Senate to Consider Tax Changes in Response to Option Backdating

The Senate Finance Committee will hold a hearing on September 6 to consider tax law changes in response to the flurry of stock option backdating investigations.  From the press release:

There have been a number of recent newspaper stories about corporate executives finding ways to compensate themselves to skirt the federal tax on compensation that is not performancebased. The most well-publicized of these methods is the backdating of stock options, in which executives wait until after the fact to pick a date for their stock options, then pick the low point of the stock during the year to maximize their profit. The tax code governs certain aspects of executive compensation and imposes a tax unless the pay (more than $1 million) is performance-based compensation. In response to the tax, there has been a big upswing in stock options to compensate corporate executives. In June, [the Senate Finance Committee] ... convened a hearing to explore various compliance concerns in the corporate tax arena and asked the Justice Department’s witness to explain the agency’s investigation of stock options backdating.

[The Committee will hold a hearing on September 6 on] . . . Executive Compensation: Backdating to the Future/Oversight of Current Issues Regarding Executive Compensation Including Backdating of Stock Options; and Tax Treatment of Executive Compensation, Retirement and Benefits.” The first panel will ... focus on the government’s response to stock options backdating and other issues regarding executive compensation, including 162(m) -- the million-dollar deduction rule – as well as transparency issues. The second panel will consist of academics and interested groups, giving additional perspective on backdating and 162(m) as well as providing an overview of executive compensation, retirement and benefits, and how they are treated under the tax code. Chairman Grassley is exploring the extent of abuse of executive compensation tax restrictions with an eye toward possible legislation.

Press coverage:

• BBC
• Reuters
• Wall Street Journal