Consequences of options backdating Cams bang
Under the new SEC rules, all of an executive's compensation will now be totaled into one number, so that it can be compared easily from person to person, company to company, and industry to industry.
The new rules also require detailed disclosure of compensation in the form of stock options, which will show whether a company has backdated options, and if so, why.
I will let Chairman Olson speak to the steps the PCAOB is taking to address these issues from the auditing regulator's perspective, but I'd like to assure the Committee, and the public, that the Commission is working in close cooperation with the PCAOB in this important area. But here is a typical example of what some companies did: They granted an "in-the-money" option-that is, an option with an exercise price lower than that day's market price.
They did this by misrepresenting the date of the option grant, to make it appear that the grant was made on an earlier date when the market value was lower.
Very recently, we enacted new rules that will require, beginning with the next proxy season, the full disclosure of all aspects of executive and director pay and benefits.
A key component of that disclosure will be compensation in the form of stock options, which has been a fast growing portion of executive pay since the early 1990s.
Indeed, no expense would ever need to be recorded in the financial statements for fixed options that weren't granted in-the-money.
Not only must option grants now be reported within two business days, but this information was among the first required to be filed electronically using interactive data.I appreciate the opportunity to explain the Commission's initiatives to deal with abuses involving the backdating of options.