This is important to note, because the grant date is what determines the exercise price on the options.For instance, if the board meeting is on January 3, 2012, and Company XYZ stock closes at per share that day, then the exercise price of John's 2012 stock are backdated, then his exercise price is only per share.The practice sometimes also occurs in the insurance industry, whereby policy issuers make the effective date of a policy (or claim) earlier than the application date in order to obtain a lower premium for the customer (or obtain better claim results). When he was hired, the Company XYZ board of directors offered John an attractive salary as well as an annual grant of 1,000 Company XYZ stock options.Those options give John the right but not the on the date of the grant.He pays the per share exercise price and can turn around and sell those shares on the exchange for each, netting a profit of per share, or ,000.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 addition to being illegal, backdating isn't always a sure thing.
This is because documents take time to draft, negotiate and execute.
It would not be uncommon for there to be a lapse of days or even weeks between the time commercial terms are agreed and the date of final contract execution.
Despite recent controversies surrounding the backdating of executive stock options, the general attitude in the US is that backdating is not wrong (or right), per se.
In this article, the author writes: “Backdating by itself is not generally, at least with respect to private agreements, illegal.