Options back dating scandal

Posted by / 18-Oct-2017 02:39

Assuming Acme backdated the stock options to September 1st, what are the tax consequences to Mike and the company? 162(m) states that a public corporation may claim a tax deduction for compensation paid to its CEO and its four other highest-paid executives, but only if strict requirements are met.

The salary paid cannot exceed

Assuming Acme backdated the stock options to September 1st, what are the tax consequences to Mike and the company? 162(m) states that a public corporation may claim a tax deduction for compensation paid to its CEO and its four other highest-paid executives, but only if strict requirements are met.The salary paid cannot exceed $1,000,000, excluding performance-based compensation, such as stock options, provided the exercise price equals or exceeds the fair market value as of the date of grant. 162(m) has been violated since Mike received stock options at an exercise price of $20/share when Acme's stock was worth $30/share.Therefore, Acme may not deduct Mike's compensation in excess of the $1,000,000 salary, which could cause a restatement of earnings of $10,000,000.Also, Mike has ordinary income on the date the options are exercised and could be subject to much harsher rules under IRC Sec.409A instead (discussed below). 409A, was enacted after the Enron scandal and targets deferred compensation schemes, including in-the-money options granted before October, 2004 and vesting after December 31, 2004. 409A applies, Mike is taxed on the spread ($10,000,000) at the time his stock options vest, not when he exercises them. 409A triggers a 20% excise tax penalty in addition to the immediate income tax, plus interest (currently about 9% per annum, plus a 1% per year interest penalty) and potentially an accuracy-related penalty of an additional 20%!

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Assuming Acme backdated the stock options to September 1st, what are the tax consequences to Mike and the company? 162(m) states that a public corporation may claim a tax deduction for compensation paid to its CEO and its four other highest-paid executives, but only if strict requirements are met.

The salary paid cannot exceed $1,000,000, excluding performance-based compensation, such as stock options, provided the exercise price equals or exceeds the fair market value as of the date of grant. 162(m) has been violated since Mike received stock options at an exercise price of $20/share when Acme's stock was worth $30/share.

Therefore, Acme may not deduct Mike's compensation in excess of the $1,000,000 salary, which could cause a restatement of earnings of $10,000,000.

Also, Mike has ordinary income on the date the options are exercised and could be subject to much harsher rules under IRC Sec.409A instead (discussed below). 409A, was enacted after the Enron scandal and targets deferred compensation schemes, including in-the-money options granted before October, 2004 and vesting after December 31, 2004. 409A applies, Mike is taxed on the spread ($10,000,000) at the time his stock options vest, not when he exercises them. 409A triggers a 20% excise tax penalty in addition to the immediate income tax, plus interest (currently about 9% per annum, plus a 1% per year interest penalty) and potentially an accuracy-related penalty of an additional 20%!

It’s a nice bonus if the company has increased in value.

(who broke the backdating story), Jobs was awarded 7.5 million shares approved at Apple’s August 29, 2001, board meeting. However, because Jobs continued to argue over the point at which they would vest, Apple missed the deadlines it needed to file the right information with the Securities and Exchange Commssion and its auditors.

In general, companies engaging in a classic backdating transaction chose a date when the stock price was at a low point and chose that favorable date as the grant date.

Some companies set the grant date at the lowest point within a 30-day window ending on the actual grant date, thereby virtually guaranteeing a below market price option.

,000,000, excluding performance-based compensation, such as stock options, provided the exercise price equals or exceeds the fair market value as of the date of grant. 162(m) has been violated since Mike received stock options at an exercise price of /share when Acme's stock was worth /share.

Therefore, Acme may not deduct Mike's compensation in excess of the

Assuming Acme backdated the stock options to September 1st, what are the tax consequences to Mike and the company? 162(m) states that a public corporation may claim a tax deduction for compensation paid to its CEO and its four other highest-paid executives, but only if strict requirements are met.The salary paid cannot exceed $1,000,000, excluding performance-based compensation, such as stock options, provided the exercise price equals or exceeds the fair market value as of the date of grant. 162(m) has been violated since Mike received stock options at an exercise price of $20/share when Acme's stock was worth $30/share.Therefore, Acme may not deduct Mike's compensation in excess of the $1,000,000 salary, which could cause a restatement of earnings of $10,000,000.Also, Mike has ordinary income on the date the options are exercised and could be subject to much harsher rules under IRC Sec.409A instead (discussed below). 409A, was enacted after the Enron scandal and targets deferred compensation schemes, including in-the-money options granted before October, 2004 and vesting after December 31, 2004. 409A applies, Mike is taxed on the spread ($10,000,000) at the time his stock options vest, not when he exercises them. 409A triggers a 20% excise tax penalty in addition to the immediate income tax, plus interest (currently about 9% per annum, plus a 1% per year interest penalty) and potentially an accuracy-related penalty of an additional 20%!

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Assuming Acme backdated the stock options to September 1st, what are the tax consequences to Mike and the company? 162(m) states that a public corporation may claim a tax deduction for compensation paid to its CEO and its four other highest-paid executives, but only if strict requirements are met.

