2016 options backdating scandal
Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here). The percentage of S&P 500 firms that adopt multiyear accounting-based performance (MAP) incentives has more than doubled from 16.5% in 1996 to 43.3% in 2008.In our paper, Executive Compensation Incentives Contingent on Long-Term Accounting Performance, forthcoming in the MAP plans evaluate managers based on sets of predetermined targets, such as earnings, sales, cash flows, or efficiency measures like economic value added (EVA), over multiyear performance periods (generally three years).One possible explanation is that everyone in Silicon Valley at the time was so convinced in the potency of options that the possibility of illegality was not even contemplated.After all, the accounting rules did not even count options as a cost of doing business—unless, as it turned out, they were backdated.Sola will also repay the company 8,360 to make up for the difference between the strike price he already paid to exercise some options and the price they should have carried had they been properly priced when granted.
The highly secretive creation and careful launching of each new Apple product continue to be the focus of mass media interest and global consumer aspiration.
Lingling Wang is Assistant Professor of Finance at Tulane University.
This post is based on an article authored by Professor Wang and Zhi Li, Visiting Assistant Professor of Finance at Ohio State University. public firms increasingly tie CEO compensation to long-term accounting performance.
In addition, firms with independent boards are more likely to grant MAP incentives, while CEO power does not increase the likelihood of adopting MAP incentives.
When designing MAP contracts, firms are more likely to choose an accounting performance measure when it is less volatile and is related to the firm’s strategic priorities.