Google Reprices 7.6 Million Employee Stock Options.
Google has repriced 7.64 million stock options that had become less likely to enrich its employees given the sharp decline in the Internet search leader’s market value during the past 16 months, The Associated Press said.
The company, based in Mountain View, Calif., said in a Tuesday regulatory filing that 15,642 workers seized on the opportunity to wipe the slate clean by getting stock options with a lower exercise price that reduced their cost for redeeming the reward. Google has 20,200 employees. The.
repricing program expired Monday morning.
The replacement options were all priced at $308.57, mirroring Google’s closing stock price at the end of last week. The company’s stock price rose $17.28, or nearly 6 percent, to close Tuesday at $308.17.
Employees profit from options by cashing in on the difference between the exercise price and a stock’s market price, so a lower exercise price increases the likelihood of a windfall.
More than 6 million of the options eligible for the exchange program had original exercise prices above $500, meaning the employees holding those couldn’t make money on them unless Google’s stock staged a dramatic rally. Like the overall stock market, Google shares have been hard hit since peaking at $747 in November 2007.
Millions of other Google stock options still had exercise prices below $300, giving employees who held those options no reason to participate in the repricing.
Google said nearly 93 percent of all stock options with exercise prices above $308.57 were exchanged.
Although the company framed the repricing as a way motivate and retain employees, the program irked some shareholders who are still stuck with big losses on their investments.
The repricing is expected to result in at least $400 million in accounting charges during the next five years.
Comments are no longer being accepted.
Does the vesting date move forward in time or is this just free money for employees?
Clearly, Google cares for its employee more than its share holders.
good to see a management that is flexible and understands that nothing is written in stone when we’ve just seen the last year erode over $11 trillion in wealth..most companies would let their employees “eat cake” but google seems to have the eye, ear, and soul of its workers at heart and this makes them a tremendously formidable company for many years to come..content as they pursue it will be king in the future and all roads on the net and wireless world will run thru their hallway….
The biggest block of shareholders are the employees and founders. They would have the votes to do anything they wanted to anyways.
Hmmm, narrow to think that what is good for employees isn’t good for investors. Retaining the best and brightest is good for investors. Incentivising employees to drive prices in a nearer term way is not bad either. The cost to the investors of repricing options could be less than the cost of languishing morale.
Understanding Employee Stock Options.
Does your new job offer stock options to you? For many it's a great incentive to join a new company. Google (GOOG) has to be the highest-profile example, with the legendary stories of thousands of original employees becoming multi-millionaires, including the in-house masseuse. Below is some information to help you understand stock options a little better if you’re confused about how they work.
Though employee stock options have lost a bit of their luster since the global financial meltdown -- being replaced more and more by restricted stock -- options still account for nearly one-third of the value of executive incentive packages, according to compensation consulting firm James F. Reda & Associates. Want stock options? You’re going to find them harder to find these days, mainly due to changes in the tax laws and recent blow-back from employees working for companies battered by the recession and tired of holding out-of-the-money, worthless options. In fact, employee stock options peaked in popularity back in 1999.
But if you score a gig with options, here’s how it will work.
Being granted stock options gives you the right to buy your company’s stock for a set price at a future date and for a specified time. We’ll use GOOG as an example.
Let’s say you were among those lucky “Nooglers” hired back when GOOG was issuing stock options at $500. You get the right to buy 1000 shares at $500 (the grant price ) after two years (the vesting period) and you have ten years to exercise the options (buy the shares).
If Google’s stock price is under $500 when your shares are vested they are out of the money and you’re out of luck. You don’t have to buy the shares at a loss, they just expire worthless, unless the stock rebounds and gets above its strike price -- or if the company generously decides to revalue the original exercise price.
But if GOOG is over $1000, as it is now, crack open the champagne – you’re in the money! You can buy 1000 shares at $500, then sell them and pocket a half million dollar profit. Just watch out for the ensuing tax bill.
In some cases, you can exercise your options and then hold on to the stock for at least a year before selling them and pay a lower tax rate. Options have a bunch of tax consequences to consider. If you have questions about your stock options, ask an advisor.
The downside of employee stock options.
