A scandal over improper share options sweeping American boardrooms has engulfed the biggest player yet, with the resignation of Bruce Karatz, a Californian housebuilding magnate whose name is synonymous with suburban living.
Mr Karatz (61) quit yesterday after 34 years as chief executive of KB Home, where he earned $155 million last year, making him America's second highest paid corporate boss. An investigation by the company established that he improperly set the trigger dates for his own share options, enabling him to reap huge rewards. He has agreed to pay back $13 million.
KB Home built 37,140 homes last year in 14 US states and in France, where it has a subsidiary. Founded in 1957, it was a key player in creating the sprawling suburbs of southern California. Flagship KB projects include a replica of The Simpsons' family home in Las Vegas. The company also has a tie-up designing homes with the lifestyle guru Martha Stewart.
KB said its internal inquiry "concluded that the company used incorrect measurement dates for financial reporting purposes for annual stock option grants during the period from 1998 to 2005". It said the affair could cost up to $50 million in tax bills and accounting adjustments. Its chief legal officer had resigned and its head of human resources had been fired, it said.
A furore over share options erupted in the spring when Erik Lie, an associate professor at the University of Iowa, published research suggesting that scores of US executives had benefited from grants set on remarkably fortuitous dates - typically on annual, monthly or quarterly lows in the stock price - giving them bumper profits when the price rose.
Regulators began examining whether companies were retrospectively adjusting grants to maximise boardroom payouts. This practice, known as backdating, is not illegal but it does require disclosure and special tax treatment - with which few companies have complied.
About 160 companies are caught up in the row, which has claimed the jobs of more than 50 directors. Most are Silicon Valley technology concerns, where rewards spiralled out of control when talent became difficult to retain during the dotcom boom at the beginning of the decade.
The Securities and Exchange Commission and the Department of Justice are investigating and former directors of two companies, Comverse Technologies and Brocade Communications, are facing criminal charges. Also under scrutiny is the founder of the Apple computer empire, Steve Jobs, who apologised last month after admitting he knew the company was backdating executives' share options.
The legendary stockpicker Warren Buffett recently wrote to executives at his companies to exhort them not to fiddle with options.
He wrote: "The five most dangerous words in business must be 'everyone else is doing it'."
