The impact of the options backdating scandal on shareholders

It also provides investors with timely access to (grant) pricing information.

Beyond Sarbanes-Oxley, the SEC approved changes to the listing standards of the NYSE and the Nasdaq in 2003 that require shareholder approval for compensation plans.

Another potential ticking time bomb, is that many of the companies that are caught bending the rules will probably be required to restate their historical financials to reflect the costs associated with previous options grants. In others, the costs may be in the tens or even hundreds of millions of dollars.That is, they grant their executives stock options with an exercise price (or price at which the employee can purchase the common stock at a later date) equivalent to the market price at the time of the option grant.They also fully disclose this compensation to investors, and deduct the cost of issuing the options from their earnings as they are required to do under the Sarbanes-Oxley Act of 2002.But ultimately, it can prove to be quite costly to shareholders.(To learn more, see Cost to Shareholders The biggest problem for most public companies will be the bad press they receive after an accusation (of backdating) is levied, and the resulting drop in investor confidence.

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