Tech firms adjust stock options
USA Today - 2/25/98- Updated 09:15 AM ET
PALO ALTO, Calif. - Silicon Valley high-tech firms that have
suffered huge stock drops are repricing employee stock options
in big numbers.
If they don't, companies say, morale will tank and employees
will defect in droves in one of the hottest job markets ever.
Many employees get stock options when hired and often on an
annual basis after that. The options are almost always granted
at the market value on the date of the grant. If the company's
stock tumbles below the grant price, the options become
worthless until the stock exceeds the grant price or until the
company reprices the option lower.
Adaptec, a maker of computer components, was among the latest
to reprice. It did so Jan. 30 after its stock tumbled to the
$$20s from the $50 in two months. Actel, 3Com and Informix also
repriced options in January for rank-and-file employees. Disk
drive maker Seagate Technology repriced Feb. 13 for some
engineers and midlevel managers.
''The shareholders aren't going to do too well if the best people
leave,'' says Adaptec CEO Grant Saviers. Adaptec's stock dived
after it missed earnings expectations for the December quarter.
When networking giant 3Com repriced its employee options, 70%
were underwater. ''It was critical to morale to reprice,'' says
Debra Engle, senior vice president.
When employees are sitting on underwater options, the lure of
start-ups that haven't gone public is especially intense.
Software engineer Mohan Sankaran, 32, joined Informatica, a
start-up in Menlo Park last July. In doing so, he walked away
from options earned during six years at software maker Sybase.
Its stock had dropped from the $40s in early 1995 to about $15
when Sankaran left. Before the drop, Sankaran's options were
worth $100,000. When he left, almost 85% were underwater. ''If
those options had been riding high, I would have had a tough
time leaving,'' he says.
About 30% of Silicon Valley high-tech companies give options
to all employees, not just top executives, says compensation
expert Steve Patchel of consulting firm Watson Wyatt.
The wealth created by stock options here has helped fuel a
tremendous rise in housing prices. Last year, the median price
of a home sold in Santa Clara County jumped 15% to $316,000 -
almost three times the national average.
''No one can get ahead of the game on their salary,'' says
John Hamm, CEO of start-up Whistle Communications. ''In
expensive locales . . .stock options are the only real way
to create wealth.''
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