In spite of that fact that options can make millionaires out of masseuses, there are some downsides:
Stock options can be a bit complicated. For example, different kinds of stock options have different tax consequences. There are non-qualified options and incentive stock options (ISOs), both having specific tax triggers. Options can expire worthless. Imagine the thrill of a grant followed by the agony of a stock flop. Rather than acting as an employee incentive, options issued for a stumbling stock can muck-up morale. Knowing when and how to exercise stock options can be nerve wracking. Has the stock reached its peak? Will it ever rebound from historic lows? Exercise and hold – or exercise and sell? And you can get way too invested in company stock. Holding a heap of options can lead to a windfall or a downfall. You just can’t bank on them until they’re in the money and in your pocket.
Employee stock options can be an extraordinary wealth-builder. With a rising company stock price and a vesting ladder, it’s almost like a forced savings account. And that can be an option worth taking.
Neda Jafarzadeh is a financial analyst for NerdWallet, a site dedicated to helping investors make better financial decisions with their money.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.
Google Reprices Employee Stock Options.
Nevertheless, Google's willingness to reset more than 8 million stock options at lower prices is likely to spur similar gestures by companies hoping to motivate their employees during a demoralizing recession.
"There is a lot of momentum building" to reprice stock options, said Alexander Cwirko-Godycki, a research manager for executive compensation specialist Equilar. "Everyone has just been sort of waiting for a big name to do it."
Google already has been joined by coffee chain Starbucks Corp., which unveiled a proposal to allow its employees to swap their existing stock options for new ones that will be more likely to put cash in their pockets.
But Google's repricing program made a bigger splash because it's far more generous to the employees — much to the dismay of the shareholders who have seen their holdings in the Internet search leader plunge by 57 percent, or a collective $130 billion, since the stock peaked at $747 per share in 2007.
Google shares surged $18.20, or nearly 6 percent, to close Friday at $324.70 as investors cheered the company's fourth-quarter earnings report. But analysts said the rally probably would have been even more robust if not for the decision to reprice the stock options.
"A lot of people just hate it," said Broadpoint AmTech analyst Rob Sanderson. "I had one money manager tell me, `The next time you talk to Google's management, tell them I want all the stock I bought at $400 a few months ago to be repriced at $285."'
Understanding the angst triggered by option repricing requires an explanation on how the perquisites work.
Employees at thousands of companies generally receive a bundle of stock options when they are hired, and frequently receive additional grants in subsequent years.
The options are assigned what is known as an "exercise price" — the employee's cost for cashing in the reward. This price typically equals the stock's price at the time of the grant.
The more a company's stock price rises above the option price, the higher the profit for employees. The idea is to inspire workers to put in longer hours and come up with better ideas — to increase the company's value and the employees' potential windfall.
But if a stock price plunges below the option price — a phenomenon known as being "underwater" — employees can become dejected, distracted and perhaps even tempted to entertain other job offers, especially if a large portion of the compensation comes in the form of options.
The problem of underwater options faces 72 percent of the companies in the Fortune 500, based on Equilar's analysis of average exercise prices in mid-December.
Google's work force is awash in underwater options: Nearly 17,000 employees are holding more than 8 million stock options with an exercise price of at least $400.
Those are the options likely to be exchanged in a program running from Jan. 29 through March 3. The new options are expected to have an exercise price tied to the market value of Google's stock in early March.
Even though the repricing will result in $460 million in accounting charges, Google reasoned the cost is acceptable, to avoid morale and retention problems among its 20,222 workers. Since its inception in 1998, Google has given options to virtually all of its employees, turning thousands of them into multimillionaires.
"We think it's a good deal for shareholders and for our employees as well," Google Chief Executive Eric Schmidt said Thursday.
Even though it has been cutting back on some perks, Google is still renowned for pampering employees — a trait that isn't widely shared. That's why Sanderson isn't convinced Google's repricing will cause other companies to follow suit.
"Google gives away free lunches to employees, but that didn't compel everyone else to do it," he said.
Did Google even need to be so magnanimous at a time when many people are simply happy to have a job?
