Back-dating, spring-loading, bullet-dodging. There are so many ways to run into trouble with timing options grants, the question arises—is it worth it to keep up the practice. At some point the costs of internal controls necessary to ensure nothing underhanded is occurring may exceed the benefit to the company of avoiding cash payouts. Earlier accounting changes already made options less attractive—now that they are receiving so much attention from regulators, law enforcement and the media, will options simply go into the dustbin of corporate history?
It’s hard to see how options have any remaining credibility as “motivating” devices for managers. To use them in a conscionable fashion requires firms to adopt complicated policies for dispensing them, ones that likely have a high cost to monitor and maintain. Spending dollars to maintain internal control effectiveness has been roundly condemned by many inside the American corporation, so it would be doubly incredible to expect them to invest in the controls necessary to ensure that option comp accounting is being done legitimately: after all, what made them attractive in the first place was that they were “money for nothing” with little visibility into their disbursement. Spend money to increase controls over what you’d prefer to keep a low profile? Seems rather contradictory.
This raises another question: are the benefits from all the attention we are giving to options timing practices, worth the cost of losing options altogether? What precisely is the benefit to either the public markets or to an individual corporation of preventing spring-loading?
Unloading On Spring-Loading [AAO Weblog]