Let the Options Re-Pricing Stimulus Begin - 2 Mar 2009

There's
been so much talk about the economic stimulus plan, TARP, the misguided
auto industry bail-out, mortgages and the government strapping on that
enormous financial feedbag, that there's one other idea that should get
serious consideration, especially with big cap tech companies like Microsoft

, Apple

[AAPL 
87.94 
 
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and Google

[GOOG 
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watching stock prices plunge.

A massive options re-pricing effort.

Fact
is, so many workers in Tech Land face an economic double-whammy: 
Taking jobs for below-market salaries in exchange for stock options
that could have -- should have -- increased their compensation
handsomely and offset those lower wages.  At least that's the way it's
normally worked in the past.  Sure, the dot com bursting bubble taught
a hard lesson in options wealth, but that implosion occurred largely
because we all lost track of what real value was.  Eyeballs replaced
revenue and profits and paper profits turned out not to be worth the
very paper they were printed on.  But when you're talking about
companies like Google and Microsoft and so many others that generate
real profits, and sit on real mountains of cash, options grants seemed
like relatively safe bets for workers willing to take equity in
exchange for cash up front, and share in the success of the company.

Today,
success has nothing to do with it.  Apple has one of its best quarters
in history, sits atop $30 billion in cash, and yet its stock is stuck
in the market mud.  (Apple doesn't grant options anymore, choosing
instead to rely on so-called Restricted Stock Units for executive
compensation.)  But the same holds true for Google, a company that
still relies heavily on stock options, and yet 14,000 workers hired
over the last three years are underwater on them.  The option strike
price is actually higher than the stock is worth. 

"It's
very difficult for companies, who want to keep their top people
motivated, if all of the options are underwater," John Challenger of Challenger Gray & Christmas tells me.  "That kind of motivation and incentive has just disappeared."

So
Google is one of the first big names to embark on a re-pricing effort
to re-incentivize (is that a word?) employees by lowering the strike
price to add value where it has since evaporated.  Great for employees,
but sucks for retail investors who don't get the same treatment. The
Google model should be far more widely adopted.  Why rely on the
government for economic stimulus when so many publicly traded
companies, not just here in Silicon Valley, but nationwide, have the
ability to stimulate the economy all on their own.  Beginning with
their own employees and executives.

• CNBC Slideshow: Surprising Stock Market Indicators

This
isn't just about top level managers reaping big rewards -- and
suffering huge paper losses -- because of the stock collapse, and
ensuing options evaporation, going on.  Sure, big execs grab big
headlines.  Compensation expert Equilar
reports that on average, the average CEO options award among the top
150 Silicon Valley companies declined from $17.5 million to $6.3
million since the start of last year.  Intel

[INTC 
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CEO Paul Otellini's 5.2 million options were worth about $19 million at
the start of last year.  Today, they have no value.  Intel Chairman
Craig Barrett's options were worth about $16 million.  Today, they're
worthless.  Shantanu Narayen, the CEO of Adobe

, enjoyed options worth $14.1 million at the start of last year; today, the same block is worth $53,000.

And
as companies hoard cash in these tough times, 116 companies have
reduced salaries for executive officers, trying to offset those
reductions with new stock options.

But
it's also about rank and file workers who receive options.  Millions of
them.  At the start of last year, about 47.6 percent of Silicon
Valley's top 150 companies suffered options with strike prices higher
than the stock price itself.  Today, it's 80 percent.

So
now, many companies are embarking on re-pricing strategies, not just
Google.  A handful of companies through the course of last year began
re-pricing options.  But the

more...http://www.cnbc.com/id/29469599