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Last time Google tried its hand at financial innovation the results were, at best, mixed. The search engine plumped for the purity of an auction-based initial public offering. The theory was right, but it probably ended up getting less for the shares it sold than it could have in a traditional IPO. Will its attempt to create a market for employee share options be more successful?
Again, the theory is sound. Many employees do not recognise the real value of their options, especially when they are under water. So allowing them to be sold in a transparent market, once vested, would demonstrate their value. Potentially, that means less would have to be issued to create the same level of incentive. More immediately, it should help Google recruit those who are worried that the company’s amazing share price run has left little upside. The new system would show that options still have substantial value.
As well as providing a recruitment tool, it should help encourage those with underwater options. But it also sends a worrying signal. Options are meant to give employees an incentive to work hard and remain with a company in the long term. Under this scenario, employees would be able to crystallise part of the value of the future years of an option right now. That is hardly the best way to keep people when things get less rosy.
If Google is most worried about recruiting and retaining the best staff, how about the good old optical illusion of a share split? It is not rational, but employees would probably feel more upbeat about the chance of Google’s shares rising if they were $50 each rather than $480. That would be cheaper too. But it would lack the purity of a well-engineered Google solution.
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