Silicon Valley Loses the Keystone of a Golden Age
They're chopping down the money tree.
In the late 20th century, it produced a bumper crop of wealth, a low-hanging fruit known as stock options. In California's Silicon Valley, these options were renowned for giving not just top executives but also rank-and-file workers rights to buy company shares at a set low price, and sell them later at an almost-guaranteed higher price.
As tech stocks soared in the '90s, one company alone, Microsoft (MSFT), turned an estimated 10,000 option holders into millionaires. (For some stories of options boom and bust in Silicon Valley, click here.)
Fledgling technology companies, many without profits, could hand out options by the bushel, because, quite simply, they didn't actually have to pay for their generosity -- until now.In one of the most dramatic disruptions in Silicon Valley history -- perhaps rivaled only by the Nasdaq Stock Market collapse of a few years ago -- the options giveaway is almost over. On March 31, the agency that sets accounting rules proposed that all U.S. companies be required to show the cost of stock options on their quarterly income statements, instead of relegating it to little-noticed footnotes. This so-called "options expensing" is all but certain to become a standard and conspicuous cost of doing business starting in 2005. Most tech companies -- with the notable exception of Microsoft and Amazon.com (AMZN) -- continue to mount a vigorous defense of stock options. The typical technology concern grants options to more than half its employees, and they've filed reams of testimony with the Financial Accounting Standards Board opposing any change to the status quo. Technology profits -- and employees -- will suffer from options expensing, according to the industry line. Keith Brister, a Cisco (CSCO) employee with stock options, said he's counting on the money to put his two boys through college and fund his retirement. "Please, please, please don't pass this proposal," he implored in a letter to the FASB.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV