Google’s initial public stock offering next month will instantly transform hundreds of Silicon Valley workers into millionaires, at least on paper.
Google has doled out stock options to virtually all its 2 292 employees. From senior executives to administrative assistants, self-described ”Googlers” get options — which may eventually be sold for cash — when they start work and when they’re promoted.
”I’ve heard some huge numbers — even that everyone who works there is going to be a paper millionaire,” said Matthew Kelmon, president and head portfolio manager of Palo Alto, California-based Kelmoore Investment Company. ”The whole thing brings back memories of the bubble. People probably haven’t learned much from history and they’ll go out and buy three Ferraris and take out a mortgage
on a bigger house.”
Like many Silicon Valley companies, Google awards options to employees depending on their start date, negotiating skills, salary and rank in the company; grants vary widely among individuals. But there’s no question that Google has been generous.
Google has granted 20,7-million stock options to workers since the end of 2002, sometimes at prices below 49 cents per share, according to a financial document filed on Monday. The stock is expected to debut as early as next month between $108 and $135 per share.
According to the Securities and Exchange Commission filing, Google had 26,94 million outstanding stock options held by its employees and consultants, at an average exercise price of $5,21, from June 30.
If Google shares match the assumed IPO price of $121,50, that adds up to $3,1-billion, to be shared unevenly by fewer than 3 000 people — an average of more than $1-million each when all their current options are vested.
The prospect of such sudden wealth could create a host of management problems in Google’s Mountain View headquarters, hastening turnover and eroding Google’s vaunted corporate culture and high productivity, cautioned Thomas Taulli, a lecturer specialising in IPOs at the University of Southern California’s Marshall School of Business.
”Even people who are hard workers and dedicated employees will suddenly spend all hours of their life looking at the stock ticker, seeing where the stock price is,” Taulli said. ”Sudden wealth is a huge management challenge and big distraction.”
Big disparities in stock option packages could create rifts between the many newer employees and the elite Googlers who joined soon after the company launched in September 1998.
Veteran employees got the lowest priced options, and many of their grants are fully vested, so they can immediately convert them into cash. Newer employees received options priced at $38 per share or higher and probably can’t cash out for years.
About 17,8-million of the options granted to employees and consultants remained unvested from June 30. Still, Google has acknowledged the potentially grave risks of instant wealth — even the potential departures of CEO Eric Schmidt and founders Larry Page and Sergey Brin. Page and Brin are fully vested, and Schmidt
is almost fully vested.
”If any members of our senior management team leave the company, our ability to successfully operate our business could be impaired,” the filing states. ”We also may have to incur significant costs in identifying, hiring, training and retaining
replacements for departing employees.”
The likelihood of defection among newly rich employees is high — particularly for ambitious, young technology workers, industry veterans say.
At the peak of the late ’90s dot-com boom, the world’s largest software company had produced a half dozen billionaires and thousands of ”Microsoft millionaires”.
By 1999, newly minted and recently resigned employees of the Redmond, Washington-based company had started more than 2 500 different companies — from organic vegetable farms and nonprofit companies dedicated to helping dyslexic children to rival startups, according to a Microsoft estimate.
John Wood was 35 and director of business development for Microsoft’s greater China region when he resigned in 1999. He moved to California and started a nonprofit company, Room to Read, that has opened 1 000 libraries and 99 elementary schools in the developing world.
”I know people at Google, and they also have some pretty big dreams about changing the world. I wouldn’t be surprised if some of them jump off the mother ship,” Wood said.
Karen Goodfriend, a financial adviser specialising in ”suddenly wealthy” individuals, said even paper millionaires should brace for deep and unpredictable psychological changes.
But Googlers aren’t likely to be as grandiose as the previous generation of Microsoft millionaires or their Silicon Valley brethren. Financial experts say horror stories about paper wealth erased through obscure tax laws and precipitous stock declines should give them pause when they go to the car dealer or enter the local housing market.
Still, valley denizens are getting worried about another speculative bubble.
”In the last six months people have started to party like it’s 1999,” said software industry veteran Christopher Lochhead, now chief marketing officer at Mercury Interactive. ”My biggest fear is that the PT Barnums and the hypemeisters are getting warmed up again. The reality is that there are very few startups that are as profitable as Google, and they’ve built a special, unique company.” – Sapa-AP