Dilution Threatens Tech's Revival

Technology investors are understandably gleeful about the sector's long-running recovery. But the gray cloud of dilution threatens to rain on their parade.

Ironically, the seeds of this potential precipitation were planted after the bursting of the tech-stock bubble. In an effort to retain employees and help morale, many firms either repriced existing options or issued new grants in 2001 and 2002, when stock prices were lower than they are now.

As stock prices jumped in the past 16 months, more employees have been cashing in, watering down ownership for other shareholders. If prices continue moving northward, that dilution is only likely to grow. ...