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Google Employees Benefit From Stock Market Slump

March 7, 2009

As Google stock drops during the unstable economic climate, the Internet search leader has developed a way to boost moral and retain employees by providing them a second chance to profit from millions of stock options after a nearly 60 percent drop, the Associated Press reported.

Google workers can now profit from options by cashing in on the difference between the exercise price and a stock’s market price, essentially giving them incentive this week to root for the company’s shares to decline, lowering their exercise price and boosting the potential payout.

Shares in Google moved up nearly 1 percent on Friday but still fell nearly $30, or about 9 percent, for the entire week.

The majority of Google’s 20,000 employees hold options that are “under water,” meaning the stock’s trading price is below the exercise price.

Most of those options will likely be exchanged for rewards at the new exercise price before the exchange program expires at 6 a.m. Pacific time on Monday.

Google Chief Executive Eric Schmidt and co-founders Larry Page and Sergey Brin are the only Google employees not allowed to take advantage of the offer.

Google is known for the exceptional treatment of its employees and offers options to virtually all workers rather than just top executives.

However, Google isn’t the only business trying to insulate its people from the financial pain inflicted by the stock market’s biggest wipeout in decades. Starbucks Corp., Motorola Inc. and Advanced Micro Devices Inc. are among other major companies re-pricing stock options.

Executive compensation specialist Equilar Inc. said 21 companies are expected to complete stock option re-pricings during the first three months of this year, up from seven companies in the first quarter of 2008.

Stock option re-pricings may be beneficial to employees, but aren’t so popular among shareholders who don’t get the same opportunity to erase their losses.

Re-pricing programs threaten to lower future earnings per share, as companies will have to issue more outstanding stock when the options are cashed in.

Additionally, the re-pricing programs can also result in substantial charges that lower reported earnings.

Google, for instance, expects to absorb $400 million in charges during the next five years to account for the costs of its option re-pricing””an estimate based on the assumption that the stock options would be re-priced at about $350 rather than $308.57.

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