Backdating for a dead man
KAI RYSSDAL: There comes a time in every news story where you think, OK, how much worse can it get? That point is upon us in Wall Street's ongoing scandal over the backdating of stock options.
About 80 companies, maybe more, are under investigation by either the SEC or the Justice Department for changing the dates on options to give executives huge paper profits. Today, the stock option story jumped the shark.
Cablevision admitted it changed the dates on options it gave an executive after he died. Ashley Milne-Tyte has more.
ASHLEY MILNE-TYTE: According to a company filing, Cablevision backdated the options to make it appear they'd been awarded before the executive died in the summer of 1999. The point of stock options is to give senior employees an incentive to raise the company's share price and keep shareholders happy. John Coffee teaches law at Columbia University.
JOHN COFFEE:"Frankly you cannot incentivize a corpse, thus this was not being done for a shareholder purpose."
The Cablevision executive's contract stipulated that his estate could exercise the stock on his death. James Angel of Georgetown University thinks the dead employee's family may have been the reason for the move. He says sure, in theory options are meant to act simply as an incentive. But the reality can be more complicated.
JAMES ANGEL:"The other way to look at options is as compensation for work done in the past, so it might have been a thoughtful touch to show their appreciation to the family for the work that this employee had done for them."
Of course, shareholders were unaware of the cost of that thoughtful touch. Accounting rules at the time meant companies didn't have to factor the cost of stock options into the bottom line. James Cox teaches law at Duke University. He says this case is a glaring example of the breakdown in company oversight of executive pay.
JAMES COX:"It's created an atmosphere with respect to compensation that pervades the organization. And so the whole notion that pay should be tied to performance somehow has gotten lost."
Cox says this case ranks right up there with a previous one, where a company granted options to employees who didn't exist.
In New York, I'm Ashley Milne-Tyte for Marketplace.