In order to lock in a profit on day one of an options grant, some executives simply backdate (set the date to an earlier time than the actual grant date) the exercise price of the options to a date when the stock was trading at a lower level. In this article, we'll explore what options backdating is and what it means for companies and their investors. Most businesses or executives avoid options backdating; executives who receive stock options as part of their compensation, are given an exercise price that is equivalent to the closing stock price on the date the options grant is issued.
This means they must wait for the stock to appreciate before making any money.
Last May the company announced that a special committee of independent directors was reviewing its option-granting practices; in September, American Tower said it will have to restate more than three years of financial results.
But a close look at its filings also reveals that top executives have made tens of millions from stock in subsidiary companies - information you won't see in the compensation table of its proxy statement.
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the much different – and more financially beneficial – tax rules that apply when issuing “at the money” or "out of the money" stock options.
In the standard table in American Tower's proxy - the one that lists the salaries, bonuses and other compensation for the five highest-paid employees - you see that an executive named Michael Gearon, the company's vice chairman and the president of its international business, has earned million in cash over the past three years and has gotten 665,000 options.
In 1998, Gearon sold Gearon Communications to American Tower and joined the company.
If the company sets the prices of the options grant well below the market price, they will instantaneously generate an expense, which counts against income.
The backdating concern occurs when the company does not disclose the facts behind the dating of the option.
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