Exercise backdating radiometric dating of detrital minerals in sedimentary rocks gives
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.Most employee stock options are, or purport to be, granted “at-the-money,” meaning that the exercise price of the option equals the market price of the underlying stock on the date of the grant. This issue is one of intense public interest because it strikes at the heart of the relationship among a public company's management, its directors, and its shareholders.
Although these practices involve different types of conduct, both create problems because the date when the exercise price is set is not the same as the date on which the option is awarded.
Option backdating is legal, provided the backdating is clearly communicated to stockholders and as long as the effect of the backdating is properly reflected in both earnings reports and tax payments.
However, there have been a number of lawsuits against corporate directors and officers alleging illegal option backdating in which these conditions were not met.
I will let Chairman Olson speak to the steps the PCAOB is taking to address these issues from the auditing regulator's perspective, but I'd like to assure the Committee, and the public, that the Commission is working in close cooperation with the PCAOB in this important area. But here is a typical example of what some companies did: They granted an "in-the-money" option-that is, an option with an exercise price lower than that day's market price.
They did this by misrepresenting the date of the option grant, to make it appear that the grant was made on an earlier date when the market value was lower.