Back dating options legal
How It Works For example, let's assume that John Doe is the CEO of Company XYZ.
When he was hired, the Company XYZ board of directors offered John an attractive salary as well as an annual grant of 1,000 Company XYZ stock options.
The reason for doing this was simple: stock options priced at or above where the stock is trading (aka, "out of the money" options) get favorable tax treatment compared to stock awards priced below the market price (aka, "in the money" options).
It was a tax advantaged way for companies to pay executives. Shareholders were correctly told the number of options granted and the price of the options.
If you're not in the class, but know people or institutions who might be, spread the word.
*For those of you scratching your head at the phrase "cy pres" here's a quick explantion.
And as the Center for Class Action Fairness noted in recent Ninth Circuit briefing, the American Law Institute has said that cy presis inappropriate where class members are readily identifiable.
The total compensation to executives granted back-dated options was either unchanged or, perhaps, lower than it would have been, since people tend to irrationally over-value a bird in hand (in the money options) to a dozen in the bush (out of the money options).
But it all became worse than a pseudo-scandal, in fact.
The Center for Class Action Fairness would love to object to such a blatantly illegal settlement.
But it can't do so in a vacuum: it can only do so on behalf of a class member who is being ripped off by these attorneys.