Google’s reign of terror over Valley workforce coming to end?

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).