- Human Resource Executive
21 July 2006
By Mark McGraw
According to a new study, more than 2,000 companies have used backdated stock options to beef up the pay packages of top executives.
The analysis that examined 39,888 stock-option grants dated from Jan. 1, 1996 to Dec. 1, 2005 and offered to top executives at 7,774 companies suggests the practice is much more common that previously disclosed.
The study revealed that 29 percent of the companies studied have used backdated options, and 14 percent of options granted to top execs in that time were backdated or otherwise manipulated to make the options more lucrative...
...Some experts, however, believe the practice may not be as widespread as Lie and Heron's research would indicate—nor do the findings necessarily reflect a lack of responsibility on the part of many of the companies studied, they say.
Irv Becker, director of the Philadelphia-based Hay Group's executive-compensation consulting practice, says the aforementioned numbers "seem high," and the number of firms that willingly acted inappropriately is most likely even lower.
In any event, the study's findings come as the federal government has ratcheted up its investigation into the practice of timing options to the stock market. To date, about 60 companies have disclosed they are either targets of government investigations, the subject of investor lawsuits or conducting internal audits regarding the practice.
There may be more to come, Becker says.
While Becker feels the practice of backdating stock options is "limited in scope," he does foresee more companies coming under federal scrutiny.
"I do think that there will be more companies that will wind up being included in the investigation," he says.
But, the number of firms ultimately found to have backdated options will likely be closer to 100 or 150 than 2,000, he says.
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