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High-Tech Workers Remain Optimistic

Silicon Valley: Share prices have taken a tumble, but many employees still see value in their stock options.

September 02, 1998|CHARLES PILLER | TIMES STAFF WRITER

SAN FRANCISCO — High-tech executives may be viewing recent fluctuations in technology stocks with considerable trepidation as they lose millions, at least on paper. But many of the industry's rank and file remain more calmly philosophical.

"I'm not banking on becoming an instant millionaire," said Michael Shebanek, a product manager at Apple Computer Inc. "I take the view that it's an excellent time to buy."

Cupertino-based Apple's stock climbed $2.94 on Tuesday to $34.13 on Nasdaq, well below its recent 52-week high of $43.75 but still far higher than the price that many Apple employees hold options for.

Many technology companies use stock options to lure or retain skilled employees in a competitive marketplace. Typically, employees receive the opportunity to purchase stock in the future at a price that reflects current market value. If company's share price rises, they reap a windfall.

"I'd say a majority of employees in Silicon Valley-based companies have options of some sort," said David B. Moreland, chief executive of CMG Consulting Inc., a benefits and financial consulting firm in San Jose. "How many of them have options that aren't under water today? Not many . . . and they're feeling poor."

Still, Shebanek's views were supported by Tuesday's partial rebound in the market and were echoed by employees at a range of high-tech companies.

Ron Freson, a sales manager with Santa Clara-based 3Com Corp., a maker of networking hardware, said his options are priced above 3Com's current share price, which rose $1.81 to $25.50 on Nasdaq. But he's not overly worried.

"Salaries in most [public] companies are competitive, even without stock options," Freson said.

"Naturally I'm concerned," said a product marketer for Carpinteria graphic arts software maker MetaCreations Corp., which closed down 13 cents to $3.06 on Nasdaq. "But most of us are in this for the long haul," said the marketer, who requested anonymity.

And while some companies' stocks stand well below their 52-week highs, many are still far above the levels at which employees had been granted options.

"Most anybody that's got an option at Yahoo granted any time before the last three months is doing pretty well," said Moreland, who designs compensation packages for Silicon Valley firms. "But that won't be true of Intel, Hewlett-Packard and a lot of others."

"There's a huge age thing going on here," he added. "Most of the people who have options are fairly young and have done nothing but win." They don't remember the brutal bear markets of the 1980s, he said.

In a period of intense competition for skilled employees, companies with declining stock prices are often tempted to re-price options to keep employees from jumping ship to stronger competitors. For example, both Netscape Communications Corp. and 3Com re-priced options for employees, excluding executives, last January, during periods of financial difficulty.

"But when everyone's share prices are depressed, there's not going to be the incentive to re-price based on retention issues," said an executive of a large Silicon Valley company that re-priced its options this year.

The situation is different for private start-up companies whose employees often accept reduced salaries in the hope that their options will make them rich some day.

"Many people in the company took massive pay cuts to join," in one case $100,000, said Manish Vij, 25-year-old president and chief executive of Berkeley-based NetStudio Corp., a fledgling producer of Web graphics software. When given the option of a higher salary or larger stock options, nearly all his employees chose options.

"The general attitude today is like the Pilgrims on the Mayflower--an attitude of shared sacrifice," said Vij, who hopes to take his company public in one or two years. "But if the market were like this two years from now, there would be a severe morale impact on the company."

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