March 29, 2001

Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Re: File No. S7-04-01, Proposed Rule on Disclosure of Equity Compensation Plan Information

Dear Mr. Katz:

I am writing on behalf of Teachers Insurance and Annuity Association/College Retirement Equities Fund ("TIAA-CREF") to comment on the Securities and Exchange Commission’s proposed Rule on Disclosure of Equity Compensation Plan Information (the "Proposal").

TIAA is a non-profit stock life insurance company. Its companion organization, CREF, is a non-profit corporation registered with the Commission as an investment company. Together, through the issuance of fixed and variable annuity certificates, TIAA-CREF is the principal retirement system for the nation's higher education and research communities. TIAA-CREF, which also offers a series of retail and institutional mutual funds through its affiliates, manages about $275 billion in assets.

We commend the Commission for this important initiative to improve disclosure on the use of stock options. Along with other investors, we have become increasingly concerned about a lack of transparency that limits the ability of shareholders – particularly given inadequate stock exchange and Nasdaq rules on requiring shareholder approval for stock plans – to protect themselves against plans that can be highly dilutive. I served on the New York Stock Exchange Task Force that recommended improved disclosure on this issue, and am gratified that the Commission has responded with a proposal that will significantly enhance the ability of shareholders to monitor stock option plans.

As a member of the NYSE Task Force, I can attest to the strong consensus of that panel – which represented a diverse group of issuers, investors and others – in support of the recommendations. Unanimity was particularly strong on the need for improved disclosure of potential dilution from stock plans, a subject that we regarded as uncontroversial and relatively easy to fix.

Response to questions posed by the Commission in the Release

As set forth, the Proposal will provide crucial information that shareholders need, including summary information on all option plans adopted at each company (including those not approved by shareholders) and data on shares available for grant, which frequently is not now available. The absence of this information currently is a significant problem in implementing the proxy voting policies that TIAA-CREF has in place; and, we believe it is a hindrance to other institutional investors as well. We think it is preferable to disclose the information in tabular format, as proposed by the Commission, although there may need to be a narrative supplement where companies have what are called "evergreen" plans that reserve a percentage of outstanding shares for award each year. Evergreen plans can be particularly dilutive in the long term, and the Commission needs to take care that full and clear disclosure about these plans is provided by companies on an annual basis.

In general, the disclosure provided for in the Proposal would be very helpful, and the categories of information used in the Proposal are appropriate. We think it is very useful and not burdensome to provide summary information on each plan, and to include an aggregation for individual arrangements, as well as a "Total" figure for each column. We also agree that the disclosure should identify each plan adopted without shareholder approval, with a requirement for narrative disclosure of material features of each such plan adopted in the prior fiscal year.

However, material amendments to plans not approved by shareholders also should be disclosed. In addition, we would like to see the proxy statement disclosure requirement (as opposed to 10-K disclosure) triggered if the company adopted or materially amended any plan not approved by shareholders during the year. The proxy disclosure will be more visible to institutional investors and others who take proxy voting seriously. While we are hopeful that the stock exchanges and Nasdaq will narrow the current exception to shareholder approval requirements, in the meantime we think it important that companies be discouraged from doing so, and that information on any such plans or amendments be clearly and prominently disclosed.

We understand the Commission’s concern that proxy statement disclosure requirements be restrained. However, there may be advantages to requiring that this disclosure always appear in the proxy statement. Some investors are less likely to use 10-Ks, and putting the information in two places (the proxy statement or the 10-K, depending on whether a compensation plan is up for a vote) may unnecessarily complicate efforts by investors to use the information systematically. Nevertheless, the Commission is correct in its assessment that when compensation plans are to be considered by shareholders, the information must appear in the proxy statement.

With regard to disclosure of plans not approved by shareholders, the Proposal to require description of "material features" is sensible. However, we urge you to supplement this with a requirement that such plans also be publicly filed with the Commission as exhibits to the 10-K, as recommended by the NYSE Task Force. We also think that the Task Force recommendation of disclosure of the weighted average exercise price of prior year awards under each plan would be useful to investors, although the broader exercise price averages are disclosed currently in the 10-K.

A potential problem could be created by the requirement to list stock plans as of the end of the prior fiscal year. The time period between end-of-fiscal-year and annual meeting is too great. It would be preferable to require disclosure, especially if a compensation proposal is up for a vote, as of a date that is closer to the record date, so that investors have timely and accurate information, and so that there is minimal opportunity to enact dilutive, non-shareholder-approved plans that need not be disclosed to shareholders at the time they are voting on a stock compensation proposal.

For instances in which the registrant is seeking security holder approval for a compensation plan, it would be useful to include that plan in the table listing stock plans, so that shareholders can have a clear view of the overall compensation opportunity should the company’s proposal be approved.


The Proposal presents relatively simple and straightforward disclosure requirements, and would not be burdensome to corporations. As the NYSE Task Force said with reference to its similar recommendations, such requirements "will, for the first time, give shareholders and analysts, in one place, all of the information necessary to make their own dilution calculations with a high degree of accuracy." We agree with the Task Force that "these disclosure changes may well have a beneficial impact on shareholder education and effective corporate governance as important as the proposed changes in listing standards" made by the Task Force.

We thank the Commission for setting forth this Proposal, and urge its adoption. We hope these comments are helpful. If it is useful, we would be happy to meet with Commission officials to discuss our views further. Please do not hesitate to contact me.


Peter C. Clapman
Senior Vice President and Chief Counsel, Corporate Governance