You said,”Reyes gained indirectly by backdating other employees’ options. Much of CEOs’ bonus pay is tied to reported earnings. ”
This is just flat out wrong.

You said,”So why, then, did Reyes and other CEOs engage in option backdating? Because it enabled them to directly and indirectly boost their own pay. ”
Again wrong. Cash flow is all that matters to executive compensation here.

You said,”These inflated earnings, in turn, enabled CEOs like Reyes to fatten their bonuses ”
Again, incorrect.

And finally you said,”The use of disguised in-the-money options to compensate employees presumably allowed Brocade to reduce the cash component of their pay packages, improving cash flow performance.”
There is no evidence of this, at all.

The reality is that large companies here were offering large signon bonuses to employees in the form of backdated stock options. Brocade felt the need to participate in a system they did not invent because everybody else was doing it. That is not a valid defense, I know but it is a much different defense than claiming the CEO did it to line his pockets when there is no evidence of such behavior. I think the key point you miss is that cash flow is the only metric used for valuing companies here by institutional investors of all stripes.

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Wrong, it is based on cash flow not GAAP earnings, as is the case with all CEOs out here.

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Highly speculative. I would expect some supporting documentation that Brocade salaries were lower than the competition in order to accept this- and there is no evidence of that.

The use of disguised in-the-money options to compensate employees presumably allowed Brocade to reduce the cash component of their pay packages, improving cash flow performance. Thus even if Reyes’ bonus were based on cash flow performance, backdating would have increased his bonus. And in many other firms, bonuses are based on accounting earnings.

The backdating of other employees’ options also indirectly benefited Reyes by inflating earnings, and thus the firm’s stock price, enabling him to unload his shares at a higher price.

It should not be surprising that backdating financially benefited executives like Reyes. Why would he do something he knew to be illegal unless he had something to gain?