Google yesterday announced it would offer a repricing program for its options holding employees, a move that acknowledges and addresses the reality that Google’s stock has sunk, like most others, well below strike prices. Google plans to take a $460 million charge for the move.
The WSJ picks up on the news and offers a perspective (the post is behind a pay wall):
…options are also meant to align interests with shareholders — so if the price soars, both benefit. If the price drops, both suffer. If Google is going to reprice when things go wrong, it should also limit the upside to employees. It would be easier simply to pay bonuses instead, tied to corporate performance, with a portion in stock that vests over time to aid retention … when shareholders do add up the cost of options, the answer can be shocking. Albert Meyer, president of money manager Bastiat Capital, calculates that since 1995, Cisco Systems has spent $30 billion — or nearly half its free cash flow in that period — buying back stock issued as a result of employee options exercises.
Update – more from Adam here. Good overview of earnings, notes only *100* new employees in the quarter, that is a major shift (on a base of 20K) and this:
Google is transferring almost half a billion dollars in wealth from shareholders to employees, and for what ….? Motivation and retention, says Google. This a well known farce, as old as the Valley, which tells itself first that it offers generous stock options as a form of incentive and then, when share prices plummet, moves the ball so its employees, whose incentives apparently didn’t work (as if the stock price were under their control) can be re-incentivized. Retention? Would someone please tell me where the average Google employee is going to go right now?
In conclusion, and as the headline says, Google is in good shape. Not fantastic. But plenty damn good. It’s also becoming more and more like other technology companies in so many ways.