Wednesday, August 09, 2006
Why options backdating is a big deal
A debate over its nuances misses the point: Incentive-based compensation is broken.
By Adam Lashinsky, Fortune Magazine senior writer
If the subject is so complex, then why argue that the whole system is rotten? Consider this: Stock options were invented as a way to align the interests of employees with shareholders. The first time the system began to crack was in the 1990s, when companies with falling stock prices began to re-price their stock options in order to retain their employees. With a righteous fury, arrogant Silicon Valley executives in particular glared at anyone who suggested shareholders would benefit by ending a practice that would lead to losing valued employees. Shareholders, of course, didn't get the opportunity to re-price their shares. The practice halted when rules changes required shareholder approval for re-pricing.
posted by Brian Moran @ 9:24 AM