Compensation for Business Leaders

Loans for Stock Options

Before Congress passed the Sarbanes-Oxley Act in July 2002, many companies set up loan programs specifically for business leaders so they could exercise and sell company stock options. Loans typically were for specified purposes and might have had favorable interest rates. Due to today's legal environment, companies no longer provide executive loans.

Today, major stock brokerage firms offer extensive programs to support companies and their employees in the management of equity programs.

Backdating or Discounted Stock Options

In 2006, the United States Securities and Exchange Commission reported studying firms that "backdated" options previously granted. (Their review began after academic research reported the suspicious timing of option grants, often right before a rise in the share prices.) In order to deliver immediate stock option value, many companies used to backdate the options by changing the grant date of option shares already allocated to a date when the option would be “in-the-money” or simply issue the option at a lower exercise price than the fair market value on grant date thereby discounting the option. This can be a fraudulent practice with criminal prosecution and significant tax penalties. There are some exceptions so legal counsel is required.