A recent Wall Street Journal article has my knickers in a knot again. The article, "
Technology Options Sink", deals with the fact that many of the stock options issued by technology firms in recent years are now worthless.
Let me jump right to the punchline. Employee stock options are a form of incentive compensation. In today's environment, management and employees should just be grateful to have a job. The fear of being called into a human resources meeting and then having security walk you out of the building as you carry a cardboard box filled with a picture of your kids, your "Employee of the Month" plaque, your cactus, and a pamphlet on COBRA benefits should be more than enough incentive.
Let's look at a few passages from the story.
At chip maker Advanced Micro Devices Inc., the situation has gotten so extreme the company is planning a shareholder meeting to ask permission to reprice 99% of its outstanding options. AMD, whose stock price had fallen about 76% over the past 52 weeks to $3.16 a share at Friday's close, said this is necessary to prevent key employees from leaving.
Leaving? To go where? Yahoo may be looking for a new CEO, but who else is hiring these days? They're going to quit their jobs and do what? Unless they have an in with the Obama administration or would be happy repossessing iPods for a debt collection agency, they'd be better off keeping their heads down and mouths shut. Most firms are letting people go these days, and these firms would be happy to take volunteers who are unhappy with their compensation. I say let 'em go. It's never been easier to replace any employee, even a "key" employee.
More than 80% of Silicon Valley's 150 largest publicly traded companies had some employees holding options that had fallen below the strike price as of Oct. 24, according to Equilar, an executive-compensation research firm. Equilar said about 90% of chief executives at those companies had underwater stock options.
Ah ha. 90% of these chief executives have underwater options. The clouds have parted and all is clear. The major beneficiaries of stock options are the senior managers of companies. And where does the call for repricing these options come from? Senior management. They dress it up and pitch it in terms of helping to keep their key employees from leaving, but they're really just trying to cut themselves a better deal. "Sure, my 1,000,000 options would also be repriced, but this is really about helping the engineers with their 100 options."
Some companies are trying to pre-empt shareholder opposition, designing "value-neutral" plans that allow employees to exchange existing options for a smaller number of new ones at lower exercise prices.
