What is the purpose of backdating stock options varronian dating

Posted by / 13-Sep-2017 04:40

Most top executives hold their ESOs until near expiration, thereby minimizing the penalties of early exercise.

Employee stock options are non-standardized calls that are issued as a private contract between the employer and employee.

At any time before exercise, employee stock options can be said to have two components: "time value" and "intrinsic value".

Any remaining "time value" component is forfeited back to the company when early exercises are made.

Another substantial reason that companies issue employee stock options as compensation is to preserve and generate cash flow.

The cash flow comes when the company issues new shares and receives the exercise price and receives a tax deduction equal to the "intrinsic value" of the ESOs when exercised.

The earliest attempts by accounting regulators to expense stock options in the early 1990s were unsuccessful and resulted in the promulgation of FAS123 by the Financial Accounting Standards Board which required disclosure of stock option positions but no income statement expensing, per se.

They may also be offered to non-executive level staff, especially by businesses that are not yet profitable, insofar as they may have few other means of compensation.At that point, the employee may either sell the stock, or hold on to it in the hope of further price appreciation or hedge the stock position with listed calls and puts.The employee may also hedge the employee stock options prior to exercise with exchange traded calls and puts and avoid forfeiture of a major part of the options value back to the company thereby reducing risks and delaying taxes.Finally the expense of the resulting number is rarely made on the grant date but in some cases must be deferred and in other cases may be deferred over time as set forth in the revised accounting rules for these contracts known as FAS123(revised).the objective being to give employees an incentive to behave in ways that will boost the company's stock price.

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Alternatively, employee-type stock options can be offered to non-employees: suppliers, consultants, lawyers and promoters for services rendered.

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