Google Announces Gooptions

Google has announced Gooptions, an experiment in making a market in non-executive Google employees’ vested stock options. The upshot: This will make it easier for Google to internally account for option costs (via a market vs. Black-Scholes), while potentially creating a new avenue for employees selling options.

My main beef is the apparent absence of transparency. Unless I misunderstand the announcement and the myriad related financial documents (1, 2, 3), institutions are about to get a privileged window into Google employee’s option-selling plans. A secondary issue, and this is more debatable, is you could argue this is a bearish signal for Google stock. After all, if you think the upside for GOOG is limitless then you could hardly be coerced into selling your stock prematurely via an option market.

Related posts:

  1. Baby Needs a New Pair of Google Shoes
  2. Still So Sanguine About Google?
  3. Barron’s on Google and Click Truth
  4. Options Traders and Mary Hart
  5. Imagining the Google Future

Comments

  1. Oooh … sneaky. Check me:
    Exercised employee options turn into stock. Which dilutes the stock. Which send prices down. Which leads to people exercising more options while they’re worth anything . Which further sends the stock down …
    But if they can resell the options, to someone else, the party continues that much longer. …

  2. Options finance experts:
    is my cynicism correct?

  3. Richard says:

    On the other side of this argument, a fundamental economic principle is that ease of transfer of any good or service increases its value. For example, some of the recent real estate boom can surely be attributed to technology and how much easier it is to buy and sell houses, get mortgages, etc. than it was 5-10 years ago.
    I could see short-term negative impact, but long-term the ease of transfer of those options is bound to have positive effects.
    Also, if you had a disgruntled employee who was unhappy and wouldn’t leave because of the value of his options, wouldn’t it be better for him to be able to cash out and move on?

  4. Don Dodge says:

    Paul, I understand your issue on transparency, but it was probably far worse in the past.
    My experience is as an employee and stock owner of several start-ups that went pulic. The way it worked then was that employees and insiders were encouraged to sell their stock ONLY through the original underwriter, say for example, Morgan Stanley.
    Most employees opened accounts with the underwriter (Morgan Stanley) and sold all their stock through them. The underwriter was in a position to “manage” the flow of stock and maintain an “orderly” market.
    In effect they could match buyers and sellers internal to Morgan Stanley, move big blocks of stock without causing a ripple on the overall market, and manage the timing of stock sales to avoid wide swings in the price.
    All the major underwriters did this back in the day when IPOs were hot.
    I agree that Google’s TSO plan could possibly allow the big institutional brokerages to arbitrage certain stock movements, but the SEC and other regulatory agencies are watching this stuff like a hawk. No one wants to get caught in a “back dating options” trap or anything like it. So, I think the risk is small.
    I wrote a blog on this subject today at http://dondodge.typepad.com/the_next_big_thing/2006/12/options_on_goog.html
    Don Dodge

  5. So how will this retain employees? Under the current setup, the vesting schedule is 4 years, so you better stick with GOOG through those 4 years, have options vested, and hope that by the time you’re 100% vested the stock price is above your option price.
    If you can, however, cash out your existing options, and let someone else sit out the remaining time to make it 4 years vesting period, why would you stick around? It seems that it now makes more sense than ever to leave the company, cash out on options on this new open market, and vest with some startup out there.
    Especially if you’ve been hired circa 2004-2005, and your options are priced in 400+ range anyway.

  6. Alex: Your options have to be vested before you can sell the options themselves.
    Additional detail in the FAQ:
    “When the options are sold to a bidder under the TSO program, three changes occur: 1. The remaining life is shortened to two years unless the remaining life is less than two years”
    This makes me think even more that this bears critical examination.

  7. Andi says:

    As someone who has done and is doing very well with GOOG *and* Google I can only hope that this dampens volatility. My gut tells me that that’s the goal in addition to adding to current earnings by deferring employee compensation. But I don’t understand it well enough to feel comfortable that it will do that. It seems to be an area where unintended consequenses could intrude.