What is backdating stock

But are options really as great for all parties as many have assumed?

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This practice requires at least a nominal investment on the part of the option holder if he or she wishes to exercise.

The CEO’s conflict of interest between short-term personal wealth maximization and long-term shareholder interests tends to tilt in the shareholders’ favor.

But first, on the same page of the July 15 Wall Street Journal is another article quoting an early whistle-blower in the backdating scandal.

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.

This fact is often used as a reason to downplay the seriousness of the issue.

You’d think that shareholders wouldn’t tolerate the use of accounting sleight of hand to compensate executives while bypassing the traditional “selling, general, and administrative” line in the income statement.

These companies met their demands, and were allowed to do so by shareholders who were far too distracted in their quest to find tech companies with the best growth prospects.

By the market bottom in 2002-2003, scores of tech companies were left with unhappy employees holding worthless options with triple-digit exercise prices.

But long-term executive/shareholder interest alignment gets thrown out the window when unforeseen circumstances cause a temporary crash in a company’s stock.

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