The compensation of top American corporate executives has soared during the past 15 years. Measured in 2005 dollars, the average annual compensation of the CEOs of the large companies in the Standard & Poor’s 500 almost tripled from 1992 to 2005, growing from $3.7 million to $10.5 million.
In this context, the opportunistic timing of executive stock-option grants, via backdating or otherwise, has attracted a great deal of news coverage, regulator attention, and public debate since the media first focused on it in the spring of 2006. The U.S. Senate’s banking and finance committees held hearings on the subject. More than 150 firms have thus far come under scrutiny, dozens of executives and directors have been forced to resign, and many companies have announced that they will have to revise their past financial statements.
But our understanding of option-grants manipulation remains incomplete. What circumstances and factors led to opportunistic timing of grants in some companies but not in others?