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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 …

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.

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