SEC Requiring More Option Disclosure

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The New York Sun

WASHINGTON — New executive compensation disclosure rules will require companies to come clean about potentially abusive practices in awarding stock options, restricted stock and stock appreciation rights, a senior Securities and Exchange Commission official said Monday.

The new SEC rule doesn’t refer to ‘backdating,’ ‘springloading’ or ‘bulletdodging’ but will compel companies that engage in such practices to inform investors, the SEC corporation finance division director, John White, said.

In his prepared remarks, Mr. White said under the new SEC rule, companies have to divulge any programs, plans or practices for awarding stock and stock options to executives, including their approach to timing and pricing options, which give holders the right to buy shares at a preset price in the future.

The SEC rule was adopted this summer as regulators were probing charges that some companies backdated executive stock options, changing the grant date to an earlier time when the stock price was lower in hopes of making them more valuable in the future.

Backdating may not be illegal provided it is disclosed, and the SEC rule is aimed at fleshing out such practices in the future.

Besides backdating, companies that ‘springload’ options so they are granted to executives just before the company announces positive news, or that engage in ‘bullet-dodging’ by granting options after issuing bad news will have to inform investors of that fact, Mr. White said.

Springloading and bullet-dodging are “two sides of the same coin,” according to Mr. White. “They both need to be disclosed.”

He gave the standard disclaimer that his remarks reflect his views, not those of the SEC.


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