GOOG is a powerful recruiting incentive for Google. Google is now embarking on an innovative online auction process enabling Googlers to sell vested stock options:
Under the Transferable Stock Option program, employees will still be able to exercise their options, but will also be able to sell their options to financial institutions as an alternative.
Google underscores that the program is a novel way to compensate people and says it will "increase the efficiency of Google's equity compensation by increasing the per-option value of employee stock options."
The auction will be managed by Morgan Stanley. Smith Barney will serve as the employee stock option administrator. Google is working with multiple financial institutions to participate as bidders in the auction.
If an employee chooses to sell options in the program, the Googler will use an internal online tool built by Morgan Stanley to sell them to the highest-bidding financial institution. The financial institutions buying the options will then likely hold them until maturity and then settle with Google, according to Google.
Google puts forth the advantages of the program for Google employees at the official Google blog:
Typically, employees get value from stock options by exercising them after vesting, and then selling the stock they get from the exercise at a higher price, provided the company's stock price has appreciated since the time of grant. With the program, employees will also be able to sell vested options to the highest-bidding financial institution, which may be willing to pay a premium above the difference between the exercise price and the market price for Google stock (even when the exercise price is higher than the market price). The premium paid is for the time value of the options.
Employees will still have the choice of simply exercising and then holding or selling the stock too. But if they choose to sell the options, they can use a simple online tool that will show them the best price a participating financial institution is willing to pay for their vested options in real time. With that tool, they'll be able to sell their vested options to the highest bidder.
In addition to increasing the value of every option employees receive, the program makes the value of their options much more tangible. In the past, employees typically valued Google stock options based simply on the difference between their option exercise price and the current market stock price (called the intrinsic value). Since Google grants options with exercise prices that are at, or above, the market price of Google stock, many employees do not value options on the day they are granted. By showing employees what financial institutions are willing to pay for their options, it is made clear that the value of their options is greater than just the intrinsic value.