The stock-option backdating scandal has hit over 150 companies nationally as of October 2006. The financial advisory firm Glass Lewis has said that over $10 billion is involved in the various companies charged with backdating stock options. The analysis was in Glass Lewis' weekly ``Trend Alert'' advisory.

Stock-options generally are a perfectly legal option for companies to reward their employees by giving them a discounted option to buy stock. The idea is to bind the employee closer to the success or failure of the company, and reward him or her for better performance, by being able to tangibly share in the company’s shareholder value.

Some companies choose to have broad-based employee stock option plans. These plans give most employees the right to participate. An employee stock ownership plan (ESOP) is a type of employee benefit plan. The company contributes its own shares to the ESOP plan and arranges for this to provide tax benefits for the company and its employees. Many of these plans involve companies that have not “gone public” and are closely held. Probably as many as 10 million employees in the United States participate in stock option plans. Other plans allow employees to buy stock through payroll deduction plans, through a substantial, 15 percent or more, discount. ESOPs from a legal standpoint are different from straight employee stock option plans, in that they are much more broad based. The scandals involving stock options involve leading executives who are allowed to buy stock at a price that has been dated in some cases years before the present, so they can make an immediate profit selling stock of over 50 percent.

A 401k plan involves stock ownership by employees, but in a diversified portfolio of stocks. Some of these plans include a matching plan where the employees pay over time for an amount of company stock for their retirement fund.

Stock options in various forms are a big time business. Take the case of Microsoft. Microsoft receives cash by issuing employee stock options, after which the company then receives billions of dollars in tax deductions. This can be pretty strange, but it is definitely significant. A large portion of the salaries that Microsoft pays out are in the form of stock options. These options allow employees to buy stock at a fraction of the market price. The employees only pay taxes on the portion of the stock price they pay that is discounted from the market price. Microsoft made over $5 billion off the stock market in one year, tax-free.