*A blog from myStockOptions.com
In the novel Scoop (1938), a satire about journalism by British writer Evelyn Waugh, a character declares: “News is what a chap who doesn’t care much about anything wants to read.” Respectfully, we disagree. Here at myStockOptions.com, we both care about equity compensation and take a keen interest whenever news about stock comp flashes across our radar screens. In this week’s blog commentary, we summarize some recent appearances of stock compensation in the mainstream news media, including stories about equity awards to high-profile figures at prominent companies.
After a fall in its stock price, Twitter is increasing its grants of restricted stock units (RSUs) in an effort to retain valuable employees. An article about this development in The Wall Street Journal explains that Twitter has been making additional grants to employees throughout the company at all levels. The grant sizes depend on when the employee started working at the company—an approach described as “shocking and highly effective” by a compensation expert quoted in the article. Employees who have experienced bigger losses from the stock drop since they joined the company get bigger grants. In an example presented by theWSJ, an employee who joined Twitter when the company’s stock reached its all-time high of $73.31 on 26 Dec. 2013, a month after the company’s IPO, will receive more stock than an employee who started at the company during its pre-IPO days, when the price was much lower. (For an insightful perspective on stock-price volatility for employees with equity comp, see the article on this topic at myStockOptions.com.)
Meanwhile, at LinkedIn, CEO Jeff Weiner decided to forgo his stock grant and make the shares available for broad use among employees at his company. In its article about this story, the website Re/code says it was informed by a company spokesperson that Mr. Weiner “asked the Compensation Committee to take the stock package he would have received and put it back in the pool for employees.” The filings of SEC Form 4 by executives on the day this news came out were all for RSUs, so we can reasonably assume that this was the type of grant which he would have received. Numerous other news outlets picked up this story, including Reuters.
An exercise of nonqualified stock options by Elon Musk, the CEO of Tesla Motors (see the related Form 4 filing), attracted substantial attention. See, for example, articles inMarketWatch and USA Today. Mr. Musk exercised 532,000 stock options at a pre-IPO grant price and held all the shares. He did not sell any shares to pay the exercise price for the options or to pay the taxes. Instead he used his own cash, which is unusual. A Tesla spokesperson explained in an email to MarketWatch that Mr. Musk paid taxes of more than $50 million in connection with the exercise.
An interesting play with premium-priced stock options has occurred at IBM. Unusually, this type of option has an exercise price that is higher than the stock price on the date of grant, meaning that the company’s stock price must increase by a specified amount before the option is in the money. As explained in an article by Bloomberg, IBM awarded nonqualified stock options to CEO Ginni Rometty in which the exercise price is 5%–25% above the market price on the grant date (with a three-year vesting period). She was given a total of 1.5 million of these premium-priced options, divided equally into four tranches. According to IBM’s proxy statement (see page 26), the respective exercise prices of each tranche are 105%, 110%, 115%, and 125% of the average of the high and low prices of IBM common stock on the date of grant. In other words, the grant imposes a strong incentive to raise IBM’s stock price above those levels within the next three years. For more about premium-priced options, along with other company examples, see therelated FAQ at myStockOptions.com.
The Pre-IPO Beat: Good Technology And Jet.com
An article in Fortune explains that while private investors and venture capital funds have “pumped up” the paper value of unicorns (pre-IPO companies valued at $1 billion or more), the tech IPO market has changed their prospects. For employees with stock options and company stock holdings, this has resulted either in underwater stock options or in proceeds from the sale of their companies that greatly lag behind what they had expected.
How this has played out for employees at the company Good Technology is covered by articles in The New York Times and Business Insider. Employees of Good Technology received a lot less from the company’s sale than they had expected—the disappointment was especially acute for those who had exercised options early and paid taxes on them at a higher value. This story serves as a reminder that stock options in startups are, in the dramatic words of Business Insider, “an incredibly risky asset.” (To help spare employees some of these shocks, the website Tech.co presents key points they should understand before taking an option grant at a pre-IPO company.)
Despite such tales of option woes, stock options still have the potential to make employees feel valued, as shown by an article about Jet.com in The New York Times. This privately held company, which competes with Amazon, has started taking a “happiness pulse” of its employees, who rate the company very highly as a place to work. This evaluation of contentment covers not only executives and higher-level employees but also warehouse packers and customer-service staffers, some of whom receive stock options. One warehouse employee expressed his job satisfaction thus: “I can finally wake up and not say in my head ‘Ughhh, another work day.'”
We feel exactly the same way. As we go pleasantly about our own work day, we continue to keep our eyes and ears open for insightful and/or fun news about stock compensation. Keep reading our blog for more trenchant commentaries and updates.
*this blog was originally published to myStockOptions.com