Up in smoke

photo by J John Priola
Photo by J John Priola (click picture to see full-size)

Not a new pope in sight

That puff of smoke you see this afternoon at 4pm Pacific Time will not signify the election of a new pope, nor even an advance of the wildfires burning nearby. No, this will be all that remains of the now-worthless pile of HPQ stock options that I had when I retired from Hewlett-Packard.

I received my first batch of HP stock options in 1988 after completing my first project, a short technology primer to accompany the release of a new product (LaserROM), one particularly dear to the general manager's heart.

It was an impressive piece of paper that was handed me that day, with bold-faced Witnessethes, Whereases, and Therefores. I was given to understand that this was a rare honor, indeed, received by only a very few select high performing employees. The significance was only heightened by the warning that I should not bruit news of this award about, lest it inspire jealousy in others not so fortunate.

Like other corporate serfs, I ate it up. I actually believed most of that stuff about how stock options "represent a significant vote of confidence by your managers that you have and will continue to play a critical role" and how I was being "recognized as a key participant in ensuring HP's ongoing success." That would change, of course, when I came to understand how the program really worked.

HPQ stock chart
HPQ stock chart since 28-Jun-2002 with blue lines showing strike prices of my options

Over the years I received several others of these grants, and when I left HP on 28-Jun-2002, all the options became fully vested with a three-year limit to exercise them. On the day I left HP, HPQ stock closed at $15.28, cold comfort since my options carried strike prices ranging from $20.61 to $59.58 (see left). When a new CEO was named at the end of March, there was a spasm of enthusiasm that soon cooled but was rewarmed by HP's earnings report in May.

Thanks to what the market viewed as encouraging news, HPQ began trading higher, and when the price got over $22, I exercised as many of my options as I could. After Mother HP withheld almost 50% in taxes (!), I was left with enough to pay for just under half of my new patio curtains. Eventually, HPQ reached a high of $24.70, but alas, that was not high enough to bring the rest of my options enough above water to make the exercise worth the bother.

Technology companies, in particular, love to give stock options. At least they did before the government began making companies account for the value of the options in their financial statements. In the absence of that, it was a nearly cost-free way to buy employee loyalty without having to compensate them with real money. The other program that works quite effectively is downsizing and outsourcing of jobs to India or China. Under those conditions, employees cling to their jobs, just happy to have a pay check.

There are, of course, lots of stories about all the millionnaires spawned by Microsoft, and the Google guys recently became billionnaires when their company went public. But for every Microsoft or Google, there are hundreds, thousands, perhaps hundreds of thousands of small technology companies that never make it and whose stock and stock options are just as worthless as my HPQ stock options.

Am I bitter? No. There is no guarantee that stock options will ever be worth anything, just as there is no guarantee that shares of stock will ever be worth anything. (Employers, of course, count on you thinking otherwise!) In fact, when I made my financial plans, I zeroed out the value of my stock options. I consider myself fortunate for having realized anything at all — "found money" as it were.