The area of equity compensation has become more controversial and complex in recent years due to various factors, including stock market volatility, increased scrutiny and disclosure of executive compensation, the requirement to expense stock options for financial statement purposes, the Sarbanes-Oxley Act, and changes in federal capital gains tax rates. As a result of these and other issues, employers are re-examining their use of this important compensation tool.

There are no pat answers to the question of how much equity, and in what forms, to place in the hands of your executives, directors, senior managers, key contributors and general employee population. Top Five takes a practical approach to consulting with clients in this area, generally involving the following steps:

• Initially, we review your current programs to determine, quite simply, how well your program works. We analyze where your company is in its lifecycle, if changes in the law or regulatory environment have impacted the program's efficiency, whether the program is meeting the goals that you had for it when it was created, and whether the program is being communicated and operated effectively.

• Secondly, we convey our analysis of your programs and listen to your concerns about the programs. We inquire about company short and long term goals and your level of confidence that the current programs will motivate the employees to meet those goals.

• Thirdly, we examine the universe of available equity programs, and suggest appropriate alternatives to your current program. We look at such items as the competitive marketplace and trends in your industry, administrative ease and flexibility, tax and financial statement effectiveness, and the goals that were discussed above. We present our findings to you, and include a discussion of what was not chosen and why. We feel that this allows you to make an informed decision about these programs.

• Finally, we assist in the design and implementation of the program. This would typically include such steps as making choices regarding program operation, drafting documents and regulatory filings (as needed ) for counsel review, determining option and stock granting guidelines at all levels in the organization, modeling your future pool requirements, communicating the program to participants, and assisting with administrative issues.

We can help you make the best use of this vital and limited resource, and maximize employee understanding of the programs you offer.

To learn more about our consulting services, contact Jay Edelman at (510) 745-8675 or email him at jedelman@top5.com