8-KLeadership Changes

SCHWAB CHARLES CORP 8-K Report, Executive Changes (Oct 24, 2007)

Filed October 24, 2007For Securities:SCHWSCHW-PDSCHW-PJ

Summary

This 8-K filing from The Charles Schwab Corporation (SCHW), dated October 24, 2007, reports on significant executive compensation awards approved by the Compensation Committee of the Board of Directors. These awards, effective November 1, 2007, include restricted stock and stock options granted to key named executive officers, such as the Chairman and CEO, the CFO, the President and COO, and the General Counsel. The primary focus for investors is the structure and potential value of these equity-based incentives. The restricted stock awards are performance-based, contingent on achieving specific targets for pre-tax contribution margin and revenue growth, with vesting over four years. The stock options, also vesting over four years, carry an exercise price slightly above the market price at the time of grant, a common feature to align executive interests with long-term shareholder value creation.

Key Highlights

  • 1The Compensation Committee approved restricted stock and stock option awards for named executive officers, effective November 1, 2007.
  • 2Charles R. Schwab (Chairman and CEO) received stock options valued at $3,500,000.
  • 3Joseph R. Martinetto (CFO) received restricted stock valued at $250,000 and stock options valued at $750,000.
  • 4Walter W. Bettinger II (President and COO) received stock options valued at $2,500,000.
  • 5Carrie E. Dwyer (General Counsel) received restricted stock valued at $200,000 and stock options valued at $600,000.
  • 6Restricted stock awards vest over four years and are contingent on achieving performance targets related to pre-tax contribution margin and revenue growth.
  • 7Stock options vest over four years and have a seven-year term with an exercise price set at 103% of the closing stock price on the grant date.

Frequently Asked Questions

These awards are designed to incentivize and retain key executive talent by aligning their compensation with the long-term performance and stock price appreciation of The Charles Schwab Corporation. The performance-based nature of the restricted stock further ties executive rewards to specific company financial goals.

The value of the restricted stock awards will be based on the fair market value of Schwab's common stock on the grant date (November 1, 2007). The value of the stock options is determined using a binomial stock option pricing model on the grant date.

The restricted stock awards will vest based on the company achieving specific performance targets. These targets relate to Schwab's pre-tax contribution margin (pre-tax adjusted income divided by revenue) and revenue growth for the one-year performance period ending each September 30 prior to the vesting date.

The stock options will vest gradually over four years, with 25% vesting on each anniversary of the grant date. Once vested, the options can be exercised within a seven-year period from the grant date.