November 9, 2008

Silicon Valley employees hold worthless stock

by Brian Turner

According to a report in the Wall Street Journal, 80% of Silicon Valley’s top 150 companies have employees whose stock options are now worthless.

Stock options are a way to retain key staff, by the right to buy shares at a preset price, as part of a benefits package.

When the stock market runs well, the company makes profit, and the employees with options feel more rewarded.

However, over this year tech stocks have plummeted with the stock market.

The result is that many of the stock options are now worthless because the price they can buy is above the actual stock value.

An example is Yahoo, whose stock price is currently running at a 5 year low. According to the WSJ report:

One Yahoo executive who asked not to be named said all the options he received since joining the company four years ago are now worthless. “Anyone who’s been hired after I was hired, all those people are underwater,” he said.

Even Google is not immune, with as many as a third of Google employees now holding stock options which are currently worthless.

The result is a feeling of being underpaid, poor morale, and lower employee retention.

The simple solution would be to simply rewrite the terms of the stock options – which is precisely what happened after the Dot Com bust.

However, shareholders who had already seen their shares fall dramatically with the stock market were so incensed to see their value further diluted by this process, and now options are strongly regulated. This makes it much harder for companies to rewrite the terms of their options.

Of course, these options are only worthless so long as the company stock price remains lower than the buy price.

Even still, in an environment of business gloom as the fallout from the credit crunch continues, the warning to businesses is clear – stock options are not the benefit they are intended to be when times get hard.

Questions? Discuss this in our Internet Business forums for help and advice

Story link: Silicon Valley employees hold worthless stock

Add to Bookmarks: