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The sneaky way some CEOs can make money when the company's stock falls

New study details the sneaky way some CEOs can make money when the company's stock falls
NBC News
By Erik Sherman
Published: February 20, 2019
>> The sneaky way some CEOs can make money when the company's stock falls

Chief executive officers are driven by success, and the more they can get for their companies, the better their personal fortunes. At least that's the theory behind corporations loading up their CEOs with stock or, as the experts put it, "aligning CEO and shareholder interests."

But a new study from researchers at the University of Georgia, the University of Notre Dame, and Lehigh University shows that sometimes the opposite is true.

Stock options give someone the right to buy a certain number of shares at the price of the day the options are granted, respectively called the strike price and the strike date. If share values rise, so does the value of the options, even if the person hasn't yet bought the stock.

The release of negative news can mean extra money — frequently hundreds of thousands of dollars — for a CEO with stock options coming due.

An example is the options backdating scandal of the mid-2000s, when researchers such as Erik Lie of the University of Iowa found that thousands of companies dated options as though they were given before they actually were, choosing a time when share prices were particularly low. That boosted the value for the executives receiving them. Such a move is legal if done properly, including informing investors. Often it wasn't.

For the full story, check out the original article at NBC News.

The original research can be found at this link.

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