Start Backdating stock options wikipedia

Backdating stock options wikipedia

(earnings per share) In 1992 the SEC imposed a rule requiring companies to report executive stock options in detail. Congress enacted Section 409A of the Internal Revenue Code to deal with such non-qualified deferred compensation.

Previously, dates were disclosed within often ignored filings.

The process of granting an option that is dated prior to the date that the company granted that option.

In comparison, had the options been granted at the year-end price when the decision to grant to options actually might have been made, the year-end intrinsic value would have been zero.

Backdating does not violate shareholder-approved option plans.

This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.

Cases of backdating employee stock options have drawn public and media attention.

In 1972, a new revision (APB 25) in accounting rules resulted in the ability of any company to avoid having to report executive incomes as an expense to their shareholders if the income resulted from an issuance of “at the money” stock options.

In essence, the revision enabled companies to increase executive compensation without informing their shareholders if the compensation was in the form of stock options contracts that would only become valuable if the underlying stock price were to increase at a later time.

Options backdating is the practice of granting an employee stock option that is retroactively dated to increase its value.

The practice of backdating itself is not illegal, nor is granting of discounted stock options.

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