The News & Observer

April 3, 2000

Stump the Geeks

Section: Connect
Edition: Final
Page: D6
Estimated Printed Pages: 2

Index Terms:

Article Type:Interview

Article Text:

Q. Is there any meaningful way to go about estimating the possible future value of stock options in a start-up software company that has yet to do an IPO (but is planning to do so in this year)?

When I joined the company in question I received a number of stock options. Obviously, on the down side, they might turn out to be worthless. But how can I rationally project their potential value, if I want to weigh my current situation against other employment opportunities? Are there Web sites or tools that might help with this?

I am a software engineer with very little business/financial background or interest.

Mark Lumsden


A. Owning part of the company is not only a trend in high tech these days, it's required in order to get and keep good people at work.

At the moment, company-provided options and purchases are restricted to workers who are exempt from overtime rules -that is, hourly employees cannot easily participate even if the company wanted to include them in the plan. A series of bills supported by the Clinton administration and Republican lawmakers including Rep. Cass Ballenger, a Hickory Republican, would allow employees at all levels to participate in stock plans. As 60 percent of the U.S. work force fall into the nonexempt or hourly category, this would be revolutionary.

While this move to include more workers in ownership is broadly supported, some have noticed, as you have, that the stock may be completely worthless in the long run. In a recent article published at, Sharon Cornu, communications director for the California Labor Federation, warns that workers could be doing the equivalent of trading in half their paycheck on lottery tickets that lose.

Still, if there were a more or less standard way of providing stock options, you would at least work from a guess at the odds of making good.

Unfortunately, schemes for providing stock, options and vesting vary widely from company to company and even from within companies for different employees at different levels or in order of hiring or simply negotiations with each employee.

If your company does well - IPO or no - you do well. If it does not do well, you can leave. So what's the problem? There are two problems here.

For the company, any downturn can cause the formerly loyal co-owning employees to jump ship. A smart analyst will notice longtime employees leaving and adjust her evaluation accordingly - down.

For the employee, a downturn can be demoralizing. It's not just that an invisible hand is suddenly taking money out of her wallet, but there is increased tension between management and the new owner/employee during bad times that is beyond anything you've ever seen. Employees, who have worked long and hard at far below the market rate for their skills, are rightly unhappy ones.

Still, most employees are more than happy to participate in this new brand of profit-sharing. Ask any Microsoft employee.

My advice, since I don't know the details of your arrangement with your company, is to take their offer to an investment counselor. You may even want to design a counter-offer. And since you are an admitted software engineer, maybe you can barter some of your advice as trade for your counselling.

Paul Jones

Director, Metalab

University of North Carolina, Chapel Hill

Copyright 2000 by The News & Observer Pub. Co.

Record Number: fsg4xe89