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In particular, he found that stock prices tend to increase shortly after the grants.

He attributed most of this pattern to grant timing, whereby executives would be granted options before predicted price increases.

Furthermore, the pre-and post-grant price pattern has intensified over time (see graph below).

By the end of the 1990s, the aggregate price pattern had become so pronounced that I thought there was more to the story than just grants being timed before corporate insiders predicted stock prices to increase.

For several years, Micrel allowed its employees to choose the lowest price for the stock within 30 days of receiving the options.

After these stock option terms came to the attention of the IRS in 2002, it worked out a secret deal with Micrel that would allow Micrel to escape million in taxes and required the IRS to keep quiet about the option terms.

A particularly interesting example is that of Micrel Inc.Further, at-the-money options are considered performance-based compensation, and can therefore be deducted for tax purposes even if executives are paid in excess of

A particularly interesting example is that of Micrel Inc.

Further, at-the-money options are considered performance-based compensation, and can therefore be deducted for tax purposes even if executives are paid in excess of $1 million (see Section 162(m) of the Internal Revenue Code).

However, if the options were effectively in-the-money on the decision date, they might not qualify for such tax deductions.

Unfortunately, these conditions are rarely met, making backdating of grants illegal in most cases.

(In fact, it can be argued that if these conditions hold, there is little reason to backdating options, because the firm can simply grant in-the-money options instead.)David Yermack of NYU was the first researcher to document some peculiar stock price patterns around ESO grants.

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A particularly interesting example is that of Micrel Inc.Further, at-the-money options are considered performance-based compensation, and can therefore be deducted for tax purposes even if executives are paid in excess of $1 million (see Section 162(m) of the Internal Revenue Code).However, if the options were effectively in-the-money on the decision date, they might not qualify for such tax deductions.Unfortunately, these conditions are rarely met, making backdating of grants illegal in most cases.(In fact, it can be argued that if these conditions hold, there is little reason to backdating options, because the firm can simply grant in-the-money options instead.)David Yermack of NYU was the first researcher to document some peculiar stock price patterns around ESO grants.

million (see Section 162(m) of the Internal Revenue Code).However, if the options were effectively in-the-money on the decision date, they might not qualify for such tax deductions.Unfortunately, these conditions are rarely met, making backdating of grants illegal in most cases.(In fact, it can be argued that if these conditions hold, there is little reason to backdating options, because the firm can simply grant in-the-money options instead.)David Yermack of NYU was the first researcher to document some peculiar stock price patterns around ESO grants.

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