What is backdating stock options
The SEC should mandate:• That dates for all prior-year compensation committee meetings be disclosed in the annual proxy statement.
• That dates on which compensation committees or executives approve share-based awards be disclosed on a continuing basis through 8-K filings and, by reference, in the annual proxy statement.
There are two parts to this controversy, and it is not yet clear which one is the focus of recent SEC subpoenas of more than 20 companies.
First, these companies are accused of manipulating the grant date around the release of material non-public information.
Law360, New York (April 29, 2010, PM EDT) -- The short answer is that there is nothing wrong with backdating stock options — if appropriate procedures are followed and the transactions are properly accounted for and disclosed.
Backdating is a practice of locking in financial gains by retroactively pricing stock option grants on days when a company’s stock price is low, thereby increasing the value of the options.
• That effective grant dates for all share-based awards, if different than the approval dates above, be disclosed on a continuing basis through 8-K filings and, by reference, in the annual proxy statement.• That the compensation committee be required to determine whether executives are permitted to select or recommend grant dates for their options, and to review all option grants and determine if any effective grant dates were selected to take advantage of the pending release of material information about the company.
In addition to these disclosure/ board oversight improvements, appropriate civil and criminal sanctions must be available in federal statutes.
Learn more Events Values-based investing has laid the groundwork for the growth of ESG investing.To enable shareowners to hold boards accountable for improper behavior and to require senior executives to attest to the accuracy of the dates companies report for granting stock option awards, four reforms are needed.These would ensure that shareowners' interests come first and foremost in determining when executive compensation is granted and how it is disclosed.Now we learn there is a new scandal, the backdating of stock option grants.And it is triggering a new round of outrage by shareowners, and justifiably so.