Stock option backdating wiki

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In our example, backdating the options is the same as giving John Doe a check for ,000 -- without recording that ,000 on the income statement as compensation.That, in turn, understates the company's expenses and overstates its profits, which is a violation of generally accepted accounting principles and has been the grounds for a variety of fraud and miscellaneous charges from federal, state and local regulators.He pays the per share exercise price and can turn around and sell those shares on the exchange for each, netting a profit of per share, or ,000.Why It Matters Granting stock options to employees is a generally accepted and perfectly legal form of compensating employees. Critics of backdating argue that the practice is difficult to detect and thus encourages boards and executives to use it to synthesize more creative compensation packages.For example, if one signs a contract on February 1, one may backdate it to January 31.Backdating is usually illegal; for example, one may use backdating to evade taxes.These example sentences are selected automatically from various online news sources to reflect current usage of the word 'backdate.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. What It Is In the finance world, backdating usually refers to the practice of changing the dates of option grants to one that is earlier than the actual grant date in order to place a lower exercise price on the options and thus enhance the potential profits from the exercise of those stock options.

In addition to being illegal, backdating isn't always a sure thing.

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For instance, if the board meeting is on January 3, 2012, and Company XYZ stock closes at per share that day, then the exercise price of John's 2012 stock option grant is per share.

That is, he has the right but not the obligation to purchase 1,000 shares of Company XYZ stock for per share.

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