Could Cash Keep Silicon Valley Employees Happy?

New accounting rules are forcing Silicon Valley companies to cut back on stock options. Could cold hard cash keep the workforce productive?

September 8, 2006

1 Min Read
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With silicon valley companies cutting back on stock options because of a new accounting rule, executives have to find new ways to motivate the area's famously productive workforce.

Google is the most prominent technology company to restrict options because of a rule change that treats options as expenses. Its annual stock-based compensation for employees won't exceed $473 million after this year. The limit will certainly force Google to make hard choices about which employees get options--and how many they get.

Google isn't alone. U.S. companies have been paring the use of options since 2003, in anticipation of the new rule (which went into effect this January). Many technology companies now hold annual equity grants to 2 percent of shares outstanding, compared with 6 percent a few years ago. "That's a huge amount of remuneration that's coming out of the mix," says Joe Farris at Mercer Human Resource Consulting.

How might managers keep employees productive? Cash is one answer, but Farris expects softer benefits such as flexible work hours. One thing's certain--Google's free Wi-Fi won't be enough to keep the parking lots filled past 6 p.m. --Robert Hertzberg, [email protected]

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