NOTE 10 - Stock Plans
Under the 1998 Incentive Compensation Plan and previously under the 1989 Long-Term Incentive Plan (the Plans), awards may be granted to officers, other key employees and other key individuals who perform services for the company and its participating subsidiaries. These awards may be in the form of stock options, stock appreciation rights, restricted stock, performance grants and similar awards designed to meet the requirements of non - U.S. jurisdictions. The company also has options outstanding pursuant to a Directors’ Stock Option Plan. Under these plans, there were a total of 40.9 million, 53.1 million and 25.9 million common shares available for grant at December 31, 1999, 1998 and 1997, respectively. Each option has an exercise price at least equal to the market price of the company’s common stock on the date of grant and a maximum term of 10 years. Options granted prior to 1999 generally vest at 33 1 /3 percent per year beginning with the first anniversary of the grant date. Starting in 1999, options granted generally vest at 33 1 /3 percent per year beginning with the second anniversary of the grant date. The company also sponsors the American Express Incentive Savings Plan, under which purchases of the company’s common shares are made by or on behalf of participating employees.
In 1998, the Compensation and Benefits Committee adopted a restoration stock option program applicable to existing and future stock option awards. This program provides that employees who exercise options that have been outstanding at least five years by surrendering previously owned shares as payment will automatically receive a new (restoration) stock option with an exercise price equal to the market price on the date of exercise. The size of the restoration option is equal to the number of shares surrendered plus any shares surrendered or withheld to satisfy the employees’ income tax requirements. The term of the restoration option, which is exercisable six months after grant, is equal to the remaining life of the original option. Senior officers must be in compliance with their stock ownership guidelines to exercise restoration options.
The company granted 0.4 million, 0.1 million and 1.4 million restricted stock awards with a weighted average grant date value of $108.76, $88.97 and $67. 08 per share for 1999, 1998 and 1997, respectively. Restrictions generally expire four years from date of grant. The compensation cost that has been charged against income for the company’s restricted stock awards was $38 million, $36 million and $48 million for 1999, 1998 and 1997, respectively.
The company has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its employee stock options. Therefore, no compensation cost has been recognized related to stock options. If the company had elected to account for its stock options under the fair value method of SFAS No. 123, "Accounting for Stock-Based Compensation," the company’s net income and earnings per common share would have been reduced to the pro forma amounts indicated below:
The fair value of each option is estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1999, 1998 and 1997, respectively:
The dividend yield reflects the assumption that the current dividend payout will continue with no anticipated increases. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The weighted average fair value per option was $33.28, $21.70 and $14.76 for options granted during 1999, 1998 and 1997, respectively.
A summary of the status of the company’s stock option plans as of December 31 and changes during each of the years then ended is presented below:
The following table summarizes information about the stock options outstanding at December 31, 1999:
