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Effect of backdating

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. 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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It also provides investors with timely access to (grant) pricing information.Clearly, for those who own shares in companies that don't play by the rules, options backdating poses serious risks.If the company is punished for its actions, its value is likely to drop substantially, putting a major dent in shareholders' portfolios.A Real-Life Example A perfect example of what can happen to companies that don't play by the rules can be found in a review of Brocade Communications.The well-known data storage company allegedly manipulated its stock options grants to ensure profits for its senior executives and then failed to inform investors, or to account for the options expense(s) properly.Another potential ticking time bomb, is that many of the companies that are caught bending the rules will probably be required to restate their historical financials to reflect the costs associated with previous options grants. In others, the costs may be in the tens or even hundreds of millions of dollars.In a worst-case scenario, bad press and restatements may be the least of a company's worries.In this litigious society, shareholders will almost certainly file a class-action lawsuit against the company for filing false earnings reports.In the worst cases of options backdating abuse, the stock exchange on which the offending company's stock trades and/or regulatory bodies such as the Securities and Exchange Commission (SEC) or National Association of Securities Dealers can levy substantial fines against the company for perpetrating fraud.The Bottom Line Although more culprits in the options backdating scandal are likely to emerge, because standards such as Sarbanes-Oxley have been instituted, the assumption is that it will be more difficult for public companies and/or their executives to hide the details of equity compensation plans in the future.what happens if I backdate a salary ( as a I can do in Payroll manager) to April 2013 @ rate of £7k p.a .

923 comments

  1. What happens if I backdate a salary as a I can do in Payroll manager to April 2013 @ rate of £7k p.a. there will be no tax or ni arising, but will

  2. I am sure that from time to time we have all come across the vexed question of backdating documents. Is backdating legal. and so is with effect from.

  3. Clear and simple - backdating and the 'effect date' Ashley Fife, August 2011. Ashley Fife TEP is the Head of Legal at TMF Group, Jersey.

  4. The impact of the options backdating scandal on shareholders. revelations of stock option backdating have a relatively small effect on cash flows.

  5. Lawyers who were trained in commonwealth jurisdictions may have an ingrained concept that backdating a. effect at all and have no. Backdating – it.

  6. The backdating concern occurs when the company does not disclose the facts behind the dating of the option. To learn more, read The "True" Cost Of Stock Options.

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