Ethics of options pricing and backdating

executives have settled a lawsuit alleging the company was harmed by its backdating of stock options to employees.ESOs are usually granted at-the-money, i.e., the exercise price of the options is set to equal the market price of the underlying stock on the grant date.


Backdating allows executives to choose a past date when the market price was particularly low, thereby inflating the value of the options.

An example illustrates the potential benefit of backdating to the recipient.


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