Spring-loaded options occur when directors are granted options when the stock is trading very low. The director is allowed to exercise his option right before they make news that causes the stock to soar. This has been deemed illegal by the courts, as it appears to be an off-shoot of insider trading.
Another option that is illegal is the backdating option. Options are backdated when they are awarded presently now that the stock price is higher and more valuable, but they are given to the director or officer at a time when the stock was trading very low. This has also been deemed illegal by courts, as it is obviously wasteful for a corporation to give away a stock well below the trading price.
When determining executive compensation packages, there are many options for the corporation to consider. However, there are two options that are off limits: spring-loaded options and backdated options. It is important to consider what type of executive compensation your corporation wishes to offer. Consulting with an experienced legal team can help understand what may be in your corporation’s best interests. Call the Trembly Law Firm at (305) 985-4582 today to schedule your consultation.
Follow Us on Social Media