Backdating of stock option
District Attorney's Office has also issued several subpoenas in launching a criminal probe. The typical practice was to record a felicitously timed prior date as the grant date, such as the point when the stock had been at its lowest in recent months, instead of the date when the award was actually granted. Nejat Seyhun of the University of Michigan for the newspaper showed that that options granting practices between 20 often failed to comply with the Sarbanes-Oxley requirement that grants of awards to executives be reported within two days of board approval (T"he Dating Game: Do Managers Designate Option Grant Dates to Increase Their Compensation? Prior research at Erik Lie at the University of Iowa found a pattern of probable options backdating in a number of companies prior to 2002.The company's stock had performed very well, although in 2006, after the allegations surfaced, it announced that it would be restating earnings.
Soon thereafter, two public pension funds in Ohio indicated they will be suing United as well, followed by a retirement fund for Pirelli Armstrong Tire.
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.
Any gain a company makes is assumed to be the sole result of the extraordinary wisdom of this one very special person, not the collective efforts of hundreds or thousands of employees.
It's demonstrably bunk, but then the people setting executive pay operate in a parallel universe.