Siebel has offered to trade worthless employee stock options for cash and stock in a bid to help staff who have seen the company's stock plunge 76 per cent since March.
The company has 226 million options outstanding, which represent 47 per cent of shares outstanding -- a higher percentage than any other company in the Standard & Poor's 500 which has led some analysts to speculate that an underlying motive in the company’s actions is to reduce its options overhang.
But Kenneth Goldman, Siebel’s chief financial officer, insisted that the only aim is improving employees' morale and aligning their interests with outside shareholders. "This is really to get back to instilling broad-based employee stock ownership,” he said. “ Given the high prices for our stock options vis a vis where our stock price is today, they were not providing motivation.”
About 32 million options, or 14 per cent of the total, qualify for the trade-in. All employees except CEO Tom Siebel are eligible for the offer Employees who would get $5,000 or less for their trade-in will receive $1. 85 per option in cash; those trading in more will get $1.85 per option in Siebel stock, based on Siebel's closing price on 30 th September, 2002. Employees will get half the shares immediately, and the rest over two, three or four years.
But the deal comes at a price for Siebel. If employees trade in all 32 million eligible options, the company will record a $27.5 million cash charge plus a $36.1 million non-cash charge in the quarter ending 3oth September.
Companies can record the estimated value of stock options granted each year as an expense on their income statement, or they can merely disclose it in a footnote. Critics have argued that lenient accounting treatment hasencouraged many companies to issue too many options to employees, at the expense of outside stockholders.
As a result some companies have decided to expense options, but only a handful of technology companies have taken this lead. Siebel reported an operating profit of $358 million last year, but if it had expensed options, it would have reported an $845 million operating loss.