Samantha Rose Hunt10 March 2009, 12:21 PM
Google stock has plunged 60% since 2007, but ironically, this may have enriched some employees.
Google is one company that's known for the constant pampering of its employees, and stands out as one of the few employers which allow nearly all workers to have stock options rather than reserving that perk for top executives.
Stock options are where a company offers employees the opportunity to get shares in the company and pay for them later, with the hope that in the meantime, the stock rises dramatically and can be sold by the employee at a profit. This is an obvious incentive for employees to drive the company's stock price up through better productivity in their job, but for the employees it's also (usually) a risk-free way of profiting from share market investment.
The trouble for Google employees is that many of them took options when Google was riding the height of the share market boom, peaking at over $US740 ($1164) per share. Now, they're worth 60% less than that at around $US300 per share.
In January, Google CEO Eric E. Schmidt lamented that almost 85 percent of employees had options with an exercise price (the price to actually buy the share) which was lower than the actual value of Google shares on the open market, which meant the options were doing the opposite of what they were supposed to do in motivating employees.
On Friday, Google launched a plan to arrest this problem and announced it would allow its employees to swap out their quickly declining stock option for new ones at the closing share price that day.
Naturally, employees were hoping that the stock would tank so that they'd have a better chance of making big profits as the stock grew back in value over time.
In a regulatory filing with the US Securities and Exchange Commission, Google detailed its decision, stating that it would allow employees to swap options which were granted before February 3, 2009 to get new ones based on the market closing price on Friday, which was $US308.57 ($485.40).
Shareholders dislike employee stock option exchanges because they effectively equal a transfer of value from the shareholders to the employees. Shareholders are not given an opportunity to simply delete their losses as employees are in such a situation. In this instance the swap would cost both shareholders and the company about $460 million.
However, Google claims that the plan is great for both employees and shareholders.
Other companies are also making an attempt to protect its employees from suffering financially due to the significant stock market decline. Among companies making an attempt to bail out their own are Motorola, Starbucks, and AMD.