Pixar options questioned

Several reports that top executives at Pixar Animation Studios, the computer-animation company that was acquired by Walt Disney Co., received stock-option grants priced at the stock's annual lows in four years between 1997 and 2003. As noted in the Wall Street Journal story (subscription required), "the pattern of fortuitous timing raises questions about whether the options might have been backdated or otherwise manipulated to give executives the chance to increase their payouts." Pixar CEO Steve Jobs did not receive options, according to the story. From the Journal:

One of the low-priced grants went to John Lasseter, Pixar's renowned creative chief, director of "Toy Story" and executive producer of several other Pixar blockbusters. Another went to Edwin Catmull, a Pixar co-founder and a pioneer of computer-generated animation. Tom Sarris, a spokesman for Pixar, said, "We don't comment on personnel compensation." A Disney spokesperson said: "It would be inappropriate for us to comment on the Pixar stock-option grants, which were awarded before the Disney acquisition."

For those following the unfolding options scandal, more than 80 companies are under federal investigation, while dozens of companies, including several in Southern California, will need to restate earnings as a result of options troubles. Two former officials of a Silicon Valley tech firm have been charged with criminal securities fraud relating to backdated options.

At issue in the backdating probes is whether companies or individuals manipulated grants so that they would carry low "strike prices." Options typically are structured so that recipients profit from any rise in share price above the strike price, which usually is set at the market value at the time of the grant. Manipulating the date to give a lower strike price effectively hands recipients potential for additional profit and undermines an option's incentive purpose. It also could expose executives responsible to criminal fraud charges.

Pixar granted options to some top executives at the lowest closing prices of 1997, 1998, 2000 and 2003. Such a pattern, the Journal said, "is highly unlikely to have occurred by chance." Had the options been dated at the end of the month instead of at the year's low, Lasseter's potential profit from the grant would have been $3.5 million less, and Catmull's $1.75 million less. The timing for this isn't great for Disney, which plans to release its third quarter earnings on Wednesday. Bloomberg appears to have broken the story. WSJ, Bloomberg