latino dating behavior - Option backdating and its implications

This paper contrasts the post-tax returns of backdated at-the-money options to currently-dated in-the-money options (with the same strike price as the backdated options) and demonstrates that a Canadian executive can earn a significantly larger after-tax return from backdated options compared to a US executive. We tie this to the favorable Canadian tax treatment of executive options relative to their treatment in the United States.

option backdating and its implications-8

Because the backdated options’ strike price is lower than the market price on the actual grant date, the recipient has received something of greater monetary value (even if the options have not yet vested) than a correctly dated at-the-money option.[4] Companies could reward executives with cash compensation or additional properly dated and priced incentive awards, including options, rather than engage in dubious backdating practices.[5] It is clear that there must be reasons other than greed that have led so many to backdate executive options.[6] Academics, regulators, and practitioners alike have tried to gain a better understanding of these incentives and the roles they have played in the backdating scandal; however, there is as of yet no consensus regarding the causes of backdating.[7] This is problematic because policy, legislative, or regulatory changes are unlikely to be effective if the root causes are unknown. In 2008, the long-term capital gain rate for individuals in the lowest two tax brackets (currently 5% and 15%) was further reduced to zero.

Untangling the causes of backdating will remain elusive unless each factor is considered in detail using evidence from different regimes. III 2009) (allowing carry forward for a credit for the prior year’s minimum tax liability that resulted from certain timing differences). D (illustrating in Example 4 the effect of AMT); see generally Francine J. 337 (2002) (providing a detailed discussion of the AMT and its application to ISOs). These reduced rates are currently effective until the end of 2012. 111-312, 124 Stat 3296 (extending reduced rates from the end of 2010 until the end of 2012).

The first step in untangling the causes of backdating[8] is to acknowledge that the backdating phenomenon must be driven by both supply and demand factors. Lipman, Incentive Stock Options and the Alternative Minimum Tax: The Worst of Time, 39 Harv. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub.

From the supply side, the question is what motivates a firm to grant a backdated option, and from the demand side, what motivates an executive to demand (or, at the very least, accept) a backdated option?

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).

Last modified 24-Jun-2016 19:12