Posted on 10/03/2004 6:50:20 PM PDT by wagglebee
SAN FRANCISCO (Reuters) - As Google Inc. nears the end of its first quarter as a public company, industry watchers say one of its emerging challenges is how to keep soon-to-be wealthy workers from cashing out and moving on.
"The loss of key employees is a real risk for a technology company after it goes public," said Eric Jackson, an early PayPal executive who left after the online payment company's IPO and acquisition by eBay Inc.
Based on Google's share price of around $130, Salary.com senior vice president Bill Coleman estimated that around 60 percent of the 1,900 Google employees with the company at the end of March each now hold stock options worth at least $1 million.
While some workers may choose to go back to school, start a new company, or join the ranks of high-tech early retirees, analysts also note that $1 million is not what it used to be.
"If you live in Mountain View, California, and someone gives you $1 million, you might be able to pay off your mortgage, but you can't retire," said Coleman, referring to Silicon Valley's sky-high home costs.
On the other hand, Coleman estimates that 400 to 500 of Google's longer-term employees will have stock options worth $5 million or more. "Are they flight risks? Absolutely."
Jackson and others caution that post-IPO workers may struggle with boredom, burnout and a lack of purpose after the big push to go public.
To be sure, Google -- which has vowed to remain unconventional -- is seen as a very employee-friendly company. It has even promised to beef up perks, which already include an in-house masseuse and free lunches prepared by the former chef to the Grateful Dead.
While such extras are nice, if Google fails to instill a continued sense of mission among employees, "they're crossing their fingers and just hoping that good people will stay," said Vince Poscente, a management strategist and author.
Poscente also cautioned that employee exits can snowball.
"If one entrepreneurial-minded employee has a great idea and isn't happy with his company any more, who is he going to call? His colleagues," he said.
Meanwhile, the same high stock price that promises to make Google employees rich could hamper hiring by making it harder for new employees to cash in on their own options.
"New employees need an awful lot of shares to catch up to the old employees," Coleman said.
Employee and insider stock selling also threaten to depress Google's share price as lock-up agreements covering significantly more shares than were made available in Google's $1.67 billion IPO expire over the next five months.
Between September 2001 and June 2004, Google sold 23.2 million shares to current and former employees at a weighted average price of $2.86 a share.
Shares of Google, which sold 19.6 million shares in its IPO at $85 each, on Friday were up $4, or 3.1 percent, at $133.64.
Morgan Stanley analyst Mary Meeker predicted that a big drop in Google shares was unlikely. Morgan Stanley was a lead underwriter for Google's August IPO.
"It's probably unlikely that these shareholders will sell into big declines; the outcome here could be a potential ceiling for the stock price in coming months, rather than downward pressure," said Meeker.
And how many of these people will vote to have their taxes raised because they are now 'rich?'
They are from the San Francisco area, it might depend on what the Grateful Dead's former chef puts in the lunch on election day.
This was one of the reasons this IPO never should have gone off when it did. Someone correct me if I'm wrong, but I believe it was unprecedented to have employees be able to cash out their options so early after going public. To me, it's a scam of the highest order.
From what I have seen (at different company, in different industry, at different time and so on) those employee options normally are subject to vesting schedules and trading windows (normally closed periods would be around quarterly announcements). All these restrictions make the disposal of options rather cumbersome. Whenever the market was good for unloading, the window was always closed. So, when (finally!) the open window happened just before market peak in March 2000, the unloading was of diarrheic character. Of course, it was at completely different place.
as an employee, I'd rather have a short lockup period than a long one. The bigger scam would be where the lockup period is too long.
yes normally the options are incentives to keep working like a little buzzy bee so that new capital can be invested by outside investors...
but now they should cash out and crash the stock maybe we can all short the dam. thing and make few crumbs...
just to see what it felt like to be in high rolling 90's
they should have the same cash out schedule as the executives. many tech employees got burned by these lock out period during the bubble, while the well connected execs walked off with millions.
what google should be doing is hiring the best people they can to backfill - fast. and they are available, offer a $200K salary, and in this market, they will have the best people in the industry lining up to get in there.
Going public isn't about how much the employees will make. If I bought the stock and a month later the employees cashed out and the stock tumbled, I'd be pissed. But I guess everyone knew up front, so to hell with it.
No. It's about how much the current owners are going to make. And since these owners currently work for the company they should profit by the IPO.
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