Back dating

20 to recommend they choose that day to grant options.

He added that he couldn’t remember a time when the board didn’t follow his advice.”So both the CEO and compensation committee are clearly in favor of giving Stryker shareholders as little cash as possible for each option granted to the CEO.

But are options really as great for all parties as many have assumed?

The stock option “backdating” scandal has implicated several (mostly technology) companies over the past few months.

But first, on the same page of the July 15 Wall Street Journal is another article quoting an early whistle-blower in the backdating scandal.

He suspects that it will turn out much worse than what has been exposed in the media thus far (emphasis added): “Erik Lie, a University of Iowa business professor whose work helped fuel regulatory inquiries into backdating, is expected to release fresh research this weekend showing anomalies that suggest a huge cohort of companies may have played games with their options grants.

The SEC and other federal authorities are currently investigating more than 50 companies suspected of illegal, undisclosed options backdating practices, and the first criminal charges relating to these practices are expected shortly.

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The CEO’s conflict of interest between short-term personal wealth maximization and long-term shareholder interests tends to tilt in the shareholders’ favor.

Backdating is perpetrated by “cherry-picking,” after the fact, the lowest points the company stock traded throughout the previous year when calculating the exercise price of option grants.

The exercise price of an option is crucial because it is the price the executive or employee option holder must pay to the company when exercising options in return for newly issued shares.

This fact is often used as a reason to downplay the seriousness of the issue.

You’d think that shareholders wouldn’t tolerate the use of accounting sleight of hand to compensate executives while bypassing the traditional “selling, general, and administrative” line in the income statement.

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