Corporate governance and backdating of executive stock options

Fourth, we proceed to an analysis of good corporate governance practice involving backdating options based on a series of ethical standards including: (1) trustworthiness; (2) utilitarianism; (3) justice; and (4) Kantianism.We conclude that while executive compensation schemes (e.g., stock options) were originally intended to help remedy the agency problem by tying together the interests of the executives and shareholders, these schemes may have actually become “part of the problem,” and that the solution ultimately depends upon whether directors and executives accept that all of their actions must be based on a set of core ethical values.The benefit of the resulting jump in stock price would go to the holder of the option.See Exhibit 1 for an example of an options grant that may have been well timed or may have been backdated to maximize the benefit to the option holder.Along with this more lax disclosure requirement, companies may also have not had robust enough internal controls to catch those backdating without proper authority.Consider the pressure facing a large number of technology start-up companies that were competing intensely for talent and lacking the ability to compensate employees with cash.Backdating of stock options is an example of an agency problem.

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Regardless of the size of these restatements, most companies will dismiss them in public communications as "noncash." Nevertheless, it is important to understand this within the context of the reported earnings and the balance sheet during the time period in question.Internal investigations may be initiated by a company's board of a directors through a special committee. Accountants, auditors, investors, and analysts alike should understand the history of backdating, the risks companies under investigation face, how to search for indicators of backdating, and how these scandals might ultimately affect businesses and shareholders. Options backdating is the practice of using hindsight to choose a beneficial calendar date in the past for purposes of granting a stock option to an employee, officer, or director of a company.Other investigations are externally provoked, the result of an SEC notice or a U. Any option granted using a date at a low point in a company's stock price would immediately be "in the money," because the strike price of an option is almost always set to be equal to the market value of the stock on the grant date.Under IRC section 162(m), compensation expense is generally not deductible to the extent it exceeds

Regardless of the size of these restatements, most companies will dismiss them in public communications as "noncash." Nevertheless, it is important to understand this within the context of the reported earnings and the balance sheet during the time period in question.

Internal investigations may be initiated by a company's board of a directors through a special committee. Accountants, auditors, investors, and analysts alike should understand the history of backdating, the risks companies under investigation face, how to search for indicators of backdating, and how these scandals might ultimately affect businesses and shareholders. Options backdating is the practice of using hindsight to choose a beneficial calendar date in the past for purposes of granting a stock option to an employee, officer, or director of a company.

Other investigations are externally provoked, the result of an SEC notice or a U. Any option granted using a date at a low point in a company's stock price would immediately be "in the money," because the strike price of an option is almost always set to be equal to the market value of the stock on the grant date.

Under IRC section 162(m), compensation expense is generally not deductible to the extent it exceeds $1 million per year.

An exception is made for incentive stock options that are "performance-based." The rationale is that because incentive options are usually granted "at the money" (i.e., the stock price fixed on the grant date), they have value only if the business improves and the stock price goes up.

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Regardless of the size of these restatements, most companies will dismiss them in public communications as "noncash." Nevertheless, it is important to understand this within the context of the reported earnings and the balance sheet during the time period in question.Internal investigations may be initiated by a company's board of a directors through a special committee. Accountants, auditors, investors, and analysts alike should understand the history of backdating, the risks companies under investigation face, how to search for indicators of backdating, and how these scandals might ultimately affect businesses and shareholders. Options backdating is the practice of using hindsight to choose a beneficial calendar date in the past for purposes of granting a stock option to an employee, officer, or director of a company.Other investigations are externally provoked, the result of an SEC notice or a U. Any option granted using a date at a low point in a company's stock price would immediately be "in the money," because the strike price of an option is almost always set to be equal to the market value of the stock on the grant date.Under IRC section 162(m), compensation expense is generally not deductible to the extent it exceeds $1 million per year.An exception is made for incentive stock options that are "performance-based." The rationale is that because incentive options are usually granted "at the money" (i.e., the stock price fixed on the grant date), they have value only if the business improves and the stock price goes up.

million per year.An exception is made for incentive stock options that are "performance-based." The rationale is that because incentive options are usually granted "at the money" (i.e., the stock price fixed on the grant date), they have value only if the business improves and the stock price goes up.

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