With respect to the disclosure issue, obviously, it is a problem if backdated options are not properly disclosed. A separate issue with respect to disclosure is selecting the optimal level — which of course, mandates some discussion of the costs and benefits involved. As Geoff’s paper (which is well worth the read, by the way) points out, the discussion has been lacking on the cost side of the equation.

On backdating: I’m not sure that your logic holds. First of all, I can think of some reasons other than avoiding expensing that firms might backdate — I’ve suggested some here and elsewhere. More importantly, I don’t think it’s right that issuing backdated options avoids an effect on stock price — the options are, by definition, in the money when they are issued and that should have clear consequences to the firm’s earnings per share. Expensed or not, the effect is not hidden; there’s no lying here.

On executive comp disclosure: I will gladly add my name to the apparently-short list of those not thrilled with the SEC’s rule. Obviously(!), the first thing to check out is my draft article on the topic. In response to your response to your colleague, I would say that it’s not at all clear that “the investor” is well-served by “receiving and processing the information.” Fundamental research is time-consuming and, for almost everyone, a huge waste. Cheaper access to information makes it more likely that investors will waste time processing that information. There are other costs, as well (see the article). And, importantly, they probably get the benefit anyway — it is not the case that, absent direct disclosure to investor A, investor A is “doomed to be short on information.” Investor A gets access to a world of information not by reading disclosures but through the stock price. Now, it could be the case that executive compensation information will be more efficiently incorporated into stock price when disclosed under the new SEC rule than it would have been otherwise. Unfortunately, no one — least of all the SEC — has bothered to determine whether this is likely to be the case. There are, as I have stressed, both costs and benefits to disclosure. It is improper simply to assume that the benefits will outweigh the costs.