Apple backdating options

22-Jun-2015 21:45 by 5 Comments

Apple backdating options

The academics concluded that something funny was going on.

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It was a tax advantaged way for companies to pay executives. Shareholders were correctly told the number of options granted and the price of the options.

No one's pay was "inflated" by backdating, unless you assume that the alternative would have been awarding executives exactly the same number of options at less-advantageous prices.

Which, of course, you shouldn't assume since any sensible employee can see that if his each stock option is worth less, he should get more of them.

The total compensation to executives granted back-dated options was either unchanged or, perhaps, lower than it would have been, since people tend to irrationally over-value a bird in hand (in the money options) to a dozen in the bush (out of the money options).

This Essay examines the problem of tax noncompliance through the prism of the options backdating scandal.

The noncompliance of backdating was obvious, at least to tax lawyers. Rather, the noncompliance was collateral damage from weak internal controls and, in some cases, the rent-seeking of executives.

Noncompliance in the face of clear rules is an overlooked problem in the corporate tax shelter literature, which tends to focus on disclosure, deterrence, or statutory interpretation.We should also study what creates the demand for tax shelters.The evidence from backdating suggests that a fast-and-loose attitude can develop when innovative companies outgrow their internal controls.When viewed in institutional context, this subset of corporate tax shelters, although adorned with more formal attire than backdating, may also be best understood as a compliance issue rather than a problem of textualism or inadequate penalties. It was the pseudo-scandal launched by the Wall Street Journal's investigative unit, after its reporters began following up on an academic report that demonstrated many executive stock options awards were too well-timed to be plausible.The basic idea was that many companies seemed to award stock options on days when their stocks were at low-points, which increased the value of the options when the stock increased and made the stock cheaper to buy for the executives.