Backdating options is a form of earnings manipulation. If the stock is trading at $40 today, and the board wants to give that CEO an option that is worth $10 today, it would grant an option with a strike price of $30. The company would have to count the difference between the strike price and the current stock price—$10—as compensation, and hence as a cost to be subtracted from earnings. But if the company simply falsely dates the option to a point in the past when the stock was at $30, say, four months ago, it will have the same $10 value to the CEO but won't have to be subtracted from earnings. Companies don't willfully alter the day of the option grant—a practice known as lying—in order to hide the amount of compensation from shareholders. They do so to hide the cost of the compensation from public investors. It's a form of cooking the books, conceptually not much different than concocting earnings. When they are found out, companies wind up restating their earnings to account for the true cost of the compensation.