For two years, Google has brutalized its competition and other start-ups by grabbing the best talent with two sexy pieces of bait: the stock option, and its fun brand.
However, the first piece of bait, the stock option, has become decidely less sexy — and we may soon see more employees start to leave for more lucrative job opportunities.
Google has recognized this, creating an unusual options trading scheme it hopes will retain employees.
While Google’s stock price defied gravity through January this year — there are strong signs it may stall going forward (see graph below). It means that an employee hired a couple of weeks ago got their options at a price of $500, but now see the stocks valued at $481. If there’s little hope the stock will rise much, what’s the point of staying (aside from the apparently fun work atmosphere, which may be enough for many people, granted)?
That conundrum may be why Google has just introduced the options market, an online trading site that lets Googlers sell their shares to institutional investors — who are often willing to pay more than the current market price for an option to buy those shares in the future. The Merc’s Elise Ackerman has a good summary of the program here. For example, a Googler with options at $500 may think their shares are essentially worthless right now. However, traders on the futures market are offering to buy those options in January 2008 for a price of $500 a share — but not only that, they’re willing to pay $70 right now for the privilege — basically netting the employee $70 per share. Not bad if you’ve got an award of 1,000 or so shares.
The idea is to give employees some confidence that their shares are worth something, and motivate them, according to Dave Sobota, Google’s counsel.
However, “it its just as likely that it will encourage them to sell,” counters Nell Minow, co-founder of the Corporate Library, a governance advisory firm. After all, the average employee has 700 shares, and the resulting $49,000 net does not a fortune make.
A trickle of employees have left Google so far, but mostly those early employees who made bucketloads. We’ve yet to see a wave of employees successfully poached by other companies. When Googlers leave, it’s usually to do their own thing. That may be changing soon. (Image above of lavalamps is from Google’s job page).
9 Comments
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Nate said:
Hate to be so pissy with you, but since when are you a qualified technical stock analyst?
You can’t infer that there are “strong signs it may stall going forward” just by looking at that graph. In May you would have had to infer that there were “strong signs GOOG won’t exist in a few months”.
I don’t know where GOOG is going and neither do you or anyone else that’s involved. We can only have *qualified* opinions, more or less sophisticated than the Goldman Sachs’ opinion or that of the guy down the street.
I’ll choose more sophisticated than a screenshot of Google Finance.
Full disclosure: I’m long GOOG.
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Startups.in/India said:
Interesting! But I wonder if it’d help increase retention or speed up attrition!? :)
Unless I’m missing something, wouldn’t it also facilitate those employees wanting to leave, to just sell them in this auction market and make some bucks rather than having to wait in hope for their options to be any worth 10 years down the lane? -
Sachin Maheshwari said:
If these are options then they are invalid as soon as you leave the company. So the question of cashing out the remaining options before leaving is moot.
I am surprised how this scheme works though. Does one need to stick around with the company till Jan 08 if I sell options on this market for Jan 08?
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Startups.in/India said:
Obviously this is to benefit those who already have vested shares but are under water. But still without this program there is a chance that the employees might stick a bit longer in hope that some day they might profit. But with this program employees no longer need to stick around.
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Everton Blair said:
Sachin - I doubt that’s the case, as in that scenario you would only sell the option today if you think you’ll be ‘out of the money’ in Jan 08, rather than being able to cash in early.
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Jitendra said:
Very interesting…but doesn’t it take away the rationale that companies have been providing that stock options are for incentivizing employees. And I guess it finally takes the air out the argument that stock options cannot be expensed as they are too hard to value appropriately…
Overall this is a visionary move by Google and I am looking forward to how its gonna fare as a retention tool.
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tomo said:
most employee stock options vest over time. typically four years total for each grant with a 25% cliff at month 13 and then monthly thereafter.
the interesting issue which wasn’t addressed is what happens if the employee quits, gets fired, dies, etc prior to vesting those options which he sold? where are the shares going to come from when the call comes due?
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Boris Epstein said:
I have 2 years of experience recruiting directly against Google and it has not been easy. But as tough as it’s been to get people to join another company and turn down a Google offer (this happens more than you think), it’s been absolutely impossible to get somebody to leave Google. It just doesn’t happen (believe me, I’ve tried)
But it will get easier. I predict that by the end of 2007, the market will begin to see a flow of talent trickling out of Google. It will mostly be the newbie googlers who will realize that they joined a company for the hope of striking it rich - but they will realize that they missed the real boat by about 3 years and are meanwhile missing out on the opportunity to truly make an impact elsewhere.
Boris Epstein
BINC Founder
http://www.bincsearch.com -
Testing... said:
Just testing
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10:08 pm
The Web War » Leaving Google said:
[...] This article written by Matt Marshall of Venture Beat is brutally true. Google has been dominating the world of software recruiting for the past 2 years. I have two years of experience recruiting directly against Google and believe me, it’s been far from a picnic. The candidates that we represented typically received offers from the big 3 web giants - Google, Yahoo and Microsoft. After working through this scenario on several occassions, we found that people went to Google for the money, Yahoo for the culture and Microsoft for the technical challenge. [...]