The Mountain View, California-based company said in its announcement that its new Transferable Stock Option (TSO) program will still permit workers to exercise their options, but will also feature the choice to sell them to financial institutions.
Google said the auction will be managed by Morgan Stanley and Smith Barney will serve as the employee stock option administrator. The company is working with financial institutions to participate as bidders in the auction, which it said is expected to be in place by the second quarter of 2007.
Google officials said they will amend the terms of existing eligible employee stock options to make vested options transferable. The new options will have the same vesting schedule as existing options, with some vesting after 12 months and all vesting within four years.
Only stock options issued since Google’s initial public offering will be eligible for this program and Google’s Executive Management Group may not participate, according to the announcement.
“This program represents an innovative way to compensate employees and will increase the efficiency of Google’s equity compensation by increasing the per-option value of employee stock options,” the company’s online statement said.
Using an Online Auction
Under the program, the participating Google employee will use an internal online tool built by Morgan Stanley to sell the options to the highest-bidding financial institution. The institutions buying the options will likely hold them until maturity and then settle with Google.
“It is very difficult for employees to understand what their options are worth,” said Dave Rolefson, Google’s equity and executive compensation manager, in an interview with The New York Times. “If they can see what others would pay for them, then option valuation would become simple for employees.”
Google’s employee stock options typically have a ten-year term from the grant date. Under the TSO program, the company said Google’s employee stock options will have a lifespan upon their transfer of the lesser of two years or up to the remaining term under the original grant.
Google is not the first company to offer employees the possibility of selling options, but it is the first to propose doing so regularly. In 2003, Microsoft arranged for JPMorgan to offer to purchase all options with exercise prices over $33 a share. (See Microsoft Unveils Under-water Option Plan Details ).
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