Jeff Solof's fantasy was never extravagant. The
employee planned to cash in $370,000 worth of stock options and put his kids through college.
That was back in 2000, the heyday for tech stocks. Today, at age 44, the ordained minister only hopes his options -- most of them worthless at the moment -- will recover enough to let him retire a couple of years early and pursue his avocation.
Solof's downsized expectations are typical in Silicon Valley, where tech stocks soared in the 1990s, crashed in 2001 and bounced back from oblivion in 2003. Today, as lawmakers finalize plans that will likely limit the number of stock options available for workers, many employees now see them as a nice incentive, but probably not the road to riches.(For a view of current trends in options expensing,
In many ways, employees have come full circle in their expectations about stock options. "If you go back to the early '90s, when people didn't bank on them or make their plans based on them, we're probably more like that now," said Karen Goodfriend of Allied Consulting Group, a financial advisory firm in Los Altos, Calif. "Options are viewed much more realistically."
Unrealistic dreaming about stock options was fueled in part by stories of more fortunate option holders such as Mike Tompkins. A sales manager who joined Microsoft in 1990, Tompkins didn't pay much attention to the grants he got early in his tenure, when stock options were still a novelty to most workers.
"Options were kind of a cute thing, because they matured over many, many years. My style was to forget about them," Tompkins recalls.
Because most options expire within a decade, Tompkins was among the lucky group that began cashing in their options in the mid-'90s. They reaped fat profits as tech stocks approached their historic peak. In the decade between January 1990 and December 1999, Microsoft shares surged more than 90-fold, from 64 cents to $58.38 on a split-adjusted basis.
With their options payouts, some of Tompkins' co-workers at Microsoft chose to retire 10 or 15 years early. Tompkins, age 41, keeps on working, but his wife is able to stay home in their custom-designed house in the Seattle suburbs, and the couple's children are in private school. He refused to say how much profit he has netted from options.
"I count it as a blessing from God, is my way of looking at it," he said.
Like Tompkins, 50-year-old John Jennings, a 19-year veteran of Silicon Valley, didn't give it much thought when he was awarded options at
in the mid-'80s. But over time, they started adding up. "They were kind of like the icing on the cake," said Jennings.
He made a timely decision to join Sun in 1993. Though the stock traded below $1 for most of that year, it would soon commence a dramatic run-up extending to August of 2000, when it topped out near a split-adjusted $64.
Back then, Sun employees eagerly awaited annual performance reviews, hoping for the chance to be awarded more options. "It was like if you got an 'A' on a report card; if you did well in a performance evaluation, you got not only a salary increase, but also more stock options," remembered Jennings, now senior director of systems integration at the company.
In line with the stock's seemingly unending rise, Jennings extracted options gains that made it possible for his wife to stay at home to raise the couple's two children. Options financed a vacation home in the Sierra Mountains and allowed him to send his now-grown children to the colleges of their choice, the University of Colorado and Cal Poly.
It would take years for the lessons to unfold, but now it's clear that employees who joined tech companies after the mid-'90s probably missed the options boat. It's not that they didn't get options. They just didn't strike it rich.
When Jeff Solof, who joined Sun in 1997, got his first two blocks of options in 2000, they seemed bound to become worth a small fortune. The options gave him the right to buy shares of Sun at so-called "strike prices" of $40 and $46, equivalent to Sun's stock price on the grant dates.
At the time, the
Nasdaq Composite Index
, composed mainly of other technology highfliers, was trading around its all-time high of over 5,000. So when Solof's big payday assumed that Sun's stock price would continue to appreciate at 15% a year, that outlook seemed downright conservative.
"I went to my kids when they were in middle school and said, 'Lizzie, here's your college education, and Joe, here's your college education,'" he recalls.
Little did he know that Sun's stock was only months away from a stomach-churning freefall. After topping out in August 2000, Sun shares went on to lose 96% of their value. Now all but a handful of Solof's 13,000 vested options trade for less than his strike price.
That means he is "underwater," a term that is painfully familiar to anyone who received options after their golden age.
Solof, who now directs the editorial office for Sun's global communications, estimates that his 600 "in-the-money" options are worth a total of $168. "You think, oh, the stock price will never fall below $30," he said. "Then it was $20, then $10, then $5. Your illusions about fame and fortune sort of fall with the stock price."
The plunge in tech shares did have a curious silver lining. Employees at Sun and many other tech companies have increasingly been awarded options grants with ultra-low strike prices, making it easier for the recipients to net a profit if the stock price rises even a little.
"At this point, we're all saying it's not too shabby to get options at $3 or $4 or $5," Solof said, "because there's a really good chance we can get the stock price to double from that."