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Instant wealth of "Googlers" could leave company poorer

By RACHEL KONRAD
The Associated Press

PAUL SAKUMA / AP Wealth from his company stock allowed John Wood, founder of the international Room To Read program, to quit his management job at Microsoft in 1999 and start a literacy nonprofit in San Francisco.

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Google has doled out stock options to virtually all its 2,292 employees. From senior executives to administrative assistants, self-described "Googlers" get options — which may eventually be sold for cash — when they start work and when they're promoted.

"I've heard some huge numbers — even that everyone who works there is going to be a paper millionaire," said Matthew Kelmon, president and head portfolio manager of Palo Alto, Calif.-based Kelmoore Investment. "The whole thing brings back memories of the bubble. People probably haven't learned much from history and they'll go out and buy three Ferraris and take out a mortgage on a bigger house."

Like many Silicon Valley companies, Google awards options to employees depending on their start date, negotiating skills, salary and rank in the company. Grants vary widely, but there's no question Google has been generous.

Google has granted 20.7 million stock options to workers since the end of 2002, sometimes at prices below 49 cents a share, according to a financial document filed Monday. The stock is expected to debut as early as next month between $108 and $135 a share.

According to the Securities and Exchange Commission filing, Google had 26.94 million outstanding stock options held by its employees and consultants, at an average exercise price of $5.21, as of June 30.

If Google shares match the assumed IPO price of $121.50, that means $3.1 billion will be shared unevenly by fewer than 3,000 people — an average of more than $1 million each when all their current options are vested.

The prospect of such sudden wealth could create a host of management problems in Google's Mountain View, Calif., headquarters, hastening turnover and eroding Google's vaunted corporate culture and high productivity, cautioned Thomas Taulli, a lecturer specializing in IPOs at the University of Southern California's Marshall School of Business.

"Even people who are hard workers and dedicated employees will suddenly spend all hours of their life looking at the stock ticker, seeing where the stock price is," Taulli said. "Sudden wealth is a huge management challenge and big distraction."

At the peak of the late '90s dot-com boom, the world's largest software company had produced a half-dozen billionaires and thousands of "Microsoft millionaires." By 1999, newly minted and recently resigned Microsoft employees had started more than 2,500 different companies — from organic vegetable farms and nonprofits helping dyslexic children to rival startups — according to a Microsoft estimate.

John Wood was 35 and director of business development for Microsoft's China region when he resigned in 1999. He moved to California and started a nonprofit, Room to Read, that has opened 1,000 libraries and 99 elementary schools in the developing world.
 
"I know people at Google, and they also have some pretty big dreams about changing the world. I wouldn't be surprised if some of them jump off the mother ship," Wood said.

Karen Goodfriend, a financial adviser specializing in "suddenly wealthy" individuals, said even paper millionaires should brace for deep and unpredictable psychological changes.

But Googlers aren't likely to be as grandiose as the previous generation of Microsoft millionaires or their Silicon Valley brethren. Financial experts say horror stories about paper wealth erased through obscure tax laws and precipitous stock declines should give them pause when they go to the car dealer or enter the local housing market.

Still, Silicon Valley denizens are getting worried about another speculative bubble.

"In the last six months, people have started to party like it's 1999," said software industry veteran Christopher Lochhead, now chief marketing officer at Mercury Interactive.

"My biggest fear is that the P.T. Barnums and the hypemeisters are getting warmed up again. The reality is that there are very few startups that are as profitable as Google, and they've built a special, unique company."