Ceo pay backdating
Last but not least, the researchers found evidence that some companies were even massaging actual earnings, such as by increasing R&D costs before an option grant or delaying strategic investments until afterward.Again, Daines says, it’s hard to see this as a coincidence.One key reform: Companies began scheduling their upcoming option grants well in advance and on immovable dates.On top of that, regulators ordered all companies to disclose all of their option grants within two days of when they occurred.It’s not quite as risk-free as the original scheme, but it comes close. Indeed, the researchers identify several techniques by which companies appear to nudge share prices in the directions they want.Using conservative assumptions, Daines and his colleagues estimate that the new maneuvering provides an average extra payout of just over 0,000 per CEO.At those companies, the shares had on average abnormal low returns of minus 3.5% before the options were granted and abnormal high returns of 3.4% in the months right after.
Instead of manipulating the dates of option grants to match a dip in the stock price, companies appear to be manipulating the stock price itself so that it’s low on the predetermined option date and higher right afterward. “But we tested for all kinds of benign explanations and none of them fit the data.
At companies that issued lots of stock options, the disclosures before an option grant were more likely than not to drive shares down and those that came after an option date were more likely to send prices up.
The same pattern showed up with company-issued “guidance” about upcoming earnings and with accounting decisions that effectively shift profits from one quarter to the next.
That’s above and beyond their salaries and the official value of their options.
In the 90 days before the option grant, the average stock generated what analysts call an “abnormal negative return” of 1.9% — that’s a return 1.9% below those on shares of comparable companies during that same period.