Executive Pay: Proper Timing OPTIONal

A study of executive pay by Eric Lei of the University of Iowa and Randall Heron of Indiana University indicated that stock option manipulation was disturbingly common in the late 1990s and early part of this decade. The authors studied nearly 40,000 executives at nearly 7,800 companies and found that over 13% of them were either backdated or otherwise manipulated, with a statistically significant bias toward manipulation favorable to the option-holder. Tech firms, firms with high "betas" (stock price volatility) and smaller firms were most affected. Firms audited by the major international firms (then known as the Big 5) were less associated with late filings and unscheduled grants, common indicators of manipulative activity. There appears to be some improvement since an August 2002 SEC directive condensed the reporting time for executive stock option grants.

Jack Ciesielski may be best able to put this finding into perspective, but clearly this is not a good development (note to those wanting to make political points--the period covered includes both WJC and GWB years). One presumes that the SEC will be taking action soon.