Make no bones about it, if a company is granting options today when its shares are at $2, but it says, ‘We’ll put a price of $1 on each option and say we granted them a month ago,’ that is stealing.
The SEC is investigating several US companies for backdating share options. That is, options are granted between an employee and the company, with a retrospective grant date that is highly favourable in terms of exercise price. The grant date may only vary a few days, to a few weeks, but the paper profits can be significant. The SEC has found “amazing coincidences” in a large number of companies when option grant dates seem to coincide with the day of lowest annual share price.
In Australia, shareholders must approve each issue to directors. But this does not apply to non-director employees, including senior executives. Given the broad and flexible rules of these plans, it is feasible that similar practices could apply here.
Our suggestion is that in companies that issue options to non directors, the board audit committee specifically request the audit firm to conduct a check on practices and written procedures.© Guerdon Associates 2023 Back to all articles