After months of increasing reports of investigations by both the Securities and Exchange Commission and academics, Congress is now examining the sometimes-questionable timing of stock options granted to executives.
The tax-writing committee is considering reducing or eliminating a deduction that encourages companies to award executives with stock options, which was meant to link compensation to a company's stock prices and correspondingly, the executive's performance.
SEC Chairman Christopher Cox expressed support for the idea in testimony before the Senate Banking Committee. Companies are required to pay taxes on compensation that exceeds $1 million a year received by each executive. However, there is an exception for pay tied to a company's financial performance, which can be deducted and authorities believe has led to companies doling out stock options.
Cox described that $1 million threshold as an unworkable price control.
According to various published reports, upwards of 100 public companies are being investigated by the Justice Department or the SEC, for possible false reporting of stock option grants, with most of those investigations centering on the practice of backdating, when options are issued retroactively to coincide with low points in a company's share price.
The Internal Revenue Service is also conducting its own investigation for possible tax-law violations.
