Home Depot has become the largest US company to acknowledge having awarded backdated stock options to executives, extending the scandal further beyond the technology sector where the controversial practice was most common.

The home improvement retailer said it had discovered $10m of unrecorded expenses resulting from five cases of retroactively priced stock options.

More than 40 US companies have been exposed for manipulating the exercise price of stock options to increase their value to executives.

Home Depot is the best-known name to have become embroiled in the scandal, attracting fresh scrutiny to its corporate governance at a time when the company was already under fire over soaring executive pay.

All five cases of backdating occurred before 2000, when Bob Nardelli, the current chief executive, took charge.

The company did not disclose who had received the backdated options but said its billionaire founders, Bernie Marcus and Arthur Blank, were not involved.

An official said the company had made the find in the course of a voluntary internal investigation and the Securities and Exchange Commission was not involved.

“Home Depot is committed to high standards of corporate governance and transparency in its reporting practices and, as such, conducted a review of its stock option grant practices and procedures since 1996,” the company said, in a statement.

Other large companies caught up in the scandal include UnitedHealth Group, the health insurer, and Juniper Networks, the telecommunications equipment company.

Backdating involves the use of a grant date for a share option that comes before the date when the decision was made to award the option.

This allowed the option to be backdated to when the awarding company’s share price was lower, increasing the potential profit for executives when the option is exercised.

Home Depot said that in three of the five cases, the company’s share price was higher on the award date than on the date when the exercise price was set.

Backdating is not necessarily illegal but the practice has forced several companies to restate earnings and sparked probes by the SEC and the Justice Department because stock option expenses were not properly disclosed.

Home Depot said its $10m of unrecorded expenses were not great enough to merit a restatement.

But its involvement in backdating is an acute embarrassment for the company, coming weeks after it faced a shareholder rebellion over the nearly $250m of compensation awarded to Mr Nardelli over the past six years.

Most cases of backdating occurred before the Sarbanes-Oxley Act of 2002, which aimed to improve corporate governance in the US.

Christopher Cox, chairman of the SEC, is considering adding fresh guidelines on stock option disclosure to a landmark executive compensation reform proposal he presented earlier this year.

Get alerts on Travel & leisure industry when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article