Tax consequences of backdating options

22 Nov

For example, when executives failed to meet the annual earnings growth rate target of 15 percent at Coca-Cola in 2002, the target was dropped to 11 percent.

For example, in 2011 Alpha Natural Resources' CEO failed to meet the compensation formula set by the board, in large part because of his overseeing the "biggest annual loss" in the company's history.

This "problem" may interfere with the ideal of management pay set by "arm's length" negotiation between the executive attempting to get the best possible deal for him/her self, and the board of directors seeking a deal that best serves the shareholders, rewarding executive performance without costing too much.

The compensation is typically a mixture of salary, bonuses, equity compensation (stock options,etc.), benefits, and perquisites.

And the way it's being done is through stock options." Since executives control much of the information available to outside investors they have the ability to fabricate the appearance of success—"aggressive accounting, fictitious transactions that inflate sales, whatever it takes"—to increase their compensation.

to inflate stock prices in the short term—a practice made famous by Enron.

tax consequences of backdating options-68tax consequences of backdating options-37tax consequences of backdating options-48tax consequences of backdating options-89

"Golden hellos," or hiring bonuses for executives from rival companies, are intended to compensate a new hire for the loss of value of stock options provided by his/her current employer that are forfeited when they joining a new firm.To entice the potential hire the new employer had to compensate them for their loss by paying a massive signing bonus The number of companies making upfront payments surged to more than 70 this year from 41 in all of 2012, according to governance-advisory firm GMI Ratings Inc.Notable "hellos" include the million insurance/finance company Conseco paid Gary Wendt when he joined as CEO When the shareholders prosper, so does the executive.Use of options has not guaranteed superior management performance.A 2000 study of S&P 500 companies found that those that used stock options heavily to pay employees underperformed in share price those that didn't, Following the housing bubble collapse, critics have also complained that stock options have "turned out to be incredible engines of risk-taking" since they offer "little downside if you bet wrong, but huge upside if you roll your number." An example being options given in compensation to buy shares of stock in the CEO's company for 0 when the price is currently .