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July 16, 2006
Option Backdating: Tech is the Worst Offender
A new paper by Eric Lie and Randall Herron on stock option backdating is going to get lots of attention. Among other things, it says that almost 30% of companies have used backdated options. I was particularly fond of the following table showing the worst backdating offenders stratified along various dimensions -- and tech is well out in front:
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Mukund -- Agreed. It is certainly the case that tech companies are among the most aggressive users of options as compensation, so they have opportunity and motive to play backdating games.
Paul
The worst part is that Bloomberg reported yesterday that if you look at history (Peregrine) then all indications point to a "get out of jail free card" for most. Here is a snippet
"After cooperating with the SEC's subsequent investigation, Peregrine settled with the agency in 2003 without admitting guilt or paying a fine. The company was acquired by Palo Alto, California-based Hewlett-Packard Co. in December 2005."
Mukund
http://blog.vangal.com
Paul;
Isn't this an example of the base rate fallacy. How do we know if the tech companies are more egregious back daters unless we know the relative base rates - it could turn out that while tech companies back date more because they use options more, relatively the worse back daters are some other sector.
Michael
Paul
Its because tech uses options the most would be a possible answer. The other could be that tech execs know the best ins and outs of options having leveraged them for years. Either way its outrageous.
Mukund
http://blog.vangal.com