Does backdating executive stock options always harm shareholders?

That would indeed be a great conference topic.  I'd love to participate, given that I couldn't publicly discuss the topic for a few years due to my witness status in both criminal and civil actions, but now that my points of view are a matter of public record...boy, do I have some tales to tell!

It's amazing that anyone would take seriously the idea expressed in the article that in-the-money grants are more beneficial to shareholders than at-the-money grants.

It says

"Using a binomial model, we show that the non-transferability of ESOs and the risk aversion of the manager receiving them make it possible for the firm to grant in-the-money ESOs at a lower cost than at-the-money ESOs without reducing the manager's utility level"

In-the money ESO grants are by definition more valuable to the grantee and more costly to the company than at-the-money ESO grants.

John Olagues

This paper is one of many published in the past 2-3 years that challenge our, and shareholders, assumptions of "best practices".

The fact that backdating can be a non-issue in many cases befuddles those who have been taught that backdating is evil.

Recent research by David Larcker and Brian Tayan of Stanford shows that ISS rules on option exchanges/repricing seems to do more harm than good for that companies go through the process. Companies that don't follow ISS recommendation outperform those that do.

I would love to do an industry presentation (at the NASPP or elsewhere) that discusses academic research that debunks certain commonly held beliefs in our industry. It seems like much of our knowledge is still passed down by tradition and word of mouth in the manner of Beowulf, rather than by fact and evidence in our current world of "data overload".

It seems from the reaction that this is a topic worth pursuing, I'll follow up with the authors.  As anyone can see from the link, there isn't really any data available, but just some statements.  But the premise is quite clear. 

I'll throw this out there, and it's just a thought...but since discounted options give executives immediate tangible, in the money value (although likely unvested), is it possible to argue that the temptation to take on excessive risk is then somewhat mitigated?