Google has submitted filings (prospectus plus supplement) about its initial test of its transferable stock option (TSO) program. The idea, you’ll recall, is to give employees with vested stock options a new alternative with respect to making money from vested options.
A quick refresher: Rather than non-executive Google employees either exercising the options and selling at the current trading price (net the exercise price), or holding them and hoping for higher prices later, employees will be able to sell the vested options on a new secondary market created by Morgan Stanley. Among many other things, this would attach a value to vested options, even vested options having grant prices above the current trading price.
I have said previously that I like the innovative thinking, but I’m not yet convinced of the program. Two issues:
- Where is the transparency? I have yet to see how outsiders get a window into this internal option market. I see how it’s informationally good for Morgan Stanley and for participating institutions, but how do the rest of us get a window into the option flow data?
- I see how this is good for Google employees, as well as for management in increasing the perceived value of options used in hiring engineers, etc., but I have yet to be convinced that it sufficiently aligns interests with run-of-the-mill investors. The idea behind grant prices, vesting, and exercisable options is to keep investors and employees’ interests aligned. If Google employees can now make more money from options, and that doesn’t imply an increase in shareholder value, which this doesn’t, I’m uneasy.
More here via Michelle at Footnoted.
[Update] Roger Ehrenberg has an incisive comment to this post taking issue with at least one of concerns. We still don’t totally agree on my first concern above, but his argument on my second issue is a good one, so let’s downgrade that concern to a wash, at least for new Google employees.