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New SEC Rules Give Shareholders More Say in Options Grants

The rules, which were adopted by the major exchanges, primarily affect broad-based option plans.
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In the first major initiative of William Donaldson's chairmanship aimed at stemming investor outcry over lavish pay, the

Securities and Exchange Commission

approved rules requiring shareholder approval of all stock-based compensation packages, including options.

The new rules, word of which leaked out last week, primarily apply to so-called "broad-based" option plans, since grants to senior executives had previously been subject to shareholder approval. They will also require shareholders to sign off on any option repricings -- a particularly controversial practice in which the exercise price is lowered after a prolonged slump in a company's shares.

Both the

TheStreet Recommends

New York Stock Exchange

and

Nasdaq

approved the new rules.

In addition to requiring approval, the new rules will forbid brokers holding clients' shares from voting them for or against such plans without the permission of their owners.

"These changes are part of a broad movement by our markets and the commission to enhance the corporate governance practices of the companies traded on them," the SEC said in a statement.