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Any gain a company makes is assumed to be the sole result of the extraordinary wisdom of this one very special person, not the collective efforts of hundreds or thousands of employees.
It's demonstrably bunk, but then the people setting executive pay operate in a parallel universe.
An analysis of the likelihood that Mc Guire's options could have been as felicitously times as they were showed that the odds were millions to one against it. The state, however, has not taken a position on the merits of the claims.
On April 19, 2006, Minnesota Attorney General Mike Hatch asked to intervene in a shareholder lawsuit against United Health Group (Brandin v. Hatch said that the importance of the company to the state's health care system meant that if there were substantial and unjustified costs, Minnesotans could be harmed.
As important as the issue of executive equity compensation is, it should not blind us to a more important concern.
Research has definitely shown that broadly-granted equity awards improve corporate performance; concentrated grants force it down (the details are in the article Broadly Granted Stock Options Improve Corporate Performance).
The legal theory involved here could open the door for other interventions in potentially abusive executive compensation issues.
Nejat Seyhun of the University of Michigan for the newspaper showed that that options granting practices between 20 often failed to comply with the Sarbanes-Oxley requirement that grants of awards to executives be reported within two days of board approval (T"he Dating Game: Do Managers Designate Option Grant Dates to Increase Their Compensation? Prior research at Erik Lie at the University of Iowa found a pattern of probable options backdating in a number of companies prior to 2002.
The results focused on the 51% of the grants during the period that were unscheduled and at-the-money.
A separate analysis of grants issued at other than the current price of the shares at grant also shows a pattern of manipulation, but it was only about 60% as prevalent for this type of award (these awards were not very common at the time, however, because of adverse accounting rules).
More telling, only 0.9% of the scheduled grants showed a pattern of fortuitous timing, strong proof that the pattern in unscheduled grants could not be the result of random variation.
Some of the companies that get entangled in this may have been making honest mistakes, recording dates that were off by a few days because of inadequate administrative procedures.
(The administrative problem could be resolved if more companies would hire people with the right skills for stock plan administration, such as those with certification from the Certified Equity Professional Institute at Santa Clara University.) There are also companies, such as Microsoft, that issued options broadly but were concerned that because of the volatility of their stock, an employee who joined the company on one day might get an option grant at a price very different from one who joined a few days earlier or later.