshold level of performance below which no payment will be made, levels of performance at which specified payments will be made and a maximum level of performance above which no additional payment will be made. To the extent possible, each of the foregoing performance goals will be determined in accordance with GAAP. The performance measure or measures and the performance goals established by the Compensation Committee may be different for different fiscal years and different goals may be applicable to BlackRock and its subsidiaries and affiliates.
In addition to any forfeiture provisions otherwise applicable to an award, a grantee’s right to payment or benefits with respect to an award is subject to reduction, cancellation, forfeiture, clawback or recoupment under BlackRock’s clawback policies or as required by applicable law.
Except as otherwise determined by the Compensation Committee, awards granted under the Stock Plan may be transferred only by will or by the laws of descent and distribution.
Amendment and Termination
The Stock Plan may be altered, amended, suspended or terminated by the Board, in whole or in part, except that no amendment that requires shareholder approval in order for the Stock Plan to continue to comply with state law, stock exchange requirements or other applicable law will be effective unless the amendment has received the required shareholder approval. In addition, no amendment may be made that adversely affects any of the rights of any award holder previously granted an award without the holder’s consent. The Stock Plan will terminate on May 28, 2025.
We intend to file with the SEC a registration statement on Form S-8 covering the increase in the number of shares of common stock authorized for issuance under the Stock Plan.
United States Federal Income Tax Information
The following summary is intended as a general guide to the United States federal income tax consequences relating to the issuance and exercise of stock options granted under the Stock Plan. This summary does not attempt to describe all possible federal or other tax consequences of such grants or tax consequences based on particular circumstances.
Incentive Stock Options
An optionee generally recognizes no taxable income for income tax purposes as the result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Internal Revenue Code. Optionees who neither dispose of their shares (“ISO shares”) within two years after the stock option grant date nor within one year after the exercise date normally will recognize a long-term capital gain or loss equal to the difference, if any, between the sale price and the amount paid for the ISO shares. If an optionee disposes of the ISO shares within two years after the stock option grant date or within one year after the exercise date (each a “disqualifying disposition”), the optionee will realize ordinary income at the time of the disposition in an amount equal to the excess, if any, of the fair market value of the ISO shares at the time of exercise (or, if less, the amount realized on such disqualifying disposition) over the exercise price of the ISO shares being purchased. Any additional gain will be capital gain, taxed at a rate that depends upon the amount of time the ISO shares were held by the optionee. BlackRock will be entitled to a deduction in connection with the disposition of the ISO shares only to the extent that the optionee recognizes ordinary income on a disqualifying disposition of the ISO shares.
Nonstatutory Stock Options
An optionee generally recognizes no taxable income as the result of the grant of a nonstatutory stock option. Upon the exercise of a nonstatutory stock option, the optionee normally recognizes ordinary income equal to the difference between the stock option exercise price and the fair market value of the shares on the exercise date. If the optionee is a BlackRock employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of stock acquired by the exercise of a nonstatutory stock option, any subsequent gain or loss, generally based on the difference between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss. BlackRock generally is entitled to a deduction equal to the amount of ordinary income recognized by the optionee as a result of the exercise of a nonstatutory stock option.
Future grants under the Stock Plan will be made at the discretion of the Compensation Committee and, accordingly, are not yet determinable. In addition, benefits under the Stock Plan will depend on a number of factors, including the fair market value of common stock on future dates and the exercise decisions made by optionees. Consequently, it is not possible to determine the benefits that might be received by participants under the Stock Plan.
For information relating to the grants under the Stock Plan for the last fiscal year to BlackRock’s NEOs, see the “2017 Grants of PlanBased Awards Table” on page 69.