Friday, November 17, 2006

Study Charts Broad Manipulation of Options - New York Times

Study Charts Broad Manipulation of Options - New York Times:
"Abuses of stock option grants are perceived to have spread like a virus among high-technology companies. But a new study suggests that hundreds of old-economy companies may also have caught the backdating bug.

In a paper to be released today, researchers estimate that 590 nontechnology companies appear to have manipulated options so their chief executives received them at the lowest price of the month. That compares with 130 technology companies that appear to have backdated their chief executives’ options to a monthly low."

A quick look-in to the paper by Bebchuck, Grinstein, and Peyer that the NY Times mentioned:
"*Lucky grants were more likely when the company did not have a majority of independent directors on the board and/or the CEO had longer tenure -- factors that are both associated with increased influence of the CEO on pay-setting and board decision-making.
• Lucky grants were more likely to occur when the potential payoffs from such luck were high; indeed, even for the same CEO, grants were more likely to be lucky when granted in months in which the potential payoffs from manipulation were relatively higher.
• Luck was persistent: a CEO's chance of getting a lucky grant increases when a preceding grant was lucky as well.
• We find no evidence that firms providing backdated options reduced the compensation paid through other sources"

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