Google's Generous Option Exchange Program

Google has joined the ranks of companies allowing employees to exchange their stock options. The 17,000 employees holding options granted at more than $400 have can now exchange their options for new awards that will be priced at the March 2 closing price (shares were at $306 when the announcement was made). Employees will have a year added to their vesting schedules for the awards. Google expects to take an accounting hit of about $360 million.

The program is generous relative to other option exchanges, which typically allow for less than a one-for-one exchange. Critics, such as RiskMetrics' Patrick McGurn, argue that Google's plan will set a dangerous precedent for other companies. Google's compensation and culture, however, are heavily focused on broad-based ownership, and the costs of not making the exchange could be very high in terms of employee morale and retention. Shareholders did not seem to take such a dim view of the exchange. The day after news of the program came out, Google's shares increased 6.5% on a day that the Dow declined 0.7%.