Option backdating and its implications

In other words, there seem to be an awful lot of people around Steve Jobs who have allegedly had problems linked to the backdating of stock options. Jobs is the prodigal son credited with saving Apple, which he co-founded in 1976 with Steve Wozniak, by turning a then-struggling Silicon Valley icon into a consumer-electronics powerhouse after his triumphant return in 1996.

The turnaround was masterful; in fact, it's now the subject of business-school case studies.

Because the backdated options’ strike price is lower than the market price on the actual grant date, the recipient has received something of greater monetary value (even if the options have not yet vested) than a correctly dated at-the-money option.[4] Companies could reward executives with cash compensation or additional properly dated and priced incentive awards, including options, rather than engage in dubious backdating practices.[5] It is clear that there must be reasons other than greed that have led so many to backdate executive options.[6] Academics, regulators, and practitioners alike have tried to gain a better understanding of these incentives and the roles they have played in the backdating scandal; however, there is as of yet no consensus regarding the causes of backdating.[7] This is problematic because policy, legislative, or regulatory changes are unlikely to be effective if the root causes are unknown. In 2008, the long-term capital gain rate for individuals in the lowest two tax brackets (currently 5% and 15%) was further reduced to zero.

Untangling the causes of backdating will remain elusive unless each factor is considered in detail using evidence from different regimes. III 2009) (allowing carry forward for a credit for the prior year’s minimum tax liability that resulted from certain timing differences). D (illustrating in Example 4 the effect of AMT); see generally Francine J. 337 (2002) (providing a detailed discussion of the AMT and its application to ISOs). These reduced rates are currently effective until the end of 2012. 111-312, 124 Stat 3296 (extending reduced rates from the end of 2010 until the end of 2012).

Jobs in October 2001, at an exercise price of .30 a share.The comparison suggests that the personal tax regime may have been one of the factors which impacted the desire to receive backdated options in lieu of other forms of compensation in Canada but not so in the United States. Prior to 2003, the long-term capital gains rate was generally 20%. The practice of backdating executive stock options has received significant attention in the U. financial[1] and legal[2] literature, and has recently begun to be discussed in the Canadian legal literature.[3] Backdating, in its most basic form, is the use of hindsight to selectively pick a local low point in a stock’s trading price and issue executive stock options stipulating the selected date as the grant date when, in fact, the options are granted at a later date. In 2003, the rate was reduced to 5% for individuals in the lowest two income brackets and 15% for all others. Now that the cases are largely resolved, it may be time to calculate the final tally. Continue Reading The options backdating scandal may now be ancient history, but questions surrounding insurance coverage for the scandal’s consequences apparently continue to live on.In a September 9, 2011 opinion applying Maryland law, Southern District of New York Judge Naomi Reice Buchwald ruled in a coverage action brought by Safe Net’s excess D&O insurer that, among many …

Leave a Reply