Backdating and spring loading
Yet in all the many discussions about this scandal, and others that have preceded it, the issue of who should get awards is almost never raised.And that may explain why the problem of executive compensation has not been effectively addressed.As important as the issue of executive equity compensation is, it should not blind us to a more important concern.Research has definitely shown that broadly-granted equity awards improve corporate performance; concentrated grants force it down (the details are in the article Broadly Granted Stock Options Improve Corporate Performance).Recording the exercise as having occurred on an earlier date when the stock price was lower would minimize the executive's income tax liability, but constitutes tax fraud.New research (July 2006) by Eric Lie and Randall Heron found that 29.2% of companies issuing options to executives and/or directors between 19 have grant date patterns that suggest backdating or other manipulative practices (such as "spring-loading," the announcement of a grant before good news is released), and 23% of options issued to executives appear to have been backdated or spring-loaded.
Stock option backdating has erupted into a major corporate scandal, involving potentially hundreds of publicly-held companies, and may even ensnare Apple's icon, Steve Jobs.But aside from Sarbanes-Oxley, whose effective date was after most of these practices were alleged to occur, there is a raft of potential other problems: As this was written in July, the many lawsuits that inevitably will be filed against companies accused of backdating had just started.The first have been against the poster company for these allegations, United Health Group in Minnesota.Excessive executive compensation seems to be an issue that just won't go away because excessive executive compensation won't go away.
The theory seems to be that a good CEO is worth any price a company will pay, no matter that the compensation might literally exceed the GNP of some countries or be enough to hire hundreds of talented employees.
The results focused on the 51% of the grants during the period that were unscheduled and at-the-money.