Additionally, companies can use backdating to produce greater executive incomes without having to report higher expenses to their shareholders, which can lower company earnings and/or cause the company to fall short of earnings predictions and public expectations.
Corporations, however, have defended the practice of stock option backdating with their legal right to issue options that are already in the money as they see fit, as well as the frequent occurrence in which a lengthy approval process is required.
The act of options backdating became much more difficult after companies were required to report the granting of options to the SEC within two business days.
This adjustment to the filing window came with the Sarbanes-Oxley legislation.
Cases of backdating employee stock options have drawn public and media attention.Giving retroactive value to purchases from the earlier date.In the context of corporate governance, the illegal practice of setting the date of options awarded as part of executive compensation to a period when the stock price was very low (rather than setting the date of the options on the date the award was made).After the two-day reporting rule went into effect, the SEC found numerous companies were still backdating options in violation of the legislation.Disordered, untimely paperwork was cited as the cause in some cases of unintentional backdating.