The Wall Street Journal has a very good general article titled Open Spigot Bosses' Pay: How Stock Options Became Part of the Problem (subscription required) on options used as executive compensation. This past year, option backdating scandals have surfaced an unimaginable abuses. This general article serves as a good primer to help better understand option backdating. But more than simply understanding backdating, the article outlines, in general terms, how options can be abused.
While I favor the use of options to create an incentive for executives to do well, I do not believe executives should reap outrageous rewards. As good as executives are, there are always other capable candidates who would do a very good job if given the chance. And if the company is well managed, it should have a lot of bench strength so that the CEO is not indispensable.
I recommend reading the WSJ article, especially if you are not well versed in options and have not been following the backdating scandals.
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