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Posted by / 21-Nov-2017 23:24

The first involves the actual timing of option grants and the second involves the procedures for pricing stock options.The Securities and Exchange Commission and the Department of Justice have initiated several investigations into situations where significant option grants were made and priced at times when the stock’s fair market value (and, so, the exercise price of the options) was low relative to the stock’s value at other times during the period during which the grants were made.Fifty-two companies currently under criminal investigation. Moreover, the company avoids having to expense the options as current compensation, thus increasing earnings in the near term. As a consequence, the option is immediately profitable, or “in the money,” to the option holder.Below are our recommendations with respect to oversight of stock option grant and other equity compensation programs.Recently, media and regulatory attention has been directed at two types of potential problems with respect to option grant practices.If the stock increased to a share, the holder could exercise the option, pay /share to acquire the stock, then turn around and sell it for /share, earning

The first involves the actual timing of option grants and the second involves the procedures for pricing stock options.The Securities and Exchange Commission and the Department of Justice have initiated several investigations into situations where significant option grants were made and priced at times when the stock’s fair market value (and, so, the exercise price of the options) was low relative to the stock’s value at other times during the period during which the grants were made.Fifty-two companies currently under criminal investigation. Moreover, the company avoids having to expense the options as current compensation, thus increasing earnings in the near term. As a consequence, the option is immediately profitable, or “in the money,” to the option holder.Below are our recommendations with respect to oversight of stock option grant and other equity compensation programs.Recently, media and regulatory attention has been directed at two types of potential problems with respect to option grant practices.If the stock increased to $11 a share, the holder could exercise the option, pay $10/share to acquire the stock, then turn around and sell it for $11/share, earning $1/share in profit ($1,000 in total).If the stock dropped below $10/share, the stock would be "under water"; therefore, the option would not be exercised, since the stock price is lower than the cost of exercising the option.

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The first involves the actual timing of option grants and the second involves the procedures for pricing stock options.

/share in profit (

The first involves the actual timing of option grants and the second involves the procedures for pricing stock options.The Securities and Exchange Commission and the Department of Justice have initiated several investigations into situations where significant option grants were made and priced at times when the stock’s fair market value (and, so, the exercise price of the options) was low relative to the stock’s value at other times during the period during which the grants were made.Fifty-two companies currently under criminal investigation. Moreover, the company avoids having to expense the options as current compensation, thus increasing earnings in the near term. As a consequence, the option is immediately profitable, or “in the money,” to the option holder.Below are our recommendations with respect to oversight of stock option grant and other equity compensation programs.Recently, media and regulatory attention has been directed at two types of potential problems with respect to option grant practices.If the stock increased to $11 a share, the holder could exercise the option, pay $10/share to acquire the stock, then turn around and sell it for $11/share, earning $1/share in profit ($1,000 in total).If the stock dropped below $10/share, the stock would be "under water"; therefore, the option would not be exercised, since the stock price is lower than the cost of exercising the option.

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The first involves the actual timing of option grants and the second involves the procedures for pricing stock options.

,000 in total).If the stock dropped below /share, the stock would be "under water"; therefore, the option would not be exercised, since the stock price is lower than the cost of exercising the option.

Another consequence is that the company underrepresents the real nature of an executive’s compensation, perpetuating the myth that options are performance-based incentive compensation.Option backdating is legal, provided the backdating is clearly communicated to stockholders and as long as the effect of the backdating is properly reflected in both earnings reports and tax payments.However, there have been a number of lawsuits against corporate directors and officers alleging illegal option backdating in which these conditions were not met.Another example involves situations where the company may have retroactively granted stock options (referred to as "backdating") so that, instead of the option exercise price being fair market value on the date the grant actually occurred, the option exercise price reflects the lower fair market value on an earlier date.Backdating can occur in a variety of forms, from the intentional backdating of legal documents to inadvertent backdating resulting from undisciplined corporate governance practices.

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Occurs when a stock option exercise date is set prior to the date on which the option was granted and at a lower exercise price than the current market price of the company's stock.