Repricing Employee Stock Options: Disingenuous and Disrespectful

According to this article and others, Silicon Valley companies primarily, are looking to reprice employee stock option grants with more attractive money options in order to retain talent and "motivate" employees.

I'll get right to the point. Look at this mess of an economy! How's keeping your job for "motivation"? Unemployment's on its way to 8% or higher. I've seen my company's shares sink to ten year lows and now my options are worthless. Each year, if you perform, you get a new grant (or even in between if you execute a spectacular project). Unless your company's shares decline to zero, eventually, you'll catch an upswing and your loyalty and performance will be rewarded with an in the money share price in future years and there you go - free vacation, a year of your kids' college tuition, whatever. But until then, give me a break!

I always hear the same story: these Silicon Valley types can't hang on to their employees. The turnover rate's so high. Whaah! Remember when it became a contest to see which dotcom company had the most ridiculous perks? A putting green in the office? Massages while you work? Fridays off...every Friday. Well, remember what happened next? A bunch of programmers looking for a new profession. Why is this time any different? Are GM (GM) executives looking to reprice options? Where are these employees going? From one company with a $3 share price to one with a $6 share price? They're virtually all in the same boat and there are a bunch of executives looking to enrich themselves and dilute shareholder equity when the share prices rebound.

According to the article, Advanced Micro Devices (AMD) is actually planning a shareholder meeting to seek permission to reprice 99% of its outstanding options. What??? This is how you reward employees for this performance? Yes, 80% decline year to date and it's time to reprice!

I just don't understand the justification for allegedly offering options as a way to motivate employees to increase the share price if every time there's a bubble bursting (which seems to occur at least once per decade), they're just going to have their options repriced. In my opinion, any board that even proposes repricing of options at shareholders' expense should be summarily voted out. End of story.

Hmmm, does it remind you of all those mortgages the politicians want to reprice for people who are underwater on their mortgages? Where does it stop? Wait, I went to the casino and lost some money; I want my money back. I lost money in the market and want my losses recouped, can the government help me out?

This notion of repricing of options is disingenuous, dishonest and disrespectful.

Comments

[vbierschwale:]

Agreed.

But I don't see the economy turning around until the American consumer, who accounts for 70% of all purchases in America is put back to work by having their jobs that were offshored, returned to America.

Trust me, the reason the retailers, manufacturers and raw material producers are needing bailouts is described in the articles "Global Economy" and "Your wages do matter" at www.KeepAmericaAtWork....

If you want to keep your business afloat without a bailout, I would recommend taking a look at those two articles.

Virgil
www.KeepAmericaAtWork....

2008 Nov 19 07:37 AM

[wetwillie:]

I work in the analog IC business as a circuit designer. I agree that it is wrong to reprice options. While options are nice (very nice in the run-away market) they should never be repriced. I even question if they are really necessary in retaining key, talented employees. For a startup, the use of options are extremely important but should be faded out once the company reaches profitability. There is very large risks with startups-but a well established, profitable tech company is another story.

2008 Nov 19 08:18 AM

[wsd:]

option repricing has consistently been one of the biggest scams against the average shareholder for years. Its not isolated to silicon valley. When they say "employees", the reality is quite different. Its actually a way for poor management to reward itself. The board of directors are no more then bobbing yes heads for management.

2008 Nov 19 09:43 AM

[JohnB:]

Although repricing options is troubling to say the least, there is a real issue with retaining key employees. For those employees who can get a job offer with new low-priced options at another company, what can current management do to retain the employee? Repricing options would clearly help level the playing field.

Maybe repricing needs to be done more selectively, and perhaps not at all for executives.

2008 Nov 19 11:35 AM

[hi-tech emp...:]

Whether re-pricing is good or bad I won't comment. But I will comment on the silly question of "where are these employees going". If I have options at $20 a share at a company whose current price is below $3 (which describes me, by the way), but I have the ability to switch companies and move somewhere else, getting brand new options at the currently repressed share price, that's a heck of a financial incentive don't you think?

2008 Nov 19 12:16 PM

[paul:]

The reason options get repriced in start ups is that many of the key employees hired in at salaries below the going rate. If the options are not attractive you will lose the people when the options are under water. These are usually key technical people that will cause the company to fail if they leave.

2008 Nov 20 02:02 PM