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It was the pseudo-scandal launched by the Wall Street Journal's investigative unit, after its reporters began following up on an academic report that demonstrated many executive stock options awards were too well-timed to be plausible.The basic idea was that many companies seemed to award stock options on days when their stocks were at low-points, which increased the value of the options when the stock increased and made the stock cheaper to buy for the executives.
The companies were awarding the options later but then marking the awards to earlier dates, when the stock's price was low.
The reason for doing this was simple: stock options priced at or above where the stock is trading (aka, "out of the money" options) get favorable tax treatment compared to stock awards priced below the market price (aka, "in the money" options).
It was a tax advantaged way for companies to pay executives. Shareholders were correctly told the number of options granted and the price of the options.
No one's pay was "inflated" by backdating, unless you assume that the alternative would have been awarding executives exactly the same number of options at less-advantageous prices.
Which, of course, you shouldn't assume since any sensible employee can see that if his each stock option is worth less, he should get more of them.
The total compensation to executives granted back-dated options was either unchanged or, perhaps, lower than it would have been, since people tend to irrationally over-value a bird in hand (in the money options) to a dozen in the bush (out of the money options).
But it all became worse than a pseudo-scandal, in fact.It dominated the business press in 20, right when the financial world was crumbling.It distracted not only the media and the public, but the regulators and courts as well.We'd all have been better off if backdating was seen for what it really was: a rational response to an irrational accounting rule.Anyway, Apple was alleged to have backdated a number of options.(The practice seems to have been particularly popular in the tech sector.) In 2007, New York City's municipal employee pension fund sued Apple over the backdated options.