However, I’m not sure why G is getting so beat up about it…..it’s not like they invented the concept…..it’s been around for ages.

]]>‘“Would you prefer we had the Wall Street firm’s bonus model? That doesn’t seem a very good model to me.”

]]>We expect to take a modification charge estimated to be $460 million over the vesting periods of the new options. These vesting periods range from six months to approximately five years. This modification charge will be recorded as additional stock based compensation beginning in the first quarter of 2009. This estimate assumes an exchange price of approximately $300 per share and that all eligible underwater options will be exchanged under this program. As a result, this estimate is subject to change.

If you’re interested in learning more about this employee-only stock option exchange, we encourage you to read our related SEC filings when they become available.

]]>I, with the help of one of my interns, looked at this type of blending, with another kind of blending where only the options are given but the strike price is lowered (such as half of what the stock price on the day is). The numbers of the options are appropriately adjusted to keep the cost to the employer the same.

Note that a stock is also an option with a strike price of 0. So Google’s package was granting two types of options, some options with the strike price of 0 and some with the strikeprice equal to the market price of the stock on the day. What we came up with that instead of granting these two types of stock based packages, a company would maximize the incentives for the employees if a single package of options with lowered strike price, such as half of the market price of the stock on the day, is granted. We assumed that the market value of the package is fixed. (My intern wrote a program to find the optimal tradeoff.)

Basically we define the incentive ratio of the package as follows. Assume that the stock price goes up by a dollar, then what is the increase in the personal wealth of the employee. We then take the average of this ratio over the life time of the stock based compensation package.

What Google is doing this quarter is a validation of our work. If Google had combined the stock with stock option the way, we showed is optimal, instead of the way it actually did, then Google would not be repricing the stock options today. An expected gain of a 9 figure sum.

Another thing on simulations the program showed is that with such a package, options is an effective incentive alignment tool for value companies too as it is for growth companies.

Disclaimer: The results were not mathematically proven, but were empirically based on the simulations of a computer program. The program was not tested so could have bugs too. It was written to give us some validation, because the math was too complicated (complicated enough that we could not complete it.)

]]>I, with the help of one of my interns, looked at this type of blending, with another kind of blending where only the options are given but the strike price is lowered (such as half of what the stock price on the day is). The numbers of the options are appropriately adjusted to keep the cost to the employer the same.

Note that a stock is also an option with a strike price of 0. So Google’s package was granting two types of options, some options with the strike price of 0 and some with the strikeprice equal to the market price of the stock on the day. What we came up with that instead of granting these two types of stock based packages, a company would maximize the incentives for the employees if a single package of options with lowered strike price, such as half of the market price of the stock on the day, is granted. We assumed that the market value of the package is fixed. (My intern wrote a program to find the optimal tradeoff.)

Basically we define the incentive ratio of the package as follows. Assume that the stock price goes up by a dollar, then what is the increase in the personal wealth of the employee. We then take the average of this ratio over the life time of the stock based compensation package.

What Google is doing this quarter is a validation of our work. If Google had combined the stock with stock option the way, we showed is optimal, instead of the way it actually did, then Google would not be repricing the stock options today. An expected gain of a 9 figure sum.

Another thing on simulations the program showed is that with such a package, options is an effective incentive alignment tool for value companies too as it is for growth companies.

Disclaimer: The results were not mathematically proven, but were empirically based on the simulation of a computer program. The program was not tested so could have bugs too. It was written to give us some validation, because the math was too complicated (complicated enough that we could not complete it.)

]]>wow, that’s a little change.

almost half a billion!

]]>