I recall reading somewhere that the board is supposed to represent shareholders’ interests, not the CEO’s!
I’ll have more to say about this practice using one of the “poster boy” option abuse companies.
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.
Lillard, the former member of Stryker’s stock option committee. 11 and say, ‘Gee, how can we take advantage of this? Brown said that for the past 10-12 years, the company, to compensate for a relatively small number of options given to executives, has tried to ‘pick what we think would be the low point of the year.
That’s what we’re gunning for.’“Stryker’s option grant came on the lowest closing stock price for the second half of the calendar year. Brown said he believes that he called both members of the stock option committee on Sept.
This practice requires at least a nominal investment on the part of the option holder if he or she wishes to exercise.
The CEO’s conflict of interest between short-term personal wealth maximization and long-term shareholder interests tends to tilt in the shareholders’ favor.
The number who received grants was 2.6 times as many as in the same stretch of September in 2000, and more than twice as many as in the like period in any other year between 1999-2003.“Ninety-one companies that didn’t regularly grant stock options in September did so in the first two weeks of trading after the terror attack. ‘If you believe the company is going to do well, and here is an external event that is affecting the market, and you’ve made a decision to reward executives, you go ahead with it,’ Mr. ‘Life goes on.’ …“At Stryker…post-9/11 stock option grants to several executives appear to have been initiated by the chairman and CEO at the time, John W. Brown would ‘periodically tell us if he thought the stock was attractive,’ and then the board would decide whether to award options, said Mr. Besides, he added, no one could have known whether the stock would rebound immediately or continue to slide.“Mr.
Stock options are promoted by their supporters as the most effective way to align executive and employee interests with those of shareholders.
They are supposed to transform executives from fly-by-night plunderers in the mold of former Tyco or World Com executives into rational leaders who make prudent, long-term-oriented decisions with shareholder capital.
These companies met their demands, and were allowed to do so by shareholders who were far too distracted in their quest to find tech companies with the best growth prospects.
By the market bottom in 2002-2003, scores of tech companies were left with unhappy employees holding worthless options with triple-digit exercise prices.
Search for grant backdating:
20 to recommend they choose that day to grant options.