Stock options have been used as a means of backdzting top-level employees since approximately 1957; they became extremely popular in the early 1980s for employees in the high-tech start-up backdating of stock options is unethical because of Silicon Valley. Stock Options Stock options allow employees to purchase a particular backdating of stock options is unethical because of common shares of company stock at a specified price over a specified time period. Link the option price to the market price benefited both the issuing company and the employee at the grant date. The company did not have to record any compensation expense for accounting purposes upon issuance; the employee did not receive a taxable benefit upon issuance and needed to pay taxes only when the exercised options were sold in the future. Essentially, stock options were designed to reward current performance with a future benefit when executives neither needed nor desired additional current cash. Because stock options could be cashed in becsuse the shares subsequently sold, there always existed a motivation for executives with options to quickly boost the stock price, through fair means or foul. Some executives have, well, at least when it comes to their stock options. In order to lock in a profit on day one of an options grant, some executives simply backdate set the date to an earlier time than the actual grant date the exercise price of the options to a date when the stock was trading at a lower level. This can often result in instantaneous profits! In this article, we'll explore what options backdating is and what it means for companies and their investors. Most businesses or executives avoid options backdating; executives who receive stock options as part of their compensation, are given an exercise price that is equivalent to the closing stock price on the date the options grant is issued.
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