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Divesh Sharma, a professor at Kennesaw State University whose research focuses on company clawback policies, told Market Watch that, until 2006, few companies had them.“In 2003, there were only four, by my count,” he said. Suddenly in 2006, I counted 150.” According to Sharma, Wells Fargo had no policy until 2008. Bush signed the Emergency Economic Stabilization Act, which established the Troubled Asset Relief Program to bail out big banks battered by the financial crisis.
The SEC used the power of the new law in 2007 to claw back 8 million in profits from the scheme and a total of 0 million after additional penalties and interest.
Additionally, companies can use backdating to produce greater executive incomes without having to report higher expenses to their shareholders, which can lower company earnings and/or cause the company to fall short of earnings predictions and public expectations.
Corporations, however, have defended the practice of stock option backdating with their legal right to issue options that are already in the money as they see fit, as well as the frequent occurrence in which a lengthy approval process is required.
If the company sets the prices of the options grant well below the market price, they will instantaneously generate an expense, which counts against income.
The backdating concern occurs when the company does not disclose the facts behind the dating of the option.