Backdating Options and Why Executive Compensation is Not All About Norms

Corporate Governance Law Review, Vol. 2, No. 3, pp. 385-394, 2006

George Mason Law & Economics Research Paper No. 10-22

11 Pages Posted: 21 Oct 2009 Last revised: 28 May 2010

Geoffrey A. Manne

International Center for Law & Economics (ICLE)

Joshua D. Wright

George Mason University - Antonin Scalia Law School, Faculty

Date Written: September 1, 2006

Abstract

In this short essay we take on some of the common claims surrounding the law and economics of the backdating of options. Most of these claims are rooted in the basic argument that backdating options amounts to concealment of compensation. While we agree that backdating may have amounted to a technical rule violation in some cases, there is actually no concealment and, in fact, backdated options are fully disclosed when granted, and their value incorporated into stock price. We also challenge a few other myths surrounding the practice of backdating options.

Keywords: accounting measures, corporate ignorance, corporate malfeasance, Gretchen Morgenstern, Jeff Lipshaw, Larry Ribstein, Matt Bodie, PrawfsBlawg, securities regulation, stock options, taxation of compensation

JEL Classification: D21, D23, G18, G30, G38, H25, H32, J33, J38, K22, K34, M40, M41, M52,

Suggested Citation

Manne, Geoffrey A. and Wright, Joshua D., Backdating Options and Why Executive Compensation is Not All About Norms (September 1, 2006). Corporate Governance Law Review, Vol. 2, No. 3, pp. 385-394, 2006; George Mason Law & Economics Research Paper No. 10-22. Available at SSRN: https://ssrn.com/abstract=1490845

Geoffrey A. Manne (Contact Author)

International Center for Law & Economics (ICLE) ( email )

3333 NE Sandy Blvd
Suite 207
Portland, OR Oregon 97232
United States
503-770-0076 (Phone)

HOME PAGE: http://www.laweconcenter.org

Joshua D. Wright

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

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