Most everyone holding Google stock has sincerely felt the impact of the market’s crash. The stock is down to around $300 from $747 in November 2007.
As of yesterday, however, Google employees holding options on Google stock aren’t nearly so badly off.
Yesterday, Google exchanged more than 6 million employee-held options with excercise prices above $500 for options priced at $308.57. Of Google’s 20,200 employees, 15,642 participated in the swap. In exchange for a lower strike price, each agreed to a delayed vesting schedule.
Google says the repricing will keep valued employees from joining or starting competitors.
But that incentive comes at a cost too dear for shareholders, wrote our own Henry Blodget back when Google announced its plans for the options exchange:
Google’s new option exchange is just repricing by another name. It’s not “evil,” per se, but it certainly shows where Google’s priorities lie (employees first, shareholders second). It makes a mockery of the “align employee interests with shareholders” argument used to justify piggish option allocations in the good times. And it also seems unwarranted at this point.
Google’s stock is down about 50% from the peak. Big deal: So is the S&P 500. Eric Schmidt says 85% of employees have options that are underwater. Big deal: Most Google employees who deserve to keep their jobs will get new options every year (the news ones won’t be underwater). Google employees have “suffered” for a whole year since the peak. Big deal: The whole point of awarding options is to reward employees for building shareholder value over the long-term. And, unlike other companies, Google already has a transferable option program that allows employees to cash in on underwater options.
The option exchange is only “good for shareholders” insofar as it keeps the company’s talent from leaving. There are other ways to keep this talent, however: Pay top-performers more and fire weaker ones. Award new options at lower prices. emphasise that, even without guaranteed stock-option riches, Google is amazing place to work. Inspire employees to stick together and power the company through this period.
Evil? No. But it’s the easy way out.
Google said the options exchange program will cost at least $400 million in accounting charges over the next five years.