Recently, a significant number of companies have come under public and regulatory
scrutiny for backdating stock option grants. This article discusses factors that
influenced the dramatic increase in stock option compensation and summarizes the
academic research that led to the discovery of backdating. The information
gained in this early stage of investigation provides some insight into the
number of companies and potential costs of option backdating. Increased
transparency and timely disclosure should curtail grant-date manipulation, but
the credibility of the disclosure system requires active enforcement of the
rules and standards. Investors need accurate, complete disclosures of executive
compensation to hold boards of directors accountable for executive
compensation.