Research in motion stock option backdating
This practice contravened both the TSX Rules as well as RIM's stock option plan that required options "to be granted at an exercise price not less than the closing price of RIM's common shares on the TSX on the last trading day preceding the date on which the Options are approved for grant".
It looks like these executives profited plenty from such practices.
For example, in the case one executive got 500,000 backdated options that are described as having an immediate paper profit of .5 million. The question is what factors should be analyzed in determining how much the executive profited and how much shareholders may have lost? The enforcement actions seem to talk about the profits to executives as if one can simply take the difference between the price the options should have been issued at and what the backdated price was as the profit.
Critics argue that this practice misaligns the interest of shareholders and the executive because options are suppose to be an incentive to improve the stock price in the future, not give an instant profit. Backdating options, however, may not necessarily give any executive an “instant profit.” Most options are not immediately exercisable.
Thus, the executive has an incentive to keep the stock price up to at least the issuance price and more – the greater the stock price the greater the profit.
A working paper of Boston University Law School Professor David Walker argues that, in fact, the profits to executives are not as large as they appear and that profits cannot be determined by looking at the difference between the backdated stock price and the stock price on the actual date of issuance.