Consequences of options backdating

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As a preliminary step in explaining the Commission's response to the problem of fraudulent options backdating, it would be useful to put the whole topic of options compensation into some perspective.As you know, during the last year the Commission has been intensely focused on the quality of disclosure of executive compensation.Indeed, no expense would ever need to be recorded in the financial statements for fixed options that weren't granted in-the-money.In addition to this favorable accounting treatment, there was a tax benefit.That, of course, is what is meant by abusive "backdating" in today's parlance.

If you decide to award backdated stock options, contact us about how to do it the right way.The purpose of the new executive compensation rules is to make the CEO's pay understandable to the shareholders who own the company.Of course, no new SEC rules would be necessary to make executive pay transparent, if executives were all paid in the form of salary. 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. Securities and Exchange Commission Chairman Shelby, Ranking Member Sarbanes, and Members of the Committee: Thank you for inviting me to testify today about options backdating.

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