Working Wounded Blog: Executive Options Windfall

June 21, 2006 — -- A lot of recent headlines belong in your file cabinet in a folder entitled "Obscene Greed." Examples include big oil profits, Enron crooks and $200 tickets to see Celine Dion. But none of these really capture capitalism-run-amok quite like the recent trend of companies backdating stock options for their top executives.

It's far from a dull story about accounting irregularities.

The Securities and Exchange Commission announced that a number of corporations are under investigation for granting stock options in a way that maximizes the gain for executives. Instead of granting the options and letting the marketplace dictate how they'll do, these companies allegedly jury-rigged the dates that the options were supposedly granted so the recipients could have even bigger pots at the end of their rainbows.

Companies currently under investigation include Microsoft, Home Depot and a host of others, according to a report in the Wall Street Journal. (A list of the companies under investigation appears below.)

U.S. executives already earn hundreds of times the wages of their lowest-level workers --a much bigger disparity than exists in any other nation. Throw in corporate jets and lavish expense accounts and it's clear corporate executives are living rock star lifestyles. But it's a much bigger issue when executives start manipulating their stock option dates.

A quick tutorial: Stock options give an individual the right to buy stock at a specific price for a defined period of time. Assuming the executive does a good job, the stock price goes up and everyone wins. But the concepts of "marketplace" and "company success" are apparently too capricious for today's executives.

The companies under investigation are accused of going back in time to find dates when a stock's price was at its highest and then claiming that the options were exercised then, giving the executives the largest possible return.