Backdating of stock options is unethical because:

• A. It favors top executives over other company employees with respect to the number of options
• B. It purposefully manipulates the option criteria that determine their value
• C. It changes the exercise price on options to benefit top executives
• D. It changes the exercise date on options to benefit top executives

Answer: (B)

Backdating stock options is unethical because it deliberately alters the factors that determine how valuable an option is. The grant date and the exercise price set the option’s value, and choosing a past grant date (often when the stock price was low) can make the options appear more valuable than they should be and mislead investors and employees about compensation costs. This focus on manipulating the value-determining criteria is the core issue. While changing the exercise price or the date can be part of the tactic, the ethical problem lies in the intentional manipulation of what actually determines the option’s value, not just a single aspect of it. Options A, C, and D miss that broader manipulation focus and thus aren’t as fitting.