Internet Companies' Options Use Picks Up

August 8, 2006 ( - Internet/e-commerce companies are stepping up the use of employee stock options but other employers are not following suit, a new survey has found.

A news release from Syzygy Consulting Group said that Internet/e-commerce companies increased employee ownership to 21% from 19.4% in 2006. The stock-options picture was markedly different in other companies, however.

“This year’s results show a general increase in cash compensation and, except for Internet companies, a significant decrease in stock compensation,” said David Broman, CEO of the Lafayette California company, in the announcement. “This is the first time we have seen the use of stock options decline so rapidly.”

Syzygy said that the 2006 Pre-IPO and Private Company Total Compensation Survey also showed:

  • Aggregate employee ownership decreased 15%, falling from 17.7% to 15.1%.
  • Employee ownership in Software and Manufacturing sectors fell the most, decreasing 47% and 42%, respectively. It decreased 6% in the Life Science/Bio-Tech industry.
  • Restricted stock is now used at 24% of companies representing 11% of employee holdings (the remaining 89% is held in options and stock appreciation rights (SAR).
  • CEO (non-founder) cash compensation jumped 16%, but their ownership percentage decreased from 6.2% to 4.9%.

“Public companies are also scaling back stock awards due to expensing requirements, investor dilution and the back-dating scandals, allowing the new era of dot com companies to attract top talent,” said Broman.

“I still believe that using stock options to find and keep talent makes good business sense for a private company, but expensing requirements and the need to conduct valuations because of IRC 409A are forcing investors and management to scale back use of stock options,” he asserted.

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