While Congress is looking into what it can do about options backdating and soaring executive pay, some interesting revelations have emerged in Australia about another options scam.
ISS Australia has found that chief executive officers of Australia's biggest companies are getting paid millions of dollars more than what's being disclosed to shareholders because of a mismatch between "fair value" of the options cited in annual reports and actual value.
Like options backdating, the "fair value'' method can mislead because it does not necessarily take into account the bullishness of the market because directors can over-discount what the options are actually worth. When that happens, the chief executive officer gets a bigger payout without needing to put it to the owners of the company.
You can find more details in the ISS Australia report Long term incentives – far from illusory.
You can also read my news report on it here.
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