Backdating of options

Lillard, the former member of Stryker’s stock option committee. 11 and say, ‘Gee, how can we take advantage of this? Brown said that for the past 10-12 years, the company, to compensate for a relatively small number of options given to executives, has tried to ‘pick what we think would be the low point of the year.

That’s what we’re gunning for.’“Stryker’s option grant came on the lowest closing stock price for the second half of the calendar year. Brown said he believes that he called both members of the stock option committee on Sept.

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In his new research paper, which analyzes options prices and share movements, Dr.

Lie estimates that 29% of the nearly 8,000 firms studied had backdated or otherwise manipulated grants to top executives at some point between 1996-2005.“The paper, authored by Dr.

Lie and Randall Heron of Indiana University’s business school, examined almost 40,000 grants during that period.

It found evidence of manipulation involving 23% of those grants between 1996-2002, when a new rule required executives to report grants within two business days of receiving them — making backdating far more difficult to achieve.

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.

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.

Stock options are promoted by their supporters as the most effective way to align executive and employee interests with those of shareholders.

They are supposed to transform executives from fly-by-night plunderers in the mold of former Tyco or World Com executives into rational leaders who make prudent, long-term-oriented decisions with shareholder capital.

20 to recommend they choose that day to grant options.

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