Ethics of options repricing and backdating dating scritp

Posted by / 30-Apr-2020 22:36

Ethics of options repricing and backdating

One approach is referred to as the “six month and one day exchange”.

Under the FASB rules, the cancellation of an existing option and the grant of a new option is essentially not a “repricing,” and therefore avoids variable accounting treatment if the cancellation and repricing are more than six months apart.

The company should be attentive to the obvious shareholder concern that management and employees (who may bear some obvious responsibility for the very problem being addressed) are in some way being made whole, unlike the shareholders who are left to hold their underwater stock.

A second approach is referred to as the “restricted stock swap”.

However, each of these approaches is not without its own separate concerns and should be reviewed in light of the facts and circumstances of the particular situation.

For example, when considering a six and one day exchange, there is risk to the employee that the fair market value will rise as of the reissuance date; or when considering a restricted stock award a company should consider whether the employees will have the cash available to pay for the stock at the time of award.

It has emerged despite all the measures (i.e., new regulations and additional corporate governance mechanisms) aimed at addressing such problems?

Beyond such negative controlling measures, a more positive empowering approach based on ethics may also be necessary.

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Other issues that should be considered include the terms of the new option grants, including the number of replacement shares and whether to continue the current vesting schedule or introduce a new vesting schedule for the repriced options.

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