When is options backdating legal

The total compensation to executives granted back-dated options was either unchanged or, perhaps, lower than it would have been, since people tend to irrationally over-value a bird in hand (in the money options) to a dozen in the bush (out of the money options).But it all became worse than a pseudo-scandal, in fact. It was the pseudo-scandal launched by the Wall Street Journal's investigative unit, after its reporters began following up on an academic report that demonstrated many executive stock options awards were too well-timed to be plausible.

But the options scandal has never touched a more exciting company than Apple or a more thrilling executive than Jobs. In June 2006, a special committee of Apple outside directors, chaired by former Vice President Al Gore, hired its own attorneys to investigate options backdating at the company. It turns out there were literally thousands of examples of backdating at Apple—6,428 options grants on 42 dates over a period of several years.

The granting of stock options to executives and directors began as a method by which a company could award those that managed its future.

This concept created more of a level playing field between directors and stockholders since, with the granting of stock options, both directors and stockholders were working toward the same end - namely, overall success of the company.

The academics concluded that something funny was going on.

The companies were awarding the options later but then marking the awards to earlier dates, when the stock's price was low.

With the discovery of stock option backdating, directors and stockholders are not necessarily on the same footing since the backdating of options bestows upon those receiving them "in the money" grants.

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