Saturday, January 24, 2009

Google Launches Options Exchange Plan to Retain Talent

Google’s Board of Directors approved and the company announced a new “employee options exchange program” today.

The company filed the requisite 8-K with the SEC and also detailed the plan on its blog:

“Recognizing that about 85% of our employees have at least some stock options that are underwater (i.e., have an exercise price higher than the current market price of our common stock), we plan to offer our employees the opportunity to exchange those options,” reads the post. “Our goal is to continue to reward our employees for their contributions and do everything we can to keep them engaged and focused on serving our users.”

The program has the following components:

• It will be a one-for-one, voluntary exchange. Employees will be able to exchange part or all of an existing option grant for the same number of new options.

• The offer period will is to begin on January 29, 2009 and end at 6:00 a.m. Pacific Time on March 3, 2009.

• Employees will be able to exchange their underwater options for new options with a strike price equal to the closing price of our stock on March 2, 2009.

• The new options will have a new vesting schedule that adds 12 months to the original vesting schedule. In addition, new options will vest no sooner than 6 months after the close of the offer period.

The blog post indicates that almost all employees are eligible but that top executives Eric Schmidt, Sergey Brin, and Larry Page do not hold any stock options.

Google estimates that the total number of options expected to be exchanged in this program represents less than 3% of total shares currently outstanding, and to takea one-time modification charge of approximately $460 million over the vesting periods of the new options.

These estimates are based on the assumption that the company’s stock will close at about $300/share on March 2. The stock closed today at $306.50. Shortly thereafter, as the 8-K filing and the blog post were made public, Google’s stock rose sharply in after-hours trading, and is up over 2 percent to above $312/share as of this writing.

One way to interpret this move, given the company’s recent program cuts and layoffs, is that management feels it is critical at this time to make an aggressive move to retain employees. There are a lot of competitors out there that would like to take a similar move, I suspect, but few with the resources of Google to do so at this time.


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