Stock Options Mount at Internet Companies

While most industries are replacing stock options with higher salaries, Internet and e-commerce companies are increasing the use of employee stock options, according to a survey released Aug. 8 by Syzygy Consulting Group, a high-tech customized consulting services company.

As part of its annual Pre-IPO and Private Company Total Compensation Survey, Syzygy, based in Lafayette, Calif., found that while aggregate employee ownership decreased 15 percent in the last year—from 17.7 percent to 15.1 percent of all companies—Internet and e-commerce companies increased ownership to 21 percent.

“This years results show a general increase in cash compensation and, except for Internet companies, a significant decrease in stock compensation,” David Broman, Syzygys CEO, said in a statement.

“This is the first time we have seen the use of stock options decline so rapidly.”

Non-founder CEO cash compensation jumped 16 percent in the last year, but their ownership decreased from 6.2 to 4.9 percent.

The greatest decline in employee ownership was seen in the software and manufacturing sectors, falling from 47 to 42 percent. The life sciences and biotech industries showed a 6 percent decline.

Restricted stock, which is stock that is not fully transferable until certain conditions have been met, represents 11 percent of employee holdings and is now used at 24 percent of companies. The remaining 89 percent of employee holdings are held in options and SARs (stock appreciation rights).

“The data shows that stock options are key to competing in the Web 2.0 labor market,” said Broman.

“Private Internet companies are offering more stock to recruit executive and entrepreneurial talent, while other industries reduce option grants, especially private software companies, where the use of stock options dropped a staggering 47 percent.”

Broman added that “public companies are also scaling back stock awards due to expensing requirements, investor dilution and the back-dating scandals, allowing the new era of dot com companies to attract top talent.”

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