Back dating software
For several years, Micrel allowed its employees to choose the lowest price for the stock within 30 days of receiving the options.
After these stock option terms came to the attention of the IRS in 2002, it worked out a secret deal with Micrel that would allow Micrel to escape million in taxes and required the IRS to keep quiet about the option terms.
A 2004 NY Times article describes this case in greater detail (the article is available here), and so does a 2006 article in Tax Notes Magazine (available here).
In a 2004 CNBC interview, Remy Welling said that "this particular -- well, it's called a 30-day look-back plan, is even widespread in Silicon Valley and maybe throughout the country."The terms "spring loading" and "bullet dodging" refer to the practices of timing option grants to take place before expected good news or after expected bad news, respectively. This is what Professor Yermack hypothesized in his article discussed above, though he never used these terms.
However, if the options were effectively in-the-money on the decision date, they might not qualify for such tax deductions.
Backdating allows executives to choose a past date when the market price was particularly low, thereby inflating the value of the options.
An example illustrates the potential benefit of backdating to the recipient.
Remy Welling, a senior auditor at the IRS, was asked to sign the deal in late 2002.
Instead, she decided to risk criminal prosecution by blowing the whistle.