This is innovation

Love them or hate them, there’s no denying that Google is innovative. The innovation is usually in the product space, but today they announced a really cool innovation in the HR/stock option space. You can read all about the Transferable Stock Options here.

What a great idea! They are staying ahead of the curve in managing their employees’ upside (or potential lack thereof). As a company matures, usual wisdom states that the stock ceases to rise at the same rate and adopts a more gentle curve. What that means is that employees who join later in a company’s maturity have less upside. And that’s the way it should be since they assume less risk.

However, to feed the hungry beast of innovation, Google is still hiring in vast numbers. And with this little innovation, they are addressing the issue of employees whose strike price is near or below the market price and solving for it — even if your options are underwater, you can trade them and realize value today (instead of waiting). They’ve significantly reduced the risk that employees with underwater stock will leave for greener pastures.

Usually HR is super-conservative. When times are good, they won’t give anything away that they don’t have to. In fact, they can go so far as to imply it is an honor of an employee to be employed at the company. But times change (they always do) and in these situations, most HR departments can’t adapt – they have to be pushed to recognize that there need to be other ways to motivate the newer employees.

What Google has done is dramatic. What makes it more impressive to me is that they have made this innovation when times are good. They’ve been proactive in setting up a program that has significant complexity. That is very, very rare.

Other tech companies need to catch up. Hopefully, for their sakes, soon.

  • i agree the GOOG deserves some credit for giving this a try & streamlining / innovating around the process, however i think original innovation in this area started with Microsoft enabling buyout of underwater options in 2003, also Cisco last year offering something similar. possible it could have begun even sooner at other locations.

    also, while this means that underwater options are worth something, it still doesn’t mean they’re worth more than options at a startup that has all of its upside potential ahead of it. innovative/intelligent yes, defensive move sure, but they are still fighting an uphill battle on the future growth potential of GOOG stock, given where it’s at already.

    personally i think the company’s market cap still has more room to grow, but the perceived downside risk is now rather substantial. as with the california real estate market some folks may decide to get out while the getting is good 😉

    (ps – happy holidays shri)

  • Shripriya

    Hi Dave, I agree that you can’t really compare it to a startup, but that’s the purpose, I think — to delay someone jumping to a startup for purely monetary reasons.

    And I think anyone joining Google today, if they are joining for the upside in the stock has to believe that they are*still* an early MSFT. I am not sure that they are that early any more, but I’ve heard a lot of potential employees believe that.

    Happy Holidays to you too, Dave! Love to all!