Through backdating, employers select grant dates that coincide with recent stock lows, thereby increasing the value of options granted to employees.
The authors conclude with the latest wrinkles arising from stock options, backdated exercise dates, and forward-dated grant dates. For additional information on the financial-accounting, Sarbanes-Oxley Act (SOX)-related, and legal implications of backdating, see "Backdating Employee Stock Options: Accounting and Legal Implications," on page 18.
To control costs, companies can minimize the number of grant dates in a calendar year, grade the vesting period not more than once a year and keep the variety of options to a minimum.
The measurement date for estimating the fair value of equity instruments is the grant date; the measurement date for liability instruments is the settlement date.
* vesting dates that are inconsistent with employment or grant dates;
* strike prices that vary from the stock price on the grant date;
McGuire, who was both the company's chairman and chief executive officer during the period under review, told the review team that grant dates were selected without the benefit of hindsight and said records of communications involving him and members of the compensation committee support the stock option grant dates.
Statistical analysis shows that the "option grant dates generally corresponded to prices at or near the lowest price for the quarter or year," and the company lacked the necessary systems to give complete option grant information to the accounting, legal or human resources departments, or to provide adequate minutes of meetings dealing with stock option grants, the review team concludes.
Prosecutors are paying increasing attention to the problem of business executives manipulating their compensation by backdating the grant dates
of their stock options to a period just before the stock rose sharply.
The FASB has long advocated subtracting the value of employee stock options from a firm's income at their grant dates
, and had been working on eventually mandating that accounting practice prior to the House vote.
Of those 100 companies, 17 had, on three or more occasions, option grant dates
that were at or near 40-day stock price lows which were immediately followed by a significant stock increase.
* User tools that enable easy audit and verification of stock option grant dates
and grant prices;