Benefits of backdating stock options

09 Sep

For example, suppose a company you work for offers a stock-option package that allows you to buy 1,000 shares of the stock at the prevailing market price on the day you received the options.You can hold on to the stock options until some future date and then make a tidy profit.It is typically a mixture of salary, bonuses, shares of or call options on the company stock, benefits, and perquisites, ideally configured to take into account government regulations, tax law, the desires of the organization and the executive, and rewards for performance.

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Short-term incentives usually are formula-driven and have some performance criteria attached depending on the role of the executive.

For example, the Sales Director's performance related bonus may be based on incremental revenue growth turnover; a CEO's could be based on incremental profitability and revenue growth.

Bonuses are after-the-fact (not formula driven) and often discretionary.

In other words, exercising stock options means instant profit.

So any employee holding stock options has an incentive to work hard to get the company's stock price to increase.