First service backdating stock options
The pattern was somewhat more common in technology companies, smaller companies, companies granting options to more executives and directors, and companies with higher stock price volatility.Volatility is especially significant: 29% of companies with high volatility appear to have manipulated grant dates, compared to 13% of those with low volatility.
It's demonstrably bunk, but then the people setting executive pay operate in a parallel universe.As important as the issue of executive equity compensation is, it should not blind us to a more important concern.Research has definitely shown that broadly-granted equity awards improve corporate performance; concentrated grants force it down (the details are in the article Broadly Granted Stock Options Improve Corporate Performance).The company's stock had performed very well, although in 2006, after the allegations surfaced, it announced that it would be restating earnings.A particular concern was CEO William Mc Guire, who held an estimated $1.6 billion in options awards. The motion said that office has an interest in protecting the rights of interests of citizens of Minnesotans.Despite all the editorials, all the accounting rule changes, and all the new laws, nothing much seems to change except the particular manner in which so many executives get overpaid.
Chances are this particular practice will now go away, but another one will surface all too soon.
An analysis of the likelihood that Mc Guire's options could have been as felicitously times as they were showed that the odds were millions to one against it. The state, however, has not taken a position on the merits of the claims.
On April 19, 2006, Minnesota Attorney General Mike Hatch asked to intervene in a shareholder lawsuit against United Health Group (Brandin v. Hatch said that the importance of the company to the state's health care system meant that if there were substantial and unjustified costs, Minnesotans could be harmed.
But aside from Sarbanes-Oxley, whose effective date was after most of these practices were alleged to occur, there is a raft of potential other problems: As this was written in July, the many lawsuits that inevitably will be filed against companies accused of backdating had just started.
The first have been against the poster company for these allegations, United Health Group in Minnesota.
More telling, only 0.9% of the scheduled grants showed a pattern of fortuitous timing, strong proof that the pattern in unscheduled grants could not be the result of random variation.