Google to Let Workers Sell Options Online
Wednesday, December 13, 2006
Google has come up with yet another novel way to reward its employees.
In keeping with its offbeat approach to business, the search-engine firm plans to create an online auction for its 9,000 employees to sell their stock options to financial institutions. The goal is to give workers a new avenue to cash in on Google's stock, which has increased five-fold since the company went public two years ago.
It would mark the first time a U.S. company has created a private Internet auction for stock options. Investment experts called the idea creative and said other firms might follow suit if Google's plan succeeds.
The private online auction is to be managed by Morgan Stanley and accessible only by Google employees and the participating investment banks.
Google executives said the plan is designed partly to help employees understand the value of their stock options, which may be higher than the share price on Wall Street.
"The challenges we have with options we're granting today are the same as any company -- there's very little transparency to employees in terms of the options' value," said Dave Rolefson, Google's equity and executive compensation manager. "We're trying to help employees understand their options are valuable by showing them what someone else might be able to pay for them."
Many companies give stock options as a way to recruit, retain and compensate their workers. Options give an employee the chance to buy stock at a fixed price, often the market price at the time the option was granted, for a specific period of time. If the shares rise, the employee can profit by buying at the lower price and selling at the market price.
Google's stock options proved valuable to its early employees because its shares rose sharply from its initial offering price of $85 to close yesterday at $481.78 on the Nasdaq Stock Market. Some analysts questioned whether Google's share price can continue growing at the same rate, which could mean new employees might not reap the same benefits from options as those earned by people previously hired.
Google's stock options typically vest in full over four years and expire after 10 years. Google has 6.6 million outstanding employee options, some of which are at strike prices at or above the current market value.
Stock options were a hot recruiting tool in the late 1990s, when Internet companies made millions of dollars after going public. Option fever abated after the Internet bubble burst and regulators imposed a new accounting rule that took effect last year, requiring companies to deduct the value of options as an expense. Today, stock options are still common, but some firms have questioned their value.
"There's been a huge debate as to whether stock options have value, and this settles that debate for me, personally," said Arthur Levitt, former chairman of the Securities and Exchange Commission and senior adviser at the Carlyle Group. "If this develops into a broad market, we have a very interesting way of liquefying the holdings of employees in a very constructive and creative way."
Levitt was among the handful of experts Google briefed about the program in advance under a non-disclosure agreement, which allowed them to talk to reporters who were also briefed.