The salary paid cannot exceed $1,000,000, excluding performance-based compensation, such as stock options, provided the exercise price equals or exceeds the fair market value as of the date of grant. 162(m) has been violated since Mike received stock options at an exercise price of $20/share when Acme's stock was worth $30/share.

Therefore, Acme may not deduct Mike's compensation in excess of the $1,000,000 salary, which could cause a restatement of earnings of $10,000,000.

Also, Mike has ordinary income on the date the options are exercised and could be subject to much harsher rules under IRC Sec.409A instead (discussed below). 409A, was enacted after the Enron scandal and targets deferred compensation schemes, including in-the-money options granted before October, 2004 and vesting after December 31, 2004. 409A applies, Mike is taxed on the spread ($10,000,000) at the time his stock options vest, not when he exercises them. 409A triggers a 20% excise tax penalty in addition to the immediate income tax, plus interest (currently about 9% per annum, plus a 1% per year interest penalty) and potentially an accuracy-related penalty of an additional 20%!

It’s a nice bonus if the company has increased in value.

(who broke the backdating story), Jobs was awarded 7.5 million shares approved at Apple’s August 29, 2001, board meeting. However, because Jobs continued to argue over the point at which they would vest, Apple missed the deadlines it needed to file the right information with the Securities and Exchange Commssion and its auditors.

In general, companies engaging in a classic backdating transaction chose a date when the stock price was at a low point and chose that favorable date as the grant date.

Some companies set the grant date at the lowest point within a 30-day window ending on the actual grant date, thereby virtually guaranteeing a below market price option.

,000,000 salary, which could cause a restatement of earnings of ,000,000.

Also, Mike has ordinary income on the date the options are exercised and could be subject to much harsher rules under IRC Sec.409A instead (discussed below). 409A, was enacted after the Enron scandal and targets deferred compensation schemes, including in-the-money options granted before October, 2004 and vesting after December 31, 2004. 409A applies, Mike is taxed on the spread (,000,000) at the time his stock options vest, not when he exercises them. 409A triggers a 20% excise tax penalty in addition to the immediate income tax, plus interest (currently about 9% per annum, plus a 1% per year interest penalty) and potentially an accuracy-related penalty of an additional 20%!

It’s a nice bonus if the company has increased in value.

(who broke the backdating story), Jobs was awarded 7.5 million shares approved at Apple’s August 29, 2001, board meeting. However, because Jobs continued to argue over the point at which they would vest, Apple missed the deadlines it needed to file the right information with the Securities and Exchange Commssion and its auditors.

In general, companies engaging in a classic backdating transaction chose a date when the stock price was at a low point and chose that favorable date as the grant date.

Some companies set the grant date at the lowest point within a 30-day window ending on the actual grant date, thereby virtually guaranteeing a below market price option.

As part of his compensation, Mike is offered a salary of

As part of his compensation, Mike is offered a salary of $1,000,000 and 1,000,000 stock options that will vest immediately.

The news, centered on the dubious awarding of stock options to Steve Jobs, prompts Apple share prices to fall.

Some people even suggest Jobs might have to step down as Apple CEO. Stock options are frequently tied into executives’ compensation, giving them the option of purchasing a certain amount of stock at a set price.

Some have speculated that Apple could unveil its phone at the Macworld Expo, an event held every January that Apple has often used to showcase new products.

Stock option backdating has erupted into a major corporate scandal, involving potentially hundreds of publicly-held companies, and may even ensnare Apple's icon, Steve Jobs.

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As part of his compensation, Mike is offered a salary of $1,000,000 and 1,000,000 stock options that will vest immediately.The news, centered on the dubious awarding of stock options to Steve Jobs, prompts Apple share prices to fall.Some people even suggest Jobs might have to step down as Apple CEO. Stock options are frequently tied into executives’ compensation, giving them the option of purchasing a certain amount of stock at a set price.Some have speculated that Apple could unveil its phone at the Macworld Expo, an event held every January that Apple has often used to showcase new products.Stock option backdating has erupted into a major corporate scandal, involving potentially hundreds of publicly-held companies, and may even ensnare Apple's icon, Steve Jobs.

,000,000 and 1,000,000 stock options that will vest immediately.

The news, centered on the dubious awarding of stock options to Steve Jobs, prompts Apple share prices to fall.

Some people even suggest Jobs might have to step down as Apple CEO. Stock options are frequently tied into executives’ compensation, giving them the option of purchasing a certain amount of stock at a set price.

Some have speculated that Apple could unveil its phone at the Macworld Expo, an event held every January that Apple has often used to showcase new products.

Stock option backdating has erupted into a major corporate scandal, involving potentially hundreds of publicly-held companies, and may even ensnare Apple's icon, Steve Jobs.

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Because of how widespread the behavior was, it never presented a realistic possibility that Jobs would lose his, err, job as part of the scandal.

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