>>Frankly, I deem backdating illegal since as a shareholder I can't backdate my buys or sells so why should insiders be allowed to pilfer the shareholders?<<
Orion -
I don't see how options backdating is tantamount to pilfering the shareholders. It doesn't seem that it affects shareholders much.
Let's say I am granted options for 1,000,000 shares at a strike price of 10 dollars, even though the day they are granted the closing price is 11 dollars. I'm already sitting on a gain of 1 million dollars on paper, so I am happy. But I can't sell the shares until they vest. Usually shares vest by percentages over a period of years. 25% a year is common.
So let's say that four years later, the stock is at 30. All my shares have vested, and I exercise my options. I pay the company $10,000,000 for the 1,000,000 shares, then turn around and sell them on the open market for $30,000,000, pocketing the difference. Yay. I'm up 20 million bucks, minus the tax.
If my options had been priced at $11, which was the closing price on the day they were granted, I would instead pay the company $11,000,000 for those shares. The net difference to the company is $1,000,000.
Meanwhile, I have been motivated to enhance share value as much as possible for all those years, which was the whole point of granting me options in the first place.
Doesn't seem to me that the shareholders are big losers in this scenario.
- Allen |
