(For more insight, see ) Although it may appear shady, public companies can typically issue and price stock option grants as they see fit, but this will all depend on the terms and conditions of their stock option granting program.
However, when granting options, the details of the grant must be disclosed, meaning that a company must clearly inform the investment community of the date that the option was granted and the exercise price. In addition, the company must also properly account for the expense of the options grant in their financials.
The backdating concern occurs when the company does not disclose the facts behind the dating of the option.
With life insurance, as your age goes up so does your premium. (Not every insurer does this.) The insurer will look at the midway point between your birthdays and round your age up or down depending on which birthday is closer.
For example, if you turn 35 around the time you apply for a new policy, you could end up being charged a slightly higher premium for being 35 instead of 34. With a little planning you can surely avoid mixing your birthday up with your life insurance application. For example, if you turned 34 on January 1st and you apply for insurance on July 4th, you might be considered 35 on your insurance application even though your next birthday isn’t for almost 6 months. In the example above, you might be able to get a cheaper premium if you backdate the start date of the policy to June 4th, because then your “insurance age” will be 34. You’ll have to pay the premium for those weeks or months that are now part of your newly backdated policy.
Backdating is dating any document by a date earlier than the one on which the document was originally drawn up.
Under most circumstances, backdating is seen as fraudulent and illegal, although there are some situations in which backdating can be used in a legal and beneficial way, such as backdating a claim for a past period.
Options backdating defeats the purpose of linking an executive's compensation to the company's performance, because the bearer of the options will already have experienced a gain.
In the past, granted options were only required to be disclosed to the Securities and Exchange Commission (SEC) within two months of the options being granted, which gives companies a window for backdating.
Options backdating occurs when companies grant options to their executives that correspond to a day where there was a significantly lower share price.
It is suspected that these situations are not a coincidence and that the board or executives were granted options based on a past date in order to make these options more profitable.
This process makes the granted option in-the-money and of value to the holder.
This process occurred when companies were only required to report the issuance of stock options to the SEC within two months of the grant date.