Essay on Strike Price Is the Market Price. Coincidence?

934 Words Sep 8th, 2012 4 Pages
The customary practice in granting stock options is to have the strike price set as the market price on the day the grant is made. Grantees can later sell these stock shares at a higher price and make a profit. Over the last several years, several companies have been accused of issuing stock options to their top executives at the lowest stock price of the year. This could lead to very large profits. Such manipulation of the strike price is unethical and in some cases may be illegal. In some companies, granting options at the lowest price happened several years in a row. When asked about this practice, a company spokesperson responded, "It's just a coincidence. There are about 250 trading days in a year, so there is a reasonable …show more content…
Treasury Secretary Timothy Geithner was quoted in his appeal to corporate boards saying, “Pay top executives in ways that are tightly aligned with long term value and soundness of the firm.” (Bebchuk & Fried, 1917) This statement was made in response to many executives receiving what could be determined as premature payouts for visibly short term results. The behavior is risky to say the least. The executives would be motivated by recognition and board favor with possibly no real interest in the long term, just immediate self gratification, compromising corporate stability.
Additionally, public awareness is inundated with terms of inside trading, Ponzi scheming, hedging, and income smoothing, to only name a few. Although income smoothing may not be considered as serious an offense as inside trading, it may share similarities. It is because many practices seem harmless in the beginning until the domino effect is revealed. In the beginning, the unsuspecting stockholder is unaware of the real discussion in select boardrooms. The ‘outsider’ is oblivious to the ‘insider’s’
(Small, 2010) methods to float profits, inflate CEO salaries across the board because their CEO should definitely make more than the other guys’ CEO and decisions of that nature to cause payments to go way out of control. Yet, what is gradually being duplicated in tight elite circles, month after month, is what news stories are made of that highlights the news anchor

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