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Granting stock options to employees is a generally accepted and perfectly legal form of compensating employees. Critics of backdating argue that the practice is difficult to detect and thus encourages boards and executives to use it to synthesize more creative compensation packages.In our example, backdating the options is the same as giving John Doe a check for ,000 -- without recording that ,000 on the within two business days.
Law360, New York (April 29, 2010, PM EDT) -- The short answer is that there is nothing wrong with backdating stock options — if appropriate procedures are followed and the transactions are properly accounted for and disclosed.Backdating is a practice of locking in financial gains by retroactively pricing stock option grants on days when a company’s stock price is low, thereby increasing the value of the options.In addition to being illegal, backdating isn't always a sure thing.The general reason companies backdate options is to create a lower exercise price, which in turn increases the probability that exercising the options will make more money for the optionee.Those options give John the right but not the on the date of the grant.
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The board formally grants the stock options to John every year at its January board meeting.