Backdating accounting definition
But abuse of stock options has been allowed to perpetuate for years.In all my reading of the backdating scandal coverage, I have yet to see a thorough analysis of the real victims of this scandal: shareholders.But are options really as great for all parties as many have assumed?The stock option “backdating” scandal has implicated several (mostly technology) companies over the past few months.This practice requires at least a nominal investment on the part of the option holder if he or she wishes to exercise.The CEO’s conflict of interest between short-term personal wealth maximization and long-term shareholder interests tends to tilt in the shareholders’ favor.Lie and Randall Heron of Indiana University’s business school, examined almost 40,000 grants during that period.
They are supposed to transform executives from fly-by-night plunderers in the mold of former Tyco or World Com executives into rational leaders who make prudent, long-term-oriented decisions with shareholder capital.
Backdating is perpetrated by “cherry-picking,” after the fact, the lowest points the company stock traded throughout the previous year when calculating the exercise price of option grants.
The exercise price of an option is crucial because it is the price the executive or employee option holder must pay to the company when exercising options in return for newly issued shares.
Afterward, the number of suspicious grants dropped in half. (BRCM), a communications chip company, stands out as one of the best examples of how an excessive option plan can dilute shareholder interests.
The tech bubble of the late 1990s was a time when top-notch engineers and programmers routinely demanded generous stock option packages as inducement to sign on with public companies.