Option fever cools off in dot.com land

Visions of wealth rudely jolted by tech stock sell-off

What's an executive to do?

Well, some now seek a far-juicier salary, and options, too

Executive suite

May 07, 2000|By Mark Guidera | By Mark Guidera,SUN STAFF

In the frenetic recruiting for Internet companies, the refrain these last few years could easily have come from the popular television game show, "Who wants to be a millionaire?"

A lot of talented people answered with a resounding "me" and the stampede to promising dot.com companies was on. Part of the lure: equity stakes in the form of stock options with the prospect of big payoffs should the company go public or be acquired. But the big down-draft that hit technology stocks last months has made that payoff a lot dicier.

E-life in peril? More than a few one-time high-flier dot.com ventures, such as Drkoop.com and CDNow, have seen their market valuations shrivel. Cash resources are drying up fast.

Today, say executive recruiting firms and consultants, the door is swinging the other way as executives bolt companies whose stock prices - and hence their equity stakes - have tubed.

Top executives at the hardest hit dot.coms are "like underwater Houdinis, freed of their handcuffs, and swimming up for fresh air," proclaims Jeffrey Christian, chairman of Christian & Timbers, an executive recruiting firm specializing in the Internet industry.

Chief executive officer, chief technology officer and other senior level jobs are becoming tough to fill at some Internet companies, say industry experts.

And college placement counselors report that graduates with in-demand technical talent, such as software programmers and information systems engineers, are hedging when it comes to accepting offers from Internet-related ventures. Even geeks, it seems, want a measure of stability.

Buster Houchins, director for the mid-Atlantic office of Christian & Timbers, sees more hard times ahead, particularly for Internet-based retailers, or "e-tailers," and other business-to-consumer, or "B2C," companies.

"Two or three years ago, we were seeing Fortune 500 executives willing to leave a $500,000 job to go to a dot.com for a $150,000 salary and an equity stake in the company," he said.

Today, said the recruiter, executives are demanding salaries of up to $300,000 to risk a move. "They want a lot more cash on the table and the options," Houchins said.

And since the tech-heavy Nasdaq stock market tanked more than 355 points, or 9.7 percent, April 14, both executives and top technical talent are looking to leave B2C companies for jobs at companies that focus on Internet infrastructure, such as Internet access, Web hosting, or developing Internet business software applications, recruiters say.

Departing managers perceive that such ventures have more long-term stability and financial growth, Houchins said.

PricewaterhouseCoopers, the big accounting and consulting firm, found in a survey last fall - before the stock market began to roil - that Internet start-up companies were widely using generous stock option packages to attract and retain senior-level managers.

Carl Weinberg, a principal in PWC's global human resources practice, said that practice has been a key building block in attracting top talent to the new industry. For example, he said, cyber-bookseller Amazon.com snagged former Black & Decker executive Joseph Galli last summer with a compensation package that included generous stock options - specifically, 3.9 million Amazon shares worth more than $200 million at recent trading values.

Weinberg said dot.com companies are continuing to offer equity stakes to attract key hires, but now they are increasingly in the form of underlying grants, a more secure equity, rather than options, which are speculative.

While such option packages are a key to attracting good talent, even if their value and lure dry up, he believes there's a pool of executives willing to leave what they may perceive as suffocating corporate jobs to try their hand at a free-wheeling Internet venture.

"There's a greater understanding of the risk today," Weinberg said. "And there are still plenty of managers out there looking to be unshackled from the straitjackets of the big corporations. The breadth of opportunity and the freer work environment at the dot.coms will have a lot of appeal for some time." The big losers in the dot.com recruiting battle, said Weinberg, are neither the start-ups nor the mature companies with established brand name recognition. "It's the companies in the middle which have been out there a while. They have had their moment in the sun. But now they're struggling to find a business model that has some real economics to it."

One upshot, said Internet executive recruitment firms such as Christian & Timbers, is that executives and technical talent are becoming a lot more selective about what firms and offers they'll consider.

A top concern in the face of the stock market's turbulence and the shakeout under way in the dot.com sector: the current cash position of the company and the long-term viability of its business plan.

