Dating of stock option grants
Backdating is not per se illegal, but, under the Sarbanes-Oxley Act, top executives must report grants made to them within two days of the grant (before Sarbanes-Oxley, it was 45 days).For its part, the company must report failure to comply on its annual proxy statement.
The theory seems to be that a good CEO is worth any price a company will pay, no matter that the compensation might literally exceed the GNP of some countries or be enough to hire hundreds of talented employees.
But aside from Sarbanes-Oxley, whose effective date was after most of these practices were alleged to occur, there is a raft of potential other problems: As this was written in July, the many lawsuits that inevitably will be filed against companies accused of backdating had just started.
The first have been against the poster company for these allegations, United Health Group in Minnesota.
The results focused on the 51% of the grants during the period that were unscheduled and at-the-money.
A separate analysis of grants issued at other than the current price of the shares at grant also shows a pattern of manipulation, but it was only about 60% as prevalent for this type of award (these awards were not very common at the time, however, because of adverse accounting rules).