Games employers play with stock options

Backdating: setting an options grant data before its approval date so that the exercise price is lower. Results in an option that is immediately in the money.

For example: Consider a company whose stock traded at $2.08 on July 1, $1.56 on July 15, and $2.15 on July 30. A person who started on July 1, 2006 who was granted employee stock options would have a grant price of $2.08 and person who started on July 15 would have a grant price of $2.25. If no back dating, the employee who started on July 15 would at the end of the month have stock options that were worth more (2.25-1.56 vs. 2.25-2.08) than the person who started at the just 15 days prior.

Other option games that employers play:

30-day window/lookback: Like backdating of the employee stock option grant but sets the exercise price to the lowest price in a 30 day window.

Forward-dating: picking a grant date after the approval date and after a falling stock starts to rise.

Spring loading: Setting a grant date to occur shortly before the release of positive news.