Option Backdating and its Implications
Jesse M. Fried
Harvard Law School
November 12, 2008
GOVERNANCE AND EXECUTIVE COMPENSATION, William Forbes, ed., Edward Elgar Publishing, 2010
Washington and Lee Law Review, Vol. 65, pp. 853-886, 2008
UC Berkeley Public Law Research Paper No. 1118439
Thousands of US companies appear to have secretly backdated stock options. This paper analyzes three forms of secret option backdating: (1) the backdating of executives' option grants; (2) the backdating of non-executive employees' option grants; and (3) the backdating of executives' option exercises. It shows that each type of backdating less likely reflects arm's-length contracting than a desire to inflate and camouflage executive pay. Secret backdating thus provides further evidence that pay arrangements have been shaped by executives' influence over their boards. The fact that so many firms continued to secretly backdate after the Sarbanes Oxley Act, in blatant violation of its reporting requirements, suggests recent reforms may have failed to adequately curb such managerial power.
Number of Pages in PDF File: 1
Keywords: Executive compensation, stock options, corporate governance, managers, shareholders, CEOs, boards, camouflage, managerial power, Sarbanes Oxley, independent directors
JEL Classification: D23, G32, G34, G38, J33, J44, K22, M14, M41, M49Accepted Paper Series
Date posted: April 10, 2008 ; Last revised: June 24, 2011
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