That will help protect part of an employee's grant but avoid large-scale dilution or additional accounting charges, said compensation specialists.
Value-neutral? You gotta love consultants. If by value-neutral you mean exchanging a lot of essentially worthless options for a smaller number of valuable options then, sure, let's call it "value-neutral." Isn't that the kind of math that led to CDOs?
RiskMetrics' Mr. McGurn said investors will be much more sympathetic to plans that don't include executives and directors, many of whom are seen as overpaid. Shareholders also may want to see vesting schedules, the length of time employees have to work at a company before getting their grants, extended in order to entice employees to stay longer.
This almost sounds reasonable. No argument with the part about leaving out executives and directors, but I doubt it would work so smoothly. If the executives needed to be excluded to get approval for the rank-and-file, I wouldn't be surprised to see the issue dropped altogether. Or I imagine we'd see an even larger "catch-up" award for the execs the next time options were issued.
The idea of extending vesting schedules is fine, but that can be done on a going-forward basis with new option awards. There is no good reason to retroactively change the terms of stock option awards. Everyone knew the potential risk and reward when the options were granted.
"I would probably lean toward (repricing) if it would help keep employees," said Ryan Jacob, chief investment officer at Jacob Asset Management, which holds shares in many major technology companies, including Google, Apple and Yahoo.
Ryan Jacob? They're interviewing Ryan Jacob. This is the kid who managed to parlay some incredibly dumb luck during the internet bubble ("investing" in companies with no business plan, no cash flow, and insane valuation) into opening his own "investment" firm. He then proceeded to lose 90% of his investor's money over the ensuing three years. That would have been bad relative performance even during the Great Depression. Does anyone really give a flying stock option what Ryan Jacob thinks about this? How is he even still in business?
The situation is similar at Google. A third of Google's 20,000 employees hold underwater options, according to an estimate by Sandeep Aggarwal, an analyst at Collins Stewart. If Google doesn't deal with the problem, it could lose key staff, he said.
So, even the mighty Google has employees with underwater options. This is supposed to be the place where everyone wants to go and work, but the stock option game is struggling here as well. Where exactly are Googlers going to go if they're already at the best place to work? Ikea? Right now, Googlers should be thrilled that they work at a growing firm with an impeccable balance sheet. For any employee that leaves Google, management will probably have 1000 resumes to pour over.
I would encourage everyone to vote against any repricing of stock options for any reason. The risk and potential reward of these options grants and the trade-off between cash salary and incentive compensation were accepted by all parties when granted. Options are not a form of guaranteed deferred income. They are "option"al.
Management is simply looking to dilute existing shareholders to its own benefit. Don't fall for the "key" employee excuse. There are thousands of "key" employees on the market and many more to come. Furthermore, these "key" employees are often equally likely to be value-enhancing or value-destroying. The senior executives of every failed company and business venture in history were once considered "key" employees.
Disclosure: The Rubbernecker is short Ryan Jacob, "key" employees, and self-serving executives.
