2HRS2GO: Amazon has the right idea with options exchange

COMMENTARY -- I can't fault the latest compensation moves of Amazon.com (Nasdaq: AMZN).

Everyone and their brother has climbed aboard the Blast Amazon cart, but only the most bitter shareholders can criticize the company for including options as part of a severance package, or offering employees the chance to exchange their current options for a smaller package at a lower strike price.

Doubters will fixate on the potential charges and dilution Amazon.com would record if employees suddenly get the chance to cash in options from this new deal, but it's hardly anything to scream about.

Wall Street observers already dismiss non-cash charges. They're paper expenses, nothing that affects operations, cash flow or anything else that matters to the viability of a company. If options charges were company killers, the entire tech industry would have collapsed a long time ago.

The same dynamics apply to concerns about EPS dilution from an increase in shares outstanding.

More important, Amazon.com needs to keep its employees happy more than ever. Outside of base salary and benefits such as insurance, vacation and other perks, the only way to reward workers is through cash or equity.

Dipping into cash reserves for bonuses probably isn't the wisest move right now, for reasons of both practicality and perception. Amazon.com already faces a Lehman-led legion of doubters about its cash position, and in any case, the last thing a company pressing for profitability needs is a higher burn rate.

Options are the only viable alternative, especially for a company like Amazon.com. At least the options exchange -- as opposed to issuing new grants in addition to the current ones -- keeps dilution down.

You might worry that having so many options at a lower strike price could temper the stock itself. It has happened with tech companies before: stock rises, options are cashed in, stock sinks.

Those are short-term effects. They matter if you're a daytrader or a short-seller, but in the long run, the stock will respond to Amazon.com's performance as a company. Options certainly can't hurt in that regard.

Amazon.com isn't the first company to offer an exchange of options. Sprint (NYSE: FON) announced a similar plan less than four months ago, although the phone company's new grants won't be issued until May.

Other companies ought to consider doing the same. There are a lot of people in dot-com and technology industries wondering about their worthless grants.

And anything that eases the mind a little bit is welcome these days. 22GO>