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SEC Chairman Chris Cox gave this speech late Thursday, which makes it seem pretty likely that the SEC will indeed adopt rules relating to its executive compensation proposals sometime this summer so that they apply to the ’07 proxy season. His speech also included some interesting comments on option backdating, a topic that I blogged about again on Friday (the Chairman’s remarks are also analyzed in this Washington Post article).

Here is a notable excerpt from the Chairman’s speech:

“The Commission is even now considering further adjustments to our executive compensation proposal to deal with the issue of backdating options. Our staff in the Division of Corporation Finance are collating all of those thousands of comments and will make a recommendation to the Commission at an open meeting soon.

As part of that review process, we will consider the need not only for any changes to the rule, but also for additional guidance to address further the backdating of stock options. So stay tuned. We want this matter settled in time for next year’s proxy season, and I have every reason to expect that it will be.”

Not sure how soon that open meeting will be – but my bet is it will be held sooner than most of us would have thought possible. Quite an undertaking by the Staff considering the sheer volume of the proposals and the number of comments submitted…

Isn’t It Ironic? Option Misdating Forces Boards to Reconsider Compensation Practices

I was all set on the theme of this blog even before this article appeared on the top of the Business section of Friday’s NY Times. The article condemns the option granting practices of yet another company, although these grants were allegedly made just before favorable company news was announced; so this is not another misdating allegation. Some of you may remember that this topic was the thrust of a speech by then-SEC Enforcement Director Stephen Cutler way back in early ’04. So this is not a new topic.

As option backdating allegations have been around for more than a year, I wonder why all the media attention is peaking now? I’m not sure. Perhaps because this scandal offers a concept that the general public can fairly easily understand on its face – even though the laws related to it are pretty complicated (see the March-April 2006 issue of The Corporate Counsel). Or maybe it’s the last straw of greed that the general public can handle.

Ironically, it looks like this narrow problem could be the motivator that finally forces laggard boards to look deeply into their own executive compensation practices and clean up their act. I consider it ironic because the dollar amounts and misguided rationales related to other practices really dwarf the issues related to option misdating. But I will take responsible actions any way I can get them – and for that, I am glad for this issue to peak now.

Is the Option Misdating Furor Becoming a Witch Hunt?

But I do get concerned that the option misdating furor could – or already has – become a witch hunt as I continue to upload articles and research reports about option timing unto our “Timing of Stock Option Grants” Practice Area on CompensationStandards.com at an incredulous rate – even though just a few dozen companies have announced that they are being investigated so far.

And the key word here is “investigated.” I know the studies and reports place impossible odds on coincidental timing, but the integrity of these documents should be fully evaluated before given too much credability. After speaking with some of my in-house friends, I am now taking some of these studies with a grain of salt – as allegations of option misdating sometimes appear to be based on small samplings, incorrect data or misused data.

For example, consider this situation: a research report names a company as having option misdating issues when only four option grants were used in the report’s sampling – of which two were annual grants that were given to the entire population of plan participants (and which were granted in the normal course at a regularly scheduled meeting of the company’s compensation committee). Another grant was given to a newly elected President in connection with his promotion – and the last grant in the sampling was to a lower level officer for whom the related exercise prices were much higher than the company’s stock price as of the grant date because premium-priced options were used. Despite accurate proxy disclosure regarding the exercise prices, the report plainly got it wrong.

Given the regulator, media and market reaction to allegations of option misdating, this seems irresponsible and I imagine there can be other companies that might have similar stories. Of course, it seems clear that there also are companies that truly did engage in nefarious behavior as 15 officers have already lost their jobs in the wake of this scandal so far. But the message is that care should be taken – and facts checked – before publishing studies, reports and media articles on this topic…

How to Go Public on the London Stock Exchange’s AIM

We have posted the transcript for the recent webcast: “How to Go Public on the London Stock Exchange’s AIM.”