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In an attempt to maintain the incentive value of its employee stock options despite its soaring share price, Google is set to become the first Silicon Valley company to make all of its options freely transferable.

The plan, due to take effect in April next year, will let Google’s workers sell their options to a group of banks that will be free to bid for them. By creating a market value for the options, this would make it clear to workers that their holdings are worth something, even if the company’s shares have not risen since they were issued, Google executives said.

However, experts cautioned that the change might have little practical effect and could fail to deal with Google’s underlying problem, that new workers may wonder whether their options will ever make them much money. The plan could even backfire if it encourages workers to cash in their options early rather than hold them for the full 10 years.

Google said options would only become transferable after they vest, meaning that employees would be able to excercise them anyway at that time.

Stock options, which generally give workers the right to buy stock at the share price that prevailed when the option was issued, have been a popular hiring tool in Silicon Valley, where the chance for even junior workers to make a killing has become part of the local folklore.

The incentive power of options has waned in recent years as tech stocks have turned more volatile and companies, facing a new accounting requirement to deduct the costs from their profits, have issued fewer to their workers.

However, Google’s soaring share price has created a new batch of Valley multi-millionaires. New workers often do not understand the full value of their options, particularly if Google’s shares fall soon after they are hired, said Dave Rolefson, executive compensation manager at Google.

“We’re trying to close the gap between the option value at [the date of] grant and the employee’s perception of the value,” he said. He denied that the plan had been introduced because of the rapid run-up in Google’s share price, which hit $500 last month, or that Google was facing difficulties continuing its rapid hiring spree.

Microsoft, whose shares have hardly moved in the past six years, broke with technology industry tradition two years ago when it offered all employees the chance to cash in their options, many of which at the time were “underwater”, or had exercise prices below the share price.

Since then, it has issued only restricted shares to employees rather than options. Google, by contrast, said all options issued since it went public at $85 a share in August 2004 would be covered by the plan, and that all the options it issues in future will be transferable.

Nell Minow, director of the Corporate Library, a corporate governance group, called the Google plan ”imaginative”, but added: “The question is, what do you do about getting people excited over a stock that has done so well and can’t go on doing so well?”

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