Options backdating occurs when companies grant options to their executives that correspond to a day where there was a significantly lower share price.
Backdating allows executives to choose a past date when the market price was particularly low, thereby inflating the value of the options.
An example illustrates the potential benefit of backdating to the recipient.
In order to lock in a profit on day one of an options grant, some executives simply backdate (set the date to an earlier time than the actual grant date) the exercise price of the options to a date when the stock was trading at a lower level. In this article, we'll explore what options backdating is and what it means for companies and their investors. Most businesses or executives avoid options backdating; executives who receive stock options as part of their compensation, are given an exercise price that is equivalent to the closing stock price on the date the options grant is issued.
This means they must wait for the stock to appreciate before making any money.
Technically, any options granted today should bear a strike price of $45.
In a backdated situation, however, the options would be granted today (August 16), but their listed day of granting would be June 1 in order to give the options a lower strike price.
Under previous regulations, corporations could wait 45 days or, in some cases, over a year to report options, thus providing ample time for backdating.
Other similar practices are being reviewed by government officials as well.
(For more insight, see ) Although it may appear shady, public companies can typically issue and price stock option grants as they see fit, but this will all depend on the terms and conditions of their stock option granting program.