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To: Peter Dierks who wrote (39656)	12/16/2009 8:27:06 PM
From: TimF	Read Replies (1) \| Respond to of 71588

Backdating is theft from the owners of record between the date of hire and the date of record. If backdating is a common even expected process (for companies who's stock price later collapses), then employees who sign up for compensation largely based on options would be signing up figuring the options would be repriced in the event of a collapse of the stock price. Backdating is one way to do that. But backdating would still have the problem of lack of full transparency. If there was no such understanding or expectation, by employees, hiring managers, or current stockholders (at the time the employee is hired or the options are given), then its closer to real theft. OTOH, if repricing makes economic sense for the company (as an alternative to increasing cash wages) in order to keep employees, than current stockholders might benefit from it (it can dilute their stock holdings to a greater extent, and/or allow for less income for the company from the employees exercising the option; but their are situations where the only real alternative to greatly increasing wages/salaries (which might not be a viable option, esp. for cash poor companies), or loosing key employees (which may harm the shareholders more than the option repricing). I think that's why Jenkins said the goal was "to motivate employees at the lowest possible cost to shareholders". It can indeed be that. But the problem with such backdating is that it lacks transparency, and is wide open to abuse. Was it in this case? I don't have anywhere near the specific information I would need to even hazard a guess. What specifically do you think of these two arguments that Jenkins made 1 - Mr. Nicholas did not benefit from any backdated stock options. He was Broadcom's largest shareholder, thus had no natural or unnatural interest in overpaying employees with backdated stock options. and 2 - "by granting stock options that, at the date of issue, were "in the money"—because, it appears, Broadcom and hundreds of other Silicon Valley companies discovered in practice what a Nobel Prize in economics had discovered in theory: That people overvalue a seeming bird in the hand." The first one is clearer (although not necessarily definitive, "largest shareholder" doesn't tell us what percentage he owned, and I don't see anything in the article about whether he directly received the backdated/repriced options. If his share was relatively small for a largest shareholder, and he received huge numbers of these options, than he could have been pushing the program for his own personal benefit. Or even if he was directly somewhat harmed by the dilution, he could have been helping out those he was close to at the company.) The 2nd argument might need a little explanation. If employees overvalue the extra surety of the in the money options, than you can give them much less of these options (causing less potential dilution) as compensation. A larger number of riskier but potentially more valuable (collectively not individually) out of the money options, could lead to more dilution for the current shareholders. That's true even if the value of each type is equivalent. The estimated risk adjusted return of each would be the same, and the choice would be between a relatively sure dilution, and a larger but less likely dilution. But if the riskier out of the money options are undervalued by the employees, than the extra potential dilution would be higher still, resulting in a higher expected dilution taking in to account probability. (Think of the difference as being a 90-100% chance of a dilution of X vs, a 20% chance of a dilution of 20X. The later is a higher expected cost to existing shareholders.