Exercise backdating dating abbreviations nsa

However, suspect CEO exercises generate average (median) estimated tax savings of ,000 (,000).

These savings appear modest relative to the costs insiders and firms face.

If the stock increased to a share, the holder could exercise the option, pay /share to acquire the stock, then turn around and sell it for /share, earning

However, suspect CEO exercises generate average (median) estimated tax savings of $96,000 ($7,000).These savings appear modest relative to the costs insiders and firms face.If the stock increased to $11 a share, the holder could exercise the option, pay $10/share to acquire the stock, then turn around and sell it for $11/share, earning $1/share in profit ($1,000 in total).If the stock dropped below $10/share, the stock would be "under water"; therefore, the option would not be exercised, since the stock price is lower than the cost of exercising the option.

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However, suspect CEO exercises generate average (median) estimated tax savings of $96,000 ($7,000).

These savings appear modest relative to the costs insiders and firms face.

If the stock increased to $11 a share, the holder could exercise the option, pay $10/share to acquire the stock, then turn around and sell it for $11/share, earning $1/share in profit ($1,000 in total).

/share in profit (

However, suspect CEO exercises generate average (median) estimated tax savings of $96,000 ($7,000).These savings appear modest relative to the costs insiders and firms face.If the stock increased to $11 a share, the holder could exercise the option, pay $10/share to acquire the stock, then turn around and sell it for $11/share, earning $1/share in profit ($1,000 in total).If the stock dropped below $10/share, the stock would be "under water"; therefore, the option would not be exercised, since the stock price is lower than the cost of exercising the option.

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However, suspect CEO exercises generate average (median) estimated tax savings of $96,000 ($7,000).

These savings appear modest relative to the costs insiders and firms face.

If the stock increased to $11 a share, the holder could exercise the option, pay $10/share to acquire the stock, then turn around and sell it for $11/share, earning $1/share in profit ($1,000 in total).

,000 in total).

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Consistent with a tax-based incentive, these suspect exercises are more likely when the personal tax savings from backdating are higher.

Unlike the abusive corporate tax shelter ploys which often involve complex manipulation of a transaction to achieve tax results that are inconsistent with the economic reality of the deal, stock option backdating is a relatively crude device: A corporation merely changes the date that a stock option was actually granted to an earlier time when the stock price was lower.

Thus, the option becomes "in the money", meaning there was a built-in profit on the underlying stock, on the grant date.

We appreciate comments and suggestions from Michelle Hanlon, Bob Holthausen (editor), Gregg Jarrell, Bill Schwert, Terry Shevlin (referee), Cliff Smith, Bob Trezevant, Joanna Wu, Jerry Zimmerman and workshop participants at Carnegie Mellon University, Forensic Economics, the University of Rochester, and the 2007 Journal of Accounting and Economics Conference.

Erickson appreciates financial support from the Graduate School of Business at the University of Chicago.

Both sets of motivations arise from the quantitative and qualitative benefits, costs, and risks of issuing and receiving backdated options. Certain AMT may be carried forward and applied to reduce the general tax payable in subsequent years (to the extent that the general tax exceeds the tentative alternative minimum tax liability for the subsequent year).

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