Despair! Despair! Your options—which were delivered to you with promises of wealth along with a shiny new BMW—are suddenly in the proverbial toilet. They’re worth less than half of their original value.
When the market tumbled and options lost most of their luster as dot coms sank faster than the Titanic, distraught techies didn’t know whether to stick around—hoping their options would snap back—or jump ship.
Consulting firm McKinsey & Co. reported that the median value of options awarded to executives at California start-ups slid from $832,500 in March to $350,000 in late April.
So what do you do? Do toppling options packages signal hardship or opportunity? The answer depends on your current situation. If you’re up for a raise, this may be a good time to consider renegotiating your compensation package.
A recent story in Industry Standard suggested issuance of stock options need not be a one-time event. Rather than seeking a cash raise, the writer suggests asking for stock options under two scenarios: You can either ask for more options at today’s lower price (with or without a raise) or suggest your employer adjust your options to a lower price.
It sounds like great advice if your company is sturdy and will ride out the storm to turn a profit. Then, options may eventually swing back up to prior levels. But, how likely is that?
Decline in value = opportunity
A sudden decline in option values provides a great opportunity to discuss your compensation package, according to Carrie Coghill, senior vice president of Pittsburgh, PA-based financial planning firm D.B. Root & Co., Inc.
“When option prices fall, compensation packages are worth less, which means you’re taking more risks because you’re not being adequately paid,” she said.
This is the time to do some serious homework on your company to determine what you should be asking for—options, cash, or both. Coghill advises analyzing your company the same way a stockbroker scrutinizes a stock. Don’t be skittish about plying management with questions.
Ask questions such as, “Does the company still have something unique?”, “How do its products stack up against that of the competition?”, “Can the company recapture its market share?”, “Are newer technologies rendering its products obsolete?”
Most importantly, find out if the company plans on altering its marketing strategy. If, for example, the company has killed a major advertising campaign, I’d be worried.
“If you don’t advertise, how do you get people to buy your products?” Coghill said. The most important questions to ask are “How strong is the management team?” and “When will the company be profitable?”
“If the company is in good shape, consider negotiating more options,” she said. “But, if the company’s stock has struggled and the options aren’t worth much, ask for more money.”
That’s easier said than done, according to Jackie Riley, a communications specialist at New York City executive search firm Lynne Palmer, Inc. Most companies are not that willing to change their compensation structure. “It’s great if you can negotiate more options and salary, but many companies are not that flexible,” Riley said.
She suggests that companies should be “more proactive” to adjust their compensation structure during hard times: “The recent market collapse should serve as a warning sign to create more balanced compensation packages.”
Yet, Amy Fried, a recruiter for new media at New York City executive search firm Roz Goldfarb Associates, thinks it’s a great time to try and ask for more of everything. Companies will flex the rules to keep valuable techies. It may be calculating, but technical stars hold the power hand, according to Fried.
“Many companies have been repricing their options, making it a good time to negotiate for more,” she said.
If you’re negotiating a compensation package for a new job, Fried advises “going for the money…. Options are no longer as attractive as they were a year ago.”
On the other hand, R. Wendell Williams, Ph.D., president of Atlanta, GA-based assessment development company ScientificSelection.com, LLC, advises against heartless negotiating strategies. “Don’t hijack your employer with outrageous requests or threaten to quit if you don’t get them,” he said. “That tactic will come back to haunt you. Your employer won’t forget it.”
That’s advice worth taking, especially if you may need a good reference someday.
Still think your stock options will be worth more than the paper they’re written on, or have you abandoned the hope of instant wealth? Tell us what you think? Post a comment below or send us an e-mail.