ESOs are usually granted at-the-money, i.e., the exercise price of the options is set to equal the market price of the underlying stock on the grant date.
Because the option value is higher if the exercise price is lower, executives prefer to be granted options when the stock price is at its lowest.
But as yet another executive who was once close to Jobs comes under the backdating cloud, one has to wonder: Is Jobs as innocent as Apple Inc. Or is the government afraid to go after one of the most respected leaders of American business? You can put him up there with Bill Gates and Warren Buffett," said Peter Henning, a professor who studies white-collar crime at Wayne State University in Detroit and one of the few legal scholars still paying attention to stock-options backdating.
"If you are going to put a case against him, you had better be sure it's a strong case." To be sure, regulators have in the past gone after celebrity business leaders.
The question: did these companies backdate options grants – and falsify records – to make them more lucrative for their top employees?It took until December that year until terms were finally agreed, at which point Apple’s stock price was now .01.Backdating was then carried out to give Jobs a lower share price which, on paper, made him million richer. Ultimately, it seems that Jobs swapped these options for restricted stock of lesser value.Ann Mather, who worked as chief financial officer of Pixar Animation Studios before then-chief executive Jobs dealt Pixar to Walt Disney Co.The move came almost exactly a year after the SEC filed similar charges against former Apple CFO Fred Anderson and former general counsel Nancy Heinen.In comparison, had the options been granted at the year-end price when the decision to grant to options actually might have been made, the year-end intrinsic value would have been zero.