RIM Hit with Stock Option Scandal

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Research in Motion’s Chairman is stepping down after his company admitted it has failed to properly account for employee stock options.

RIMRIM has become just the latest company to confess that it has made a habit of back-dating stock options that it gave to its senior executives in such a way that the options were made more valuable.

As a way of rewarding their employees, some companies will grant them the options to buy company stock at some point in the future at a pre-determined price.

When granting stock options to its executives, RIM wouldn’t date them for the current day. Instead, the granting date would be moved back to before a run-up in RIM’s share price. This meant that even if the executive exercised their option immediately, they would make money.

Fallout

RIM announced today that Jim Balsillie has stepped down from the role of Chairman. However, will retain his roles as co-CEO and Director. Mike Lazaridis will continue as co-CEO.

In the future, one person will not be allowed to be both Chairman and CEO, as Balsillie was. 

All of RIM’s executives have agreed to return any benefit they received on previously exercised options and to re-price unexercised options that were incorrectly priced.

Both Balsillie and Lazaridis are each expected to pay back about $4.25 million.

Also, Dennis Kavelman is being demoted from his position as Chief Financial Officer to become the RIM’s Chief Operating Officer – Administration and Operations.

RIM is preparing to restate the past three years of its financial statements so that they properly account for the stock options granted. This will involve deducting about $250 million from its profits over this time period.

 

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