The importance of employee stock option programs in the world of electronics has never been questioned by those companies that want to attract and retain the best talent available in the field. The fact that such options have become almost ubiquitous for starting enterprises is a measure of both the success of such programs and their effectiveness as a control on the initial costs of getting a new business on its feet. Options are still not as widely adopted, or as generous, on the eastern seaboard of the United States, and I have been continually surprised by the near-naivete of many supposed leaders from that coast.
Not, of course, that options are always a real benefit. For example, we all probably know some people who exercised options in the year 2000 (when, if you remember, the markets were soaring), only to end up paying taxes on money they no longer had at the year's end: Tax traps abound in this area. And many people can look at the options they are holding today and see that the values are totally “upside down,” making them similar to the position you will find yourself in if you try to get out of a 36-month car lease after only six months. Some companies have been recognizing that situation and, even with recruiting becoming a good deal easier, they have been re-evaluating their option programs for both new and existing staff to retain the best in their industries. They have also been revising stock purchase plans to take into account the long-term values that might have to be exhibited in today's economy.
Given the whole purpose of stock options (the chance for key, or sometimes all, employees to share in the wealth that they are helping to develop), it would seem to be rather pointless to deliberately shaft those employees at a later stage. But that seems to be happening more and more frequently as companies get close to the endgame strategy that has been devised, leaving the reputation of some of the executives involved in the garbage can while they recycle themselves into their next “opportunities.”
A lot of this employee shafting happens using corporate restructuring, changing the type of company in a legal sense, and like methods. Often it happens with many employees being totally unaware that anything at all has taken place. The victims — and that is the only possible descriptor — are often unaware until after the company goes to IPO or the whole enterprise is sold or merged, and then there is no check in the mail.
In one classic case, an operation in the East Bay of San Francisco was restructured before its sale in a way that denied the engineers a penny of its success. The principal stockholder was already extremely wealthy so the few extra millions he gained hardly made a difference to his fortune; but it made one heck of a difference to his reputation. In California, at least, some restructuring has to be approved by a state commissioner, but his power is miniscule when it comes to the protection of employees. Even when hearings prove that the executives involved are totally illogical, the commissioner has the power to embarrass, but not much more.
We can look too at a company such as Enron, which got itself into the delivery of broadband data instead of sticking to its core energy business, to see corporate decisions — and delusions — that left its many employees out of work. The decisions tore apart their lives by reducing their 401(k) plans to junk status and made their company-assisted stock purchases give them returns that you wouldn't even tolerate from a casino slot machine. Never mind the fact that those who masterminded the demise of such a giant of a company walked away with fortunes in their pockets.
Yes, 2001 sure showed a lot of employees that loyalty is expected by the employer, but that the employee should not expect much return for that loyalty, certainly not when it comes to the remuneration that the senior executives or corporate investors want to walk away with.
When you are looking for your next opportunity, make it a point to check out the management's history in these areas. Were any of them at startups that moved forward in another guise? Were there any at operations that did more than one round of mergers? I personally could have one wall in my house papered with options that are as worthless as many of the stock certificates that have been issued over the years for fictitious gold mines, which I guess is exactly the same thing.
Paul McGoldrick is an industry consultant based on the West Coast.
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