They were actually costly because they were treated as non-performance based compensation for tax purposes, which meant companies couldn’t deduct expenses beyond
They were actually costly because they were treated as non-performance based compensation for tax purposes, which meant companies couldn’t deduct expenses beyond $1 million.||
They were actually costly because they were treated as non-performance based compensation for tax purposes, which meant companies couldn’t deduct expenses beyond $1 million.
It was far cheaper to maintain the deductibility by backdating the stock option to look like a tax advantaged ‘at the money’ option.
Corporations, however, have defended the practice of stock option backdating with their legal right to issue options that are already in the money as they see fit, as well as the frequent occurrence in which a lengthy approval process is required.million.
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One of the reasons spring-loading executive stock options seems so possibly scandalous is the same reason backdating did—it has been carried out in an underhanded way.
When these unusual options grants were revealed to shareholders, journalists, and regulators, immediately everyone wanted to know why executives were being so sneaky if they didn’t have anything to hide.
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 testimony before a Senate Committee on Banking, Housing, and Urban Affairs on Wednesday, regulators, an academic, and private sector representatives roundly condemned backdating, the practice of adjusting stock option grant dates to an earlier time than they were actually granted in order to provide a windfall to the new option holder.
But spring-loading, which was also discussed during the hearing, received more mixed comments, underscoring general disagreement among regulators and in the marketplace over whether the practice is, in fact, illegal — or even unethical.
Law360, New York (February 15, 2007, AM EST) -- On Feb.
6, 2007, the Delaware Court of Chancery issued two significant decisions in derivative cases involving allegations of stock option backdating and spring-loading.
Guilty or not, companies accused of backdating clearly would have known what would be a favorable option grant date.