Snap Decision on Stock Options

AS IF COMPENSATION wasn’t politicized enough, the scandal over backdating of option grants has renewed doubts about the efficacy of [...]

August 16 2006 by Chief Executive


AS IF COMPENSATION wasn’t politicized enough, the scandal over backdating of option grants has renewed doubts about the efficacy of this form of compensation and conflated a number of other issues involving the internal controls provision of Sarbanes-Oxley. Backdating is not per se illegal; falsification of records to obtain company assets is. It’s an important difference that tends to get lost. SEC commissioner Paul Atkins even defended the practice of “spring-loading” stock options and said it should not be considered insider trading. As with most elements of executive compensation, options have become more a source of heat than light. As United Technologies CEO George David told the Financial Times recently, “options are a very good means of aligning management and shareholder interest.” Let boards exercise their business judgment-provided companies disclose in the proper manner.