HolidayBuyer's Guide

Google riches outed on the Web

Rarely invoked SEC rule reveals stock option haves and have-nots among rank and file, dividing clubby campus. Photos: A Google of ways to work

Google's clubby campus has been hit with an embarrassment of riches--literally--thanks to a rarely invoked securities law requiring the company to report stock sales of hundreds of employees, rather than just top executives and shareholders.

Larry Page Since its August initial public offering, Google has filed documents with the Securities and Exchange Commission (SEC) detailing the multimillion-dollar stock sales of founders Sergey Brin and Larry Page, all the way down to the rank and file. The disclosures have so far affected about 400 of the company's 3,000 employees, and include documenting one trade of just five shares worth $850. (Planned stock sales can be reviewed on Yahoo finance.)

Employee complaints aren't exactly piling up about Google's generous stock grant policies, which have helped create an estimated 1,000 new millionaires, on paper at least. But the SEC filings have struck something of a nerve inside the company by offering an unusually candid look into the wealth of co-workers. That's creating unaccustomed tensions inside a workplace that has long projected an image of collegial egalitarianism to the outside world, some people said.

News.context

What's new:
A rarely invoked securities law is requiring Google to publicly report stock sales of hundreds of its employees, rather than just a handful of top shareholders.

Bottom line:
The SEC filings have struck a nerve by offering a candid look into the earning power of co-workers, creating unaccustomed tensions inside a workplace that has long projected an image of egalitarianism.

More stories on this topic

"The whole culture's really strange when there are two people in the same cubicle and one's worth $1 million and the other is worth nothing and they both know it," said one person close to the company. "It's created this asymmetry where some people feel more entitled than others."

Google, brimming with idealism and its seemingly altruistic goal of turning the world into a giant digital library, is now wrestling with the discomforting mixture of instant employee wealth and a little too much information of its own.

Google declined to comment for this story. But securities lawyers said the stock sale disclosures stem from an SEC rule regarding the sale or purchase of securities outside of a public offering.

Typically only executive officers or directors of a company must file their trades with the SEC, allowing most employees to buy and sell their stock anonymously.

Sergey Brin Google's IPO offers an exception to the general rule, however, thanks to the unusually large number of employee stock purchases that took place in advance of the public offering. In order to benefit from certain tax advantages, hundreds of employees decided to purchase their shares outright in pre-public private sales rather than wait for the IPO. As a result, they owned restricted stock instead of options at the time of the offering, forcing them to report their stock sales as insiders.

Securities lawyers said companies can typically avoid reporting restricted stock sales under an exemption known as rule 701, but only if they meet certain thresholds. To qualify for the exemption, a company cannot sell more than $1 million worth of stock; 15 percent of the total assets of the company; or 15 percent of the outstanding shares within a 12-month period.

"Google blew through the 701 limit," said Mark Tanoury, senior securities attorney at law firm Cooley Godward.

Garry Mathiason, senior partner at labor and employment law firm Littler Mendelson, said he recalls a similar situation for about a dozen other technology companies over the years, adding that the filings caused some distress for otherwise good-spirited office cultures.

"There is a surface politeness...but under the surface all the problems exist. We wouldn't be human if they didn't."
--Garry Mathiason, senior partner, Littler Mendelson

For some people, sudden IPO wealth may validate the work they have put into the company and boost self-confidence, he said.

But for others who may not have gotten the same share allotments or were hired at later stages, there's a sense of inequity that can lead to a falloff in morale and job performance while increasing strains on employee relationships, he said.

"While it may not be discussed very much, it absolutely affects both their attitude at work and interaction with co-workers," said Mathiason. "There is a surface politeness, and 'we don't talk about that,' but under the surface all the problems exist. We wouldn't be human if they didn't."

Recently, CEO Eric Schmidt sold 113,000 shares of stock for about $22 million, and Brin sold 200,000 shares for about $40 million.

Internal tensions over money run in stark contrast to Google's well-crafted image of technologists bettering the world by perfecting Internet search. Google founders Brin and Page have long sought to set a tone internally and externally that money is an afterthought to their mission of organizing the world's information, emphasizing their humble lifestyles.

The culture has reflected that kind of college-kid humility, with its hallmark lava lamps, colored balls and on-campus free food. Many Google employees outwardly project the role of starry-eyed believers, carrying the ideal of a grand mission in the mold of early Apple Computer days.

A soaring share price won't necessarily destroy such ideals, but it also won't necessarily help sustain them.

Money has already brought some changes to the campus, including the arrival of in-house wealth-management services to help some employees with their stock options and a security team to protect top managers from would-be attackers.

Wealth also raises the specter of employee defections. Already, the company's chief marketing officer, Cindy McCaffrey, has turned in her playbook. Sources say that many other early employees also are preparing to leave after stock options are taken out of a lock-up early this year.

Merrill Lynch recently initiated coverage of Google with a "neutral" rating based on fears that the end to this lock-up period might depress the stock slightly. It also said that it was concerned about Google's more immediate focus on innovating cool technologies, rather than making money from them.

"Once a person has the sense of the wealth, the commitment to the company and where it's going can fall off," Littler Mendelson's Mathiason said.

Close
Drag