Stock Options Take a Back Seat

Light Reading’s new work poll has only been up a few days and already 247 people have responded with some interesting results. This month’s poll takes another look at Option Plans. Specifically, it reviews how employees perceive stock options in the optical networking industry in light of the recent market malaise.

Thirty-eight percent of those taking the poll say they believe their options are now worthless. When asked if they would take a pay cut in exchange for more options, 29 percent say they would reject the idea. Thirty-eight percent of the respondents said the largest pay cut they would consider in exchange for options was in the 5 to 10 percent range.

This may come as bit of a shocker to Redback Networks Inc.’s (Nasdaq: RBAK) new CEO, Kevin DeNuccio, who has proposed that his employees take as much as a 25 percent cut in salary in exchange for more company stock options (see DeNuccio Joins Redback). Redback’s stock has fallen from a high of $132 a year ago to under $5 today.

Still, some respondents are optimistic that the market will turn around. Twenty-nine percent say that stock options are an important attraction to their job.

— Marguerite Reardon, Senior Editor, Light Reading
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horse of a different color 12/4/2012 | 7:52:23 PM
re: Stock Options Take a Back Seat What stock options have done is allowed employees the opportunity to take their eyes off the ball. It's no longer "what can I do to help this company succeed?". Now it's "What's the stock price at today?, Why did the stock rise/fall like that today?,...". I know I've found myself in that trap. It's a dangerous place to be, and certainly makes us all less productive. We all fail to take the long view. Short-term gains, that what we want. We want to retire early like those "other" people we know.

In the meantime, companies still use the options as THE incentive to attract people. If you do that, what do you expect? 401K's got trashed last year. Ever heard of a pension? Not seen one of them in a while. So what do you have to bank on. Salary? Try saving any money in the Bay Area. It basically can't be done.

Stock options are supposed to be a way for employees to realize a benefit for their hard work. The problem lies in the fact that the people that both own most of the stock and control the stock aren't doing the majority of the work. They're just taking (or losing) the credit (and the $$$'s) for the work that everyone else does.

Unlike a lot of people I know, I've had bad luck when it comes to stock options...but not all bad. Maybe that's why I think like I do. I'm also closer to the end of my career than to the beginning. And I've seen too many people depend on those options to get by, and then get in trouble when the market did it's little "adjustment".

Stock options have gone from being a perk, to being the most important part of a compensation package. And that's just wrong.

But that's only my opinion...I could be wrong.
null0 12/4/2012 | 7:52:23 PM
re: Stock Options Take a Back Seat Everything is relative. Stock options will always be an incentive to join a company. They may also be an incentive to leave a company.

Just look at the likes of Nortel whose stock option plan was and is abysmal. They could not retain let alone attract talent.

The question is will Redback, for example, be able to retain staff with $100 options that are now 95% underwater ?
dtj4000 12/4/2012 | 7:52:22 PM
re: Stock Options Take a Back Seat Amen.

However, before anybody runs away from their perfectly good jobs, keep in mind that a worthless stock option today can worthy in a year or so, as are most long term investments. You'll be surprised how fast time flys.

Besides, no one is going to run very far from anything in this sector.
bawlgaime 12/4/2012 | 7:52:21 PM
re: Stock Options Take a Back Seat Stock options are still a big allure for me. I was recently laid off at a well-known Ethernet routing company where I made a decent amount of money from the options. Furthermore, I now have the advantage of job-hunting for companies that are at their "52 week lo's." Although finding a job is tough (I'm in sales), I think I would be hard pressed to find anyone that would have a problem joining, let's say, Redback and locking into 30,000 shares at a $5 strike. The economy IS going to turn-around and when it does, I will be 25% vested.

PS - I agree with the earlier posts regarding executives making tens of millions off the hard work of their employees. This "feudal" system of the "have" and "have nots" with regard to stock options is ridiculous; I know too many people whose skills are not close to being commensurate with their net wealth.
Lipid-A 12/4/2012 | 7:52:21 PM
re: Stock Options Take a Back Seat I agree with most of your post, but why do you think stock options make employees fail to take the long view?

I think they DO make employees recognize the long term view, and work towards the success of the company. Thats the general idea behind them at least-- the employee shares directly in the success of the company. And it is a long-term incentive. Typically stock option plans have 4 year vesting with a 1 year cliff, etc.

Granted, the stock price is influenced by many factors other than profits and growth (as we've all seen the past couple of years) and is thus not a true measure of a company's "success". But still, in general the stock option provides incentive for the employee to make the company worth more. A salaried-only employee would not have that incentive.
gladysnight 12/4/2012 | 7:52:20 PM
re: Stock Options Take a Back Seat OK LightReading, I know you're journalists of some description, and I've read a lot of different opinions on just what your journalistic abilities are worth.

To date I've refrained from comment on that topic, simply becasue I haven't really had mich to say.

But, puh-leeeze, did you *really* have to run a poll to figure out that stock options that are already 95% under water, and still falling, are not as alluring as they were last year when you seemingly had a pretty good chance of profitting from them?

I mean, REALLY?

Give me a break.
xxx 12/4/2012 | 7:52:19 PM
re: Stock Options Take a Back Seat gladysnight,...you really don't have "mich" (sic) to say!

Hardcore xxx
www.ins-group.com 12/4/2012 | 7:52:18 PM
re: Stock Options Take a Back Seat OK, response from a Recruitment Consultant - who seem to have endured a bit of a pasting on these pages of late, but I totally agree with 'horse of a different colour', options have been for many years now almost the single most important part of a person's decision to make a move - and when it becomes that important, you have to question the persons motivations - we all need money to live, and money does indeed make the world go round (or gind to a slow crawl as it is doing at the present time), but whereas options have been a tool to attract talent, they have done precisely the opposite, particularly in many European countries where you have to take a gamble on paying your tax on any increase either when you are given the options, or when they mature (the gamble being if you think they will the price will grow significantly you pay your taxes upfront to save a heafty bill on the matured price, and if the stock plummets, as most have, you are left with worthless stock PLUS a big tax bill you paid up front).

There has to be many good things to come of this present turmoil, and whilst no-one likes to hear of people being made redundant, perhaps it is important this happens for the long term success of many companies that help fuel the worlds economies and drive business forward.

It also might make people refocus on what is important when looking at a company, and not having 1.5 eyes on the option plan!

.....waiting to be slaughtered now for typo's, inaccuracies etc *s*

LeCastor71 12/4/2012 | 7:52:18 PM
re: Stock Options Take a Back Seat gladysNighT,

Go back under the Nortel rock from which you crawled. If you don't like the articles or journalism, the best way to show your displeasure is to boycott the site and/or writer.

Feeling the pinch from all the lies you were fed????? Oh well........
rafaelg 12/4/2012 | 7:52:16 PM
re: Stock Options Take a Back Seat http://www.thestreet.com/marke...
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