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But Apple makes clear that Jobs was directly involved in some instances of backdating.
The investigation "found that CEO Steve Jobs was aware or recommended the selection of some favorable grant dates." The committee hastens to add that Jobs "did not receive or financially benefit from these grants or appreciate the accounting implications." In other words, he didn't recommend backdating his own option grants.
The granting of stock options to executives and directors began as a method by which a company could award those that managed its future.
This concept created more of a level playing field between directors and stockholders since, with the granting of stock options, both directors and stockholders were working toward the same end - namely, overall success of the company.
Unlike the abusive corporate tax shelter ploys which often involve complex manipulation of a transaction to achieve tax results that are inconsistent with the economic reality of the deal, stock option backdating is a relatively crude device: A corporation merely changes the date that a stock option was actually granted to an earlier time when the stock price was lower.
Thus, the option becomes "in the money", meaning there was a built-in profit on the underlying stock, on the grant date.
The Dating Game, by James Surowiechi, The New Yorker: ..
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.
The companies involved in the recent scandal were backdating options to a time when the stock price was lower, making them immediately lucrative. stock options by claiming that they’re an incentive for performance: the executives get rich only if they do a good job and the stock goes up.
As it happens, companies are perfectly free to issue options priced below the current market: those are called “in the money” options, and they’re worth something right when they’re issued. But there’s a rule that companies have to follow when they issue “in the money” options: they have to disclose it in their financial statements. Unless executives can time-travel, though, it’s hard to make that case for backdated options.
With the discovery of stock option backdating, directors and stockholders are not necessarily on the same footing since the backdating of options bestows upon those receiving them "in the money" grants.
Stock option backdating, of course, refers to the practice of publicly traded companies issuing stock option grants retroactively in order to coincide with low points in the company's stock price.
Stock option backdating has erupted into a major corporate scandal, involving potentially hundreds of publicly-held companies, and may even ensnare Apple's icon, Steve Jobs.