Google offers to exchange employees’ underwater options
Google offered its employees the chance to exchange their underwater options (the company estimated that 85 percent of its employees hold at least some options where the current strike price is higher than where its shares are now trading, rendering them worthless at the moment), according to a posting from the official Google blog filed with the SEC Thursday along with better-than-expected results from its 2008 fourth quarter.
The move was made to help motivate “the people who are responsible for Google’s success — our employees” by giving them a newly priced option share for each one they trade in. If all goes as currently planned, the new options will be priced at the close Google on March 2. The offer expires on March 3 in the wee hours before the markets open that day.
All “Googlers,” as the company so endearingly refers to its employees, who hold options are eligible to participate. (They also point out that three Googlers in particular — Chief Executive Eric Schmidt and co-founders Sergey Brin and Larry Page don’t hold any options. Their considerable stakes in the company are in shares they own outright.)
The newly issued options will have a new vesting schedule that adds 12 months to the vesting period and in no case will any re-priced shares vest sooner than six months after the close of the offer period.
Google had 12.9 million shares wrapped up in option grants as of the end of 2007, with strike prices ranging from 30 cents to $732.94 each. The weighted average strike price was $333.56. Google estimates that it will need to take a “modification charge” against earnings of about $460 million.
Look for more option repricings from other companies in the future, if the results of a survey done by compensation-data supplier Equilar are any indication.
The Foster City company tallied up the kinds of queries they received from clients who seek out data to help them prepare, and rationalize to shareholders, their compensation plans for the coming year. The number one topic of the customized research requests made by Equilar’s clients: option exchanges, at 20.7 percent.
Second place was a three-way tie at 13.8 percent each for inquiries about research into annual incentive plan design, equity grant practices and executive pay trends.