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Broadcom Offers Swap to Workers

Stocks: Hoping to boost morale, the Irvine firm will trade devalued options for a new issue at a lower price.


Broadcom Corp. announced Thursday that it will allow employees to trade in stock options that have lost their value during the company's stock market slump for new options at a lower price.

The plan aims to boost morale and help retain valuable engineering talent at a time when the Irvine communications chip maker faces its first significant downturn since it went public three years ago.

The move is no guarantee that Broadcom's 2,700 employees will reap greater value from their equity in the company unless its share price improves. But it does boost the economic prospects for employees whose precious stock options have become virtually worthless as the company's stock tumbled.

Broadcom, like many technology companies, pays employees a significant portion of their compensation with stock on the theory that workers will perform better if they stand to gain from the company's success. But that strategy has backfired in recent months as the technology industry took a licking on Wall Street and shares have plunged.

Broadcom's shares have fallen 86% from their all-time high of $274.75 in August. The stock closed Thursday at $37 a share, off $1.10, in Nasdaq trading.

Options give employees the opportunity to buy stock at a predetermined price, based on the value of the stock at the time the options are granted. But most options do not vest immediately. In the meantime, if the stock drops below the option price, the shares are said to be "underwater," meaning they have no value.

The announcement was welcome news at Broadcom, where employees say the hallway talk has been dominated in recent weeks by the fortunes that got away.

"Just about everybody is underwater now," said one employee who joined the company last year when the stock was trading above $200.

The employee, who asked not to be identified, said stock options are "a big part of the culture" at Broadcom, which is known to pay its employees less in salary and more in stock than others in the industry. "To me the question hasn't been are they going to do something, it's more been when and what are they going to do."

Broadcom said it intends to give employees two choices. They can trade in their options for new ones, or they can keep their options and receive additional options. The new options will be priced in six months, based on the value of Broadcom shares then.

"We really want to make sure the employees are highly motivated" by the stock incentives, said Henry Samueli, Broadcom's co-founder and chief technical officer.

Because Broadcom's star was on the rise for so long, Samueli says many of the employees came to expect that the share price would continue its unprecedented climb.

"There are many people here whose entire careers have been during the run-up," he said.

The move comes at a tense time for the company. Chief Executive Henry T. Nicholas III announced April 18 that the company would make "material" cuts in its work force to reduce spending.

As employees wait to learn the extent of the cuts, some have no idea whether they will be at the company in six months when the stock options maneuver kicks in.

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