Reuters is reporting that Google will instate a program to allow employees to sell vested stock options early, beginning in April. The program will be called the Transferable Stock Options (TSO) program.
The stock went public in 2004 and employees were given stock options. Those that were hired since, were given options upon hire date. Up until now, employees had to wait until the stocks vested, at which time they could either hold them, or exercise them and then hold or sell the stock. With the TSO program, employees can now “transfer (sell) their options to a financial institution through a competitive bidding process,” according to the official Google blog. The bidding process will be managed by Morgan Stanley.
This will raise the value of the options, while raising the cost of options to Google. Currently, the price of a single share of Google is approximately $481.
“The goal is quite simple,” David Rolefson, Google’s manager of equity and compensation, told Reuters. “It is to increase the perceived value of the option to the employee.”
That means they’ll get even richer. Good for them!
In other words, the “perceived value” of Google stock in the eyes of its employees in, say, a year or two, is lower than the perceived value in the near future. Why might that be?
Excellent timing of Google to reward their employees…
Looks llike a Employee-Friendly company.
A good thing for employees. But i guess in the long run. It will make Google grow faster and bigger then it already is. And with more stock out there for the people. The higher value for the workers to work harder and keep the stock as long as they work for the company. I guess they want employees to feel value to work for google. Which is a good thing and they cut financial losses when people dont quit their jobs etc..
how many shares do individual employees have on average? at $481 a share…thats a lot of coin
the average wage in china is way less than a dollar a day
india a 10 hour day is 70 cents
quatemala is about a dollar a day…
knowing this…makes me less upset if I miss my morning donut
i have read that every 4th or 5th(cant remember exactly) google employee is already a millionaire because of the value of ther shares.
So this would make them even richer indeed.
How does one become an employee of Google?? Beam me up Scottie……
http://www.reva...squarespace.com
Your analysis isn’t correct, Natali.
“By selling a stock option early, employees will make the difference between the initial price and the current price.” — That’s not correct. They would make this profit regardless of when they sold the option, and has nothing to do with selling early.
“This program will allow employees […] to sell options to qualified institutions via a private auction […]. This will raise the value of the options, while raising the cost of options to Google.” – That’s not correct.
A stock option gives the holder the right to purchase a stock at the “strike” price, which is set at the time of the option purchase. The idea is, in the future the price of the stock (market price) will be much higher than the “strike” price, allowing the holder of the option to reap the benefits between the two prices.
The only reason the value of an option goes up, is if the spread between the strike price and market price increases. Employees being able to sell their options to qualified institutions, doesn’t increase the cost to Google in anyway. Cost will increase if the spread between the option strike price and market price increases, and decrease if the spread decrease. Regardless of whether institutions hold the option, or employees hold the option, the cost to Google is the same.
Typically employee stock options aren’t transferrable meaning that employees can only profit from options by exercising them when the market price is greater than the strike price. This new program benefits employees in two ways. First, employees will be able to sell options to financial institutions for a premium above the current strike-market price because of the time value of the options. Second, employees with brand new options, where the spread between exercise-market is negative, will be able to profit if the premium paid for the options is above the that negative spread.
While this sounds rosy and cheerful on the cover, it is not exactly the purpose of stock options. Stock options give incentive for employees to increase the value of the firm (stock price up) since the spread and their profit from the option is getting larger. By allowing them to sell their options early/immediately for a premium, the profit can still be reaped by employees, but it takes away the incentive for them to work hard and increase firm value. Stock options align both the employee and stockholders interest, but this is now eliminated due to this program.
“Most employees were given stock options when the company went public in 2004″ is also incorrect. Employees are typically given options when they’re hired, not when the company goes public; the company going public simply provides a market for those options. It was certainly the case that employees received options before the company went public.
Ashutosh- thanks for the reply. You are absolutely correct. I don’t think this is a good news for Google share holders.
This seems like the kind of practice that is legal only because it isn’t illegal yet.
Also doesn’t it defeat the purpose of vesting if you don’t have to stick around until you can stick around and complete the vesting process?
I guess I shouldn’t be commenting without reading the policy myself, but it’s creative practices like this that /really/ skew playing field and pump up bubbles.
I’m confused (probably because I haven’t finished my first cup of coffee), but if they are vested in the options are they really selling them early?
Einar, this applies to people who aren’t yet vested. Sort of a sell to someone who has enough money to be patient while they vest, when you can’t afford to.
The Reuters article is wrong. Read the FAQ which Google has posted. The options must be vested before they can be sold under this system.
I’m not a finance person, but I have a blog post examining implications of this program. I consider the various effects on Google’s stock issues and related options ramifications.
Would this new program really help Goog increase retention or instead help speed up attrition. ?
IMO, this now just makes it easier for those employees planning to leave but whose options are under-water to sell them using this program (for a profit?) and look for greener pastures elsewhere.
Without this program the employees would have at least waited in hope for their options to be any worth “n” years down the lane?
What am I missing?
The issue Google is having stems from the double edged sword of having such a high stock price and market valuation: limited upside for new talent. By introducing such a system (which is not new btw, Microsoft did this 3 years ago), they provide a level of immediate perceived value to new recruits in the value of the options they are getting. Without this i might be more enticed by the prospect of joining Yahoo! (if you belive in the company), given the vastly lower multiples on the stock.
What is Michael Arrington doing? He had been a corporate lawyer and can explain this event much better. I haven’t been too impressed by Natalie’s analysis on various topics so far.
This is not suprising. Google has treated its employees better than any other tech company since the early start up days. It makes Microsoft’s HR program look like a joke in comparison
http://www.sec....5-06-252044.txt
Here’s the filing if anyone is interested. I haven’t read it.
Everyone, please keep in mind that an option’s value also increases with the expectation of stock price volitility in the future. Perhapes with googles recent stability in the market place they wish to maximize their employees’ capitalization by offering their employees early option sells.