Boards of directors at companies with executives who may have benefited from backdated stock-option grants face thorny questions about whether they should void the options or try to get back money from options already cashed in.

Few companies have made decisions, and lawyers are scrambling to advise them. The challenge in many cases is that the propriety of the conduct isn't always clear-cut, and boards themselves may have approved the option arrangements. In others, the issue is finding a way to punish executives and satisfy regulators while still providing reasonable incentives for those same executives.

One key, says Donald Langevoort, a securities-law professor at Georgetown University, is whether the executives who benefited from backdated stock options made the decisions themselves or whether the calls were made, in the best interest of the companies, by others.

If a board determines that an executive timed or priced options and "disregarded explicit instructions or took advantage of those instructions to line his own pockets, that's a breach of fiduciary duty," says Mr. Langevoort. "It's really pretty straightforward. It doesn't matter whether the option is sitting there or turned into money, whatever the fruits of the breach are they belong to the corporation not the individual."

More than 40 companies that have granted billions of dollars of options are under investigation by the Securities and Exchange Commission and Justice Department. "All potential remedies are available depending on the facts," says SEC Chairman Christopher Cox.

Typically, options for top executives are granted only by a company's board or its compensation committee. They carry a "strike," or exercise, price equal to the market value at the time the options are approved by directors. A recipient usually must wait a year or more for the option to "vest," then can cash out the option if the share price is above its strike price.

Backdating is deliberately moving the grant date earlier, to a more beneficial time when the price was lower. In effect, it gives the recipient an instant paper profit, undermining the incentive purpose of options and can run afoul of various regulations and laws.

In one recent case, Mercury Interactive Corp. of Mountain View, Calif., ousted its chief executive officer and then voided about $60 million in vested and unexercised options granted to him. A board committee found that then-CEO Amnon Landan and the company's chief financial officer and general counsel "were each aware of and, to varying degrees, participated" in the backdating from which they benefited and "knew or should have known that the practices were contrary to the options plan and proper accounting." It also said three board members mistakenly relied on management for the options paperwork.

Earlier this month, Mercury said the claims filed in a shareholder suit against Mr. Landan should be pursued by the company, but it isn't clear if it will try to recover the proceeds of options he may already have exercised. The company said Mr. Landan could contest its decision to void his options. Mr. Landan couldn't be located for comment, and Mercury said it doesn't give out information about former employees.

Lawyers say companies that seek to void options or get money back from executives may expose themselves to lawsuits from the executives. Whether the board's decision holds up in court will depend on how well the company can support its determination that the executive violated his fiduciary duty or the terms of the option contract.

A number of shareholder suits have already been filed to retrieve allegedly improper gains. Last month, two state pension funds sued UnitedHealth Group Inc., executives and board members, in federal court in Minneapolis, alleging the company allowed its CEO to dictate his own compensation and failed to disclose that to shareholders. The investors are asking the company to disgorge all profits two top executives gained by exercising improperly priced options. The suit also asks that the company cancel all remaining unexercised options that were improperly granted. The investors are also seeking compensatory and punitive damages against UnitedHealth for breaching its fiduciary duty.

"We will defend the company against the claims alleged by the plaintiffs in that case," a UnitedHealth spokesman said, declining to comment further citing a pending board review of its options practices.

A lighter penalty would be to reprice the options so they are at the less-favorable prices that reflect dates they were awarded. That could be used in situations where the person who made the decisions didn't benefit personally, lawyers say.

But Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware's business school, says, "If the backdating occurred through an intentional manipulation of the system, I think you cancel the options entirely. I don't think repricing is appropriate."

In November, Analog Devices Inc. of Norwood, Mass., reached a tentative settlement with the SEC and agreed to a cease-and-desist order and to pay a $3 million civil penalty and reprice options granted to its former president and CEO and other directors in certain years to resolve an investigation into options granted just ahead of good news. Options granted to other employees wouldn't be repriced, the company said at the time. Last month, the company said it received a subpoena from federal prosecutors in New York. Also last month the company said it believed the SEC matter would be concluded "in the near future." A spokeswoman Monday said the settlement hadn't yet been finalized.

Beyond the Analog settlement, the SEC hasn't offered much detailed guidance about what it views as an appropriate response to options wrongdoing. Some lawyers are proposing the SEC establish a self-reporting mechanism where companies would get leniency for coming forward before the SEC is alerted.

Regulators could seek disgorgement of improper gains made on the options, such as the difference in the market price at the grant date and the price at which the options were improperly backdated, says Mr. Elson.

Board members and senior executives could be personally liable if they approved options in violation of the company's plan or didn't make full disclosures to shareholders. But some corporate lawyers speculate regulators will be cautious in holding board members liable for fear of deterring others from serving on corporate boards.