Consequences of backdating stock options

July 31, 2014 Over the last few years, Teknos has worked with thousands of companies preparing valuations to comply with IRC 409A and ASC 718.

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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.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). Thank you so much for spending time today on this important topic.I thought I'd talk a little about where we are from an Enforcement perspective.We often are asked, “It’s a non-cash charge, how bad can that be? So, you may acquiesce to your auditor (or the SEC) and accept a cheap stock charge to put the issue behind you.


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