Google to Let Workers Sell Options Online

Google said it plans to start its "transferable stock option" program by April, giving employees access to a private Web site where investment banks approved by the company will be able to bid on options employees want to sell. Options, which must be vested before being offered, would be sold to the highest bidder. Once bought, they cannot be resold and would expire within two years. Senior executives are not eligible to participate.

Google is counting on banks being willing to buy employee stock options as a new way to bet on the future of Google's share price.

Some people might have trouble understanding why Google, a company that pampers employees with free gourmet meals, free dry cleaning, and transportation to and from work in the San Francisco Bay Area, would worry about compensation. Investment experts said Google is addressing a long-term issue that could help it remain competitive with start-ups, where the lure of making a big payout might be stronger.

The program also comes as Google is struggling with a compensation imbalance among employees. A large number of longtime Google employees became millionaires after the firm went public in 2004. Since its workforce has tripled over the past three years, Google now has a large group of workers who must wait out their vesting periods and hope that Google's shares continue to rise during that period.

"What this does is addresses a major employee perception issue," said Ted Buyniski, senior vice president of Radford Surveys and Consulting, a unit of Aon. "Your average employee, if I say you can have an option on a stock at $10 a share or at $500 a share, most of them say give me the $10. They automatically think $10 stock will go to $20 faster than a $500 stock will go to $1,000. The real issue is how fast is the whole company growing. What transferable options do is, they help close that gap between the perceived value of the option and the financial value."

In the short term, Google said it would incur some costs related to setting up the program, but investment experts said they expect little, if any, financial impact on Google's bottom line. Over time, the company may even benefit by reducing the number of options it grants if employees think the private market is adding extra value to their existing options.

Like Google, Microsoft made millionaires of its employees through stock options and once helped them sell their options, but under different circumstances. After Microsoft's stock fell in 1999, many employees were holding worthless options. In 2003, Microsoft created a one-time opportunity for workers to sell their options to J.P. Morgan Chase at a fixed price.

Nell Minow, co-founder of the Corporate Library, an independent corporate governance research firm, expressed skepticism about Google's plan because it seems to defeat one purpose of options -- retaining employees and limiting their opportunities to cash out and join competitors. Minow said Google's plans are "innovative." But in the end, she said, "it's just as likely to encourage people to jump ship on the options than it is to hold onto them."

Other experts disagreed, saying that most employees cash in their options soon after they are eligible anyway and that the new market may enhance loyalty. Google is "being quite forward-thinking in terms of establishing a mechanism that is useful" for valuing options, said Joseph A. Grundfest, a former SEC commissioner and Stanford University law professor.

Google executives said they had extensive discussions with the SEC about their plan and think it complies with federal regulations.