Executive stock option plans backdating motivation dating in your thirties

12-Jul-2019 21:03

The SEC does The rules indicate that a company should disclose in the CD&A whether it had (or has in the current fiscal year) a practice of selecting option grant dates for executive officers in coordination with the release of material non-public information.If the Company has such a program, plan or practice, the company should disclose that the board of directors or compensation committee may grant options at times when the board or committee is in possession of material non-public information.The author of the academic study who is credited with focusing regulators on this issue estimates that at least 10% of “at-the-money” grants of options to CEOs between 19—before Sarbanes-Oxley shortened the reporting period for option grants—were backdated.SEC Chairman Christopher Cox recently stated that the proposed SEC rules on disclosure of executive compensation will “almost certainly address options backdating explicitly.” I. Companies have considerable discretion in determining the timing of stock option awards.In 2005, I posted on the major scandal involving companies’ backdating stock option awards.The first hint that a problem existed in this area was an academic study finding that many public companies seemed to be prescient enough to award stock options on the day the company’s stock price hit its low for the year, and strongly suggesting that this was much more than mere coincidence.The SEC’s Enforcement Division and the offices of the United States Attorney are investigating the option granting practices of dozens of companies and actions taken by their executives.

(All this occurred before the current deadline for filing Form 4s, which made backdating possible.) The number of executives and board members who seemed to think that backdating was okay was truly astounding.After 123R, the “fair value” of discounted options will be greater than the “fair value” of comparable undiscounted options, resulting in higher compensation expenses.If the compensation expense is not properly reflected in earnings, the company’s financial statements will be inaccurate and restatement of the financials may be required.The practice of granting options in advance of the disclosure of positive news does not involve option backdating, but it is often discussed in the context of backdating and is also under scrutiny. If no documents are forged, and if practices are properly approved and disclosed, appropriately accounted for, properly treated for tax purposes and in accordance with the terms of the option plan, most option granting practices should fall safely within the law.

But if these conditions are not met, a number of negative consequences can result, depending on the individual circumstances of the practice at issue.

A company may want to give a new employee the benefit of any increase in the stock price from the date of acceptance of the employment offer.