Options backdating defeats the purpose of linking an executive's compensation to the company's performance, because the bearer of the options will already have experienced a gain.
In the past, granted options were only required to be disclosed to the Securities and Exchange Commission (SEC) within two months of the options being granted, which gives companies a window for backdating.
In a backdated situation, however, the options would be granted today (August 16), but their listed day of granting would be June 1 in order to give the options a lower strike price.
An option's strike price is usually chosen by taking the stock's closing price on the day that the option was granted, calculating an average of the day's high and low prices or by taking the closing price from the previous day's trading.
For example, suppose that it is August 16, 2006, and the closing share price of XYZ Corp. On June 1, 2006, XYZ Corp.'s stock price was at a six-month low of .
In some cases, backdating can be considered an act of fraud and an SEC investigation may result.
I have an business application that uses the system date for all of it's date processing.