Options backdating scandal

You've probably heard of the 'option backdating' scheme that has been exposed over the past few months: corporate compensation committees altering the grant date on executive options so the strike price is at the lowest stock price during a particular time period. I did not realize that we were up to 40 companies that had done this, however.

This editorial in the Financial Times eloquently states what I've struggled to say about this scandal:

More important, the scandal calls into question the wisdom of using stock options to compensate senior executives. Designed to align their interests with shareholders, stock options have arguably brought about the opposite: a strong temptation to manipulate short-term earnings. Furthermore, options are asymmetrical. Executives suffer from no commensurate losses when the share price falls.

In other words, options that are supposed to be tied to company performance through the stock price simply becomes free money by this practice. It will be interesting to see how this plays out since those guilty of doing this are board members and not (necessarily) the company officers.