Ethics of options repricing and backdating

02-Feb-2020 23:52

Traditionally repricing simply involved canceling the existing stock options and granting new stock options with a price equal to the current fair market value of the underlying stock; but over the years alternative approaches to traditional repricing have been developed to avoid the unfavorable accounting treatment now associated with a simple repricing.We advise our clients that repricing is not a straightforward process and that they should carefully consider the following three aspects associated with a repricing – corporate governance, tax and accounting aspects.It has emerged despite all the measures (i.e., new regulations and additional corporate governance mechanisms) aimed at addressing such problems?Beyond such negative controlling measures, a more positive empowering approach based on ethics may also be necessary.

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Assessing the current fair market value of a privately held company will require the board to set a new value on the common stock of the company.Under this approach, a company cancels the underwater stock options and replaces them with an outright restricted stock award.