Others have already questioned the special committee’s interpretation of financial benefit (see, e.g., this Washington Post article, focusing on the fact that the options were later exchanged for 5 million shares of restricted stock), and I have previously argued (here) that whether someone ultimately succeeded in realizing a financial benefit is irrelevant to the question of whether he attempted or conspired to violate various securities, tax, or accounting laws or rules.

But there’s a simpler reason, still, that, I think, Jobs did “financially benefit” from some of the backdating at Apple. It stems from a very unusual fact about Jobs’s two enormous options grants, which I only stumbled on recently when re-reading some of his SEC filings: large portions of each grant vested immediately.

Usually, of course, options don’t start vesting for at least a year. (Under a typical vesting schedule, about a quarter of the optinons vest after a year, and the remainder vest on a pro rata monthly or annual basis over the next three or four years.) The delayed vesting is what makes them so hard to value: no one knows whether they’ll be worth squat to the recipient by the time they start vesting. That’s why people come up with complicated statistical estimation formulas for valuing options grants, like the Black-Scholes test.

Now I’m not criticizing Apple for making an exception from the usual vesting customs for Jobs, because Jobs had famously been receiving only $1 per year in compensation at Apple since returning to the company in 1997, so he was clearly entitled to some immediate compensation for past performance.

But the immediate vesting does seem to me to change the analysis of whether he “financially benefitted” from options backdating. (So far as I know, the committee was not using “financial benefit” as any term of art, with a specialized definition; they seem to have been using it the way it’s understood at a gut-level in ordinary English.) The special committee acknowledged, remember, that the 7,500,000 options that Jobs was ostensibly granted on October 19, 2001, when Apple’s price was $18.30 a share, had not really been “finalized” until December 18, 2001, when the price was $20.01 per share. (In addition, the committee found, the Apple board had not really met at all on October 19, 2001, as board minutes falsely indicated.) Accordingly, the committee determined that the accounting for these options had been improper, and it included a correction for this mistake in Apple’s restatement. (The commmittee also found, in fairness, that the Apple board had first approved this grant to Jobs in August 2001, at a time when Apple’s price was even lower than it was on October 19, 2001.)

Well, one-quarter of these admittedly backdated options — representing 1,875,000 underlying shares — vested immediately, according to a Form 4 Jobs filed with the SEC on March 20, 2003. (Similarly, fully one half of the 10 million shares ostensibly granted to him on January 12, 2000 vested immediately. But I’m ignoring those, because the the special committee concluded that that earlier grant — notwithstanding some eyebrow-raising circumstances — was properly accounted for.)

The value of Jobs’s 1,875,000 vested options as of the day on which we now know that they were really granted are easy to calculate. On December 18, 2001, when the grant was finalized, the value of those vested options was the fair market value of the underlying shares ($39,393,750) minus the cost of exercising them at the strike price ($34,312,500). That’s $5,081,250. All of that money was available to Jobs for the asking, then and there, and therefore I don’t see why all of it wouldn’t be considered “financial benefit.”

How much of that financial benefit came from backdating? All of it. Had those options’ strike price been set as of December 18, 2001, as the special committee says they should have been — instead of as of October 19, 2001, when the phantom board meeting took place — their intrinsic value to Jobs on that date would have been zero.

At this point in my argument, I’m sure, members of the Apple special committee would protest: there was no financial benefit, because Jobs never exercised those options. (He cancelled all his options in March 2003, when they were underwater, and received restricted stock in their place.) And I would reply: No, he did financially benefit, but he then took a calculated gamble with his gains — the way we are all constantly taking calculated gambles with all of our assets — which did not pay off in the short term. He chose not to exercise the options immediately, hoping for even bigger gains down the road. His gamble didn’t happen to pay off, or at least hadn’t as of March 2003, when he took another calculated gamble, and traded in the options for restricted stock. (My colleague Geoff Colvin analyzes here why agreeing to the trade-in was actually Jobs’s biggest mistake of all.)

Say someone gives me a gift of $5,081,250. Say I sink it all into an uninsured beach house which later gets leveled by a flood surge stemming from a hurricane. Or say I put it all into the next Enron, and it soon plummets to worthlessness. Would anyone say that I had experienced no “financial benefit” from the $5,081,250 gift? I don’t think so.

Apple spokesman Steve Dowling says: “The most important point is that both options grants, which were underwater, were cancelled. No options were ever exercised. . . . Following exhaustive independent investigation, the special committee found that Steve [Jobs] was not aware of any irregularities associated with [these grants].”

Of course, from previous posts on this subject, I understand by now that any reader of this blog who owns Apple shares does not care one whit whether Jobs backdated options or benefited from the practice; they just want him to stay as CEO and make them some more money. But what do people think about my reasoning? Did he experience “financial benefit” from backdating, or didn’t he?