THE DATING GAME.(The Talk of the Town)

Scandals move in unpredictable ways. When news broke, earlier this year, that some companies had backdated stock-option grants to employees in order to make them more valuable, it seemed like a problem that would come and go quickly: the number of companies thought to be involved was small and the impact fairly trivial. But the scandal has metastasized, engulfing more than a hundred companies, sparking criminal indictments, and forcing the departure of high-profile executives, including, just two weeks ago, William McGuire, the venerated chief of the health-care giant United Health Group. Accounting scandals are nothing new. What's distinctive about this one is that the benefits companies got from backdating were so small. Never, you might say, have so many cheated so much to gain so little.

The most common stock options are known as "at the money" options, which let you buy the company's stock at the price that it had on the day of the grant. They're valuable only if the stock price rises after you get them. The companies involved in the recent scandal were backdating options to a time when the stock price was lower, making them immediately lucrative. As it happens, companies are perfectly free to issue options priced below the current market: those are called "in the money" options, and they're worth something right when they're issued. (If you're given an option with a strike price of ten dollars when today's stock price is fifteen dollars, each option can yield an immediate profit of five dollars.) But there's a rule that companies have to follow when they issue "in the money" options: they have to disclose it in their financial statements.

The backdating companies broke this rule: they reported how many options they were issuing, but conveniently omitted the fact that they had been backdated. In Washington, people say that it's not the crime that gets you--it's the coverup. In the case of backdating, the only crime was the coverup.

The question is why anyone bothered. Press accounts of backdating have made it seem like a tool that larcenous C.E.O.s used to pay themselves and their cronies more money than they would otherwise have made. But companies didn't need backdating to lavish huge sums of money on their executives: they could have issued more at-the-money options to make up the difference, or they could have just handed out grants of stock. Yet a study by the finance professors Erik Lie and Randall A. Heron suggests that fourteen per cent of option grants to top executives between 1996 and 2005 were "backdated or otherwise manipulated." Why did they sneak around? One reason is public relations. Companies typically justify issuing execs tens of millions of dollars in stock options ...