Because the backdated options’ strike price is lower than the market price on the actual grant date, the recipient has received something of greater monetary value (even if the options have not yet vested) than a correctly dated at-the-money option. Companies could reward executives with cash compensation or additional properly dated and priced incentive awards, including options, rather than engage in dubious backdating practices. It is clear that there must be reasons other than greed that have led so many to backdate executive options. Academics, regulators, and practitioners alike have tried to gain a better understanding of these incentives and the roles they have played in the backdating scandal; however, there is as of yet no consensus regarding the causes of backdating. This is problematic because policy, legislative, or regulatory changes are unlikely to be effective if the root causes are unknown. In 2008, the long-term capital gain rate for individuals in the lowest two tax brackets (currently 5% and 15%) was further reduced to zero.
Untangling the causes of backdating will remain elusive unless each factor is considered in detail using evidence from different regimes. III 2009) (allowing carry forward for a credit for the prior year’s minimum tax liability that resulted from certain timing differences). D (illustrating in Example 4 the effect of AMT); see generally Francine J. 337 (2002) (providing a detailed discussion of the AMT and its application to ISOs). These reduced rates are currently effective until the end of 2012. 111-312, 124 Stat 3296 (extending reduced rates from the end of 2010 until the end of 2012).
It has been suggested that some US-based companies granted options to executives and then claimed that they issued them at an earlier date than they actually did.
This enabled them to base the exercise price of the options on a lower market price for the issuer's shares.
CSA STAFF NOTICE 51-320 - OPTIONS BACKDATING As a result of recent media attention about the apparent backdating of options in the US, Canadian market participants have expressed interest in the dating of stock options granted by reporting issuers in Canada.
Staff in the jurisdictions represented by the Canadian Securities Administrators (CSA), are publishing this notice to communicate our understanding of this issue in the Canadian context.
This paper contrasts the post-tax returns of backdated at-the-money options to currently-dated in-the-money options (with the same strike price as the backdated options) and demonstrates that a Canadian executive can earn a significantly larger after-tax return from backdated options compared to a US executive.
We tie this to the favorable Canadian tax treatment of executive options relative to their treatment in the United States.
The following guidance may reduce concerns about the timing of option grants and the risk of non-compliance with securities legislation: • establish a compensation committee that follows the guidance contained in National Policy 58-201 - Corporate Governance Guidelines; • consider the guidance in National Policy 51-201 -- Disclosure Standards including adopting a corporate disclosure policy, adopting an insider trading policy, and establishing "blackout periods" around earnings announcements; and • ensure that, following a grant of options to insiders, the issuer provides them with details of their grants so that they can comply with their legal obligation to file insider reports on SEDI within 10 days.Whenever I write about backdating, many people write in to tell me that backdating's not illegal; you just have to account for it correctly.Since so many people think this is an important point, I thought I'd do a post addressing just that contention. What I assume people mean is that granting in-the-money options is not illegal, so long as you account for it properly. But the whole point of backdating is to pretend that you're not granting in-the-money options when in fact you are.• The TSX Venture Exchange (TSX-V) imposes similar rules, though it allows an issuer to set the exercise price at a discount (ranging from 15% to 25%) from the market price, which is specified by the TSX-V.• Securities legislation generally requires insiders of reporting issuers to file a report on SEDI within ten days of any change in their direct or indirect beneficial ownership of or control or direction over securities of the issuer, including options.