It happened at Microsoft (NASDAQ: MSFT), and, to a lesser extent, at Yahoo! (NASDAQ: YHOO). Key employees are at the company for a few years. Their stock options vest, and the shares are longer doubling ever year. So, they exercise their options, pick up a few million dollars, and move on.
Google (NASDAQ: GOOG) is beginning to face the "Microsoft" problem now, according to The Wall Street Journal. As the newspaper points out, stock options granted in 2003 have an average exercise price of $.49 and the shares now trade well north of $500. In 1990, Microsoft's stock was $1. By 1999, it was over $58. A lot of people made money, but, as the price growth disappeared, so did key employees.
Key members of Google's staff can now leave with significant fortunes and go to start-ups which give them a larger role and a new set of financial incentives.
Google could learn something from Microsoft, but a solution would be expensive. The search company could grant key employees large blocks of restricted stock which would vest over several years. There would be a financial consequence for the company's P&L, but the move may be critical to keeping talent.
Even if it throws around more money, Google is faced with the fact that someone with $10 million may want to move on to another challenge, even if that person could make another $5 million by staying.
Douglas A. McIntyre is a partner at 24/7 Wall St.