Why Stock Options Still Rule
from the pushing-innovation dept
Michael Malone's latest piece for Wired Magazine points out that all the companies wondering if they should follow Microsoft's lead and switch from stock options to restricted stock grants may be doing startups a favor. Restricted stock grants are fine for employees at mature companies (especially in slower economic times), but don't offer the same level of upside. However, pre-IPO startups can still focus on stock options, and this will make them more appealing to employees who want to take entrepreneurial risks. So, the idea is that as more companies move to stock grants, jobs at startups become more appealing, and the top talent will head there. Of course, right now, many who lived through the boom years are still a little gun-shy about options (they've got plenty of worthless ones to show). However, as the market continues to rebound, that is likely to change.
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The whole point of options is that some percentage of them are worthless and some percentage of them will make you an instant millionare. The problem is that people started to think that every set of options was supposed to be in the second category.
If pre-IPO stock was a sure bet, they'd be able to rase all of the money they needed to pay you a normal wage just by selling shares.
All that a startup really has to go on is the promise that they will eventually make tons of money. Options are the best way to do that for the employees that doesn't give the board of directors much room to squirm out of (Like "Oh, yeah, we promised that we'd pay you a million each when we made it big. Sure we're about to put Microsoft out of business, but we haven't made it big yet.")
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