Grant backdating

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.

20 to recommend they choose that day to grant options.

He added that he couldn’t remember a time when the board didn’t follow his advice.”So both the CEO and compensation committee are clearly in favor of giving Stryker shareholders as little cash as possible for each option granted to the CEO.

Instead of using excess cash to buy back stock at a short-term discount, a long list of blue chip companies used the post-Sept. A recent Wall Street Journal article entitled “Executive Pay: The 9/11 Factor,” describes the sequence of events (my emphases):“A Wall Street Journal analysis shows how some companies rushed, amid the post-9/11 stock market decline, to give executives especially valuable options.

He suspects that it will turn out much worse than what has been exposed in the media thus far (emphasis added): “Erik Lie, a University of Iowa business professor whose work helped fuel regulatory inquiries into backdating, is expected to release fresh research this weekend showing anomalies that suggest a huge cohort of companies may have played games with their options grants.

Simply put, backdating a stock option grant amounts to ripping off shareholders by shortchanging the company treasury.

Shares are issued to option holders at artificially low prices and the company gets an artificially low amount of capital in return for its shares.

Stock options are promoted by their supporters as the most effective way to align executive and employee interests with those of shareholders.

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.

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