Option backdating and

Some executives have, well, at least when it comes to their stock options.

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ESOs are usually granted at-the-money, i.e., the exercise price of the options is set to equal the market price of the underlying stock on the grant date.An example illustrates the potential benefit of backdating to the recipient.The Wall Street Journal (see discussion of article below) pointed out a CEO option grant dated October 1998.This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.Cases of backdating employee stock options have drawn public and media attention.Because the option value is higher if the exercise price is lower, executives prefer to be granted options when the stock price is at its lowest.Backdating allows executives to choose a past date when the market price was particularly low, thereby inflating the value of the options.It is suspected that these situations are not a coincidence and that the board or executives were granted options based on a past date in order to make these options more profitable.At first glance, call options represent the perfect way to tie an executive's level of compensation to the company's performance because as the company's share price increases, so does the payoff the executive will receive.In essence, the revision enabled companies to increase executive compensation without informing their shareholders if the compensation was in the form of stock options contracts that would only become valuable if the underlying stock price were to increase at a later time.Do you ever wish that you could turn back the hands of time?


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