It’s a Google Thing: Online Auctions For Options

Googleplexers will be able to sell their vested stock options as part of
an innovative online auction that could give them even more cash and clout
than they might find in the major markets.

Under the Transferable Stock
Option (TSO) program, employees of the search giant will still be able to
exercise their options, but will also be able to sell their options to
financial institutions as an alternative.

Evil? Hardly.

Google  said the program represents an innovative
way to compensate employees and will increase the efficiency of Google’s
equity compensation by increasing the per-option value of employee stock
options.

As such, Google said it would amend the terms of eligible employee
stock options in order to allow the transfer of vested options. Morgan
Stanley got the nod to manage the auctions; Smith Barney is the ESO
administrator, and Google is working with all kinds of financial
institutions that might want to bid on the vested options.

As Google itself noted, selling options is not a novel concept in today’s
markets. It happens all the time with traders placing calls and puts or just
buying and selling options to purchase Google stock and the stocks of many
other companies on the public markets.

But what is different is that this
approach is now being extended to employees through their employee stock
options.

Google said it works like this: If an employee chooses to sell
options in the TSO program, he or she will use an internal online tool built
by Morgan Stanley to sell them to the highest-bidding financial institution.
The financial institutions buying the options will then likely hold them
until maturity and then settle with Google.

There’s some time to wait yet; Google’s employee stock options typically
have a ten-year term from the grant date. Under the TSO program, Google’s
employee stock options, upon transfer, will have a lifespan of the lesser of
two years or up to the remaining term under the original grant.

Google also said it expects the program to launch in the second quarter
of next year. Plus, only stock options issued since Google’s initial public
offering will be eligible for this program, and Google’s Executive
Management Group may not participate in the program.

The program won’t impact how it accounts for employee stock
options. But Google did note that it expects the amount recognized as
stock-based compensation would be greater than it would otherwise have been
after the program goes into effect.

The plan marks another innovation by the Mountain View, Calif.-based tech
darling. In the days leading up to its initial public offering two years ago, Google
had tongues wagging over its plan to deploy a Dutch Auction for its IPO,
meaning investors could name their price as a part of the price-setting
process.

Overall, the Dutch Auction method was
seen
as a way to even the playing field for smaller investors looking at a
chance to get in on a white-hot IPO.

With its latest innovation with employee stock options, Google is looking
to give the little players the same kind of clout with their own options.

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