"While we agree with management that it is in shareholders' interests to keep Google employees motivated and retain the company's focus on growth, we question the necessity of the (repricing) program given the current employment environment," ThinkEquity analyst William Morrison wrote in a research report.
On the flip side, it could still be smart business to feel make workers feel wanted — even as millions of other people are unemployed.
"The reality is that talented people will always be able to find another job in any market," Sanderson said. "And if you lose your intellectual capital, you could be losing the future of the company."
Hoping to hold on to its employees, Google is extending the vesting period for each swapped option by a full year. Vesting refers to the time that must lapse before an option can be exercised. So a Google employee with an underwater option that vests in June 2010 would have to wait until June 2011 to exercise a repriced option.
Sanderson and Morrison both agree that Google could have lessened the backlash against its repricing by coming up with a program that didn't sting its shareholders as much.
Besides raising issues of fairness, Google's program threatens to lower future earnings per share by creating the need to issue more outstanding stock when the options are cashed in.
Google could have lessened the dilution experienced by its shareholders if it required employees to exchange anywhere from four to 10 of their current options for a repriced option. Or they could have traded for a share of restricted stock that would vest over several years.
It will probably take a few years before any definitive conclusions can be made about the wisdom of Google's repricing, said Collins Stewart analyst Sandeep Aggarwal.
"If it turns out to be good for Google in the long run," he said, "then it will be good for shareholders too."
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Understanding Employee Stock Options.
Does your new job offer stock options to you? For many it's a great incentive to join a new company. Google (GOOG) has to be the highest-profile example, with the legendary stories of thousands of original employees becoming multi-millionaires, including the in-house masseuse. Below is some information to help you understand stock options a little better if you’re confused about how they work.
Though employee stock options have lost a bit of their luster since the global financial meltdown -- being replaced more and more by restricted stock -- options still account for nearly one-third of the value of executive incentive packages, according to compensation consulting firm James F. Reda & Associates. Want stock options? You’re going to find them harder to find these days, mainly due to changes in the tax laws and recent blow-back from employees working for companies battered by the recession and tired of holding out-of-the-money, worthless options. In fact, employee stock options peaked in popularity back in 1999.
But if you score a gig with options, here’s how it will work.
Being granted stock options gives you the right to buy your company’s stock for a set price at a future date and for a specified time. We’ll use GOOG as an example.
Let’s say you were among those lucky “Nooglers” hired back when GOOG was issuing stock options at $500. You get the right to buy 1000 shares at $500 (the grant price ) after two years (the vesting period) and you have ten years to exercise the options (buy the shares).
If Google’s stock price is under $500 when your shares are vested they are out of the money and you’re out of luck. You don’t have to buy the shares at a loss, they just expire worthless, unless the stock rebounds and gets above its strike price -- or if the company generously decides to revalue the original exercise price.
But if GOOG is over $1000, as it is now, crack open the champagne – you’re in the money! You can buy 1000 shares at $500, then sell them and pocket a half million dollar profit. Just watch out for the ensuing tax bill.
In some cases, you can exercise your options and then hold on to the stock for at least a year before selling them and pay a lower tax rate. Options have a bunch of tax consequences to consider. If you have questions about your stock options, ask an advisor.
The downside of employee stock options.
In spite of that fact that options can make millionaires out of masseuses, there are some downsides:
Stock options can be a bit complicated. For example, different kinds of stock options have different tax consequences. There are non-qualified options and incentive stock options (ISOs), both having specific tax triggers. Options can expire worthless. Imagine the thrill of a grant followed by the agony of a stock flop. Rather than acting as an employee incentive, options issued for a stumbling stock can muck-up morale. Knowing when and how to exercise stock options can be nerve wracking. Has the stock reached its peak? Will it ever rebound from historic lows? Exercise and hold – or exercise and sell? And you can get way too invested in company stock. Holding a heap of options can lead to a windfall or a downfall. You just can’t bank on them until they’re in the money and in your pocket.
Employee stock options can be an extraordinary wealth-builder. With a rising company stock price and a vesting ladder, it’s almost like a forced savings account. And that can be an option worth taking.
Neda Jafarzadeh is a financial analyst for NerdWallet, a site dedicated to helping investors make better financial decisions with their money.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.
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