The Financial Times reported today that the SEC is nearing the completion of a formula to penalize companies for backdating options. While the commissioners remain divided on the issue, the consensus is that the penalty should be related to how much the company benefitted financially from the backdating.
One area of debate is whether companies should be fined large amounts, which would directly harm the shareholders that the SEC is seeking to protect. While there is universal agreement that executives should be fined personally, this is a trickier issue. Fines collected would go into a "fair fund" to be redistributed to shareholders who were harmed. But as anyone who has ever received a payout in a lawsuit related to corporate malpractice knows, legal fees etc. often eat up a substantial amount of the damages.
My feeling is that fining executives enormous sums of money is the best way to combat this.
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