Grassley Calls For Probe Into Executive Stock Options

by Leroy Baker, Tax-News.com, New York

15 June 2006

The Senate's chief tax writer, Chuck Grassley has called for tax laws to be tightened to prevent executives from "cooking the books" for personal gain by backdating their stock options.

Responding to numerous reports in the financial media on the practice, Grassley, chairman of the Senate Finance Committee, is concerned that some executives are waiting until after the fact to pick a date for their stock options, then picking the low point of the stock during the year to maximize their profit.

Under the section of the US tax code governing executive compensation, tax is imposed on pay over $1 million unless the compensation is performance-based. However, according to Grassley, recently, there has been a growing trend of companies using stock options to compensate corporate executives, in order to circumvent taxation.

“It’s one thing for an executive to make big profits because he’s improved his company, but it’s a whole different thing to make big profits because he’s playing fast and loose with the dating of stock options," commented Grassley, who convened a hearing on Tuesday to explore various compliance concerns in the corporate tax arena.

"It’s bothersome to think that after the corporate scandals of recent years, some executives are still looking for ways to cook the books for personal gain," he observed.

Furthermore, Grassley noted that it was "troubling" that boards of directors are approving these deals without shareholder approval, and he urged the Justice Department and the Securities and Exchange Commission to take "a hard look" at the practice.

While executives face the possibility of jail time if found to have backdated stock options, Grassley intends to "beef up" tax laws if they are found to be inadequate by a Justice Department review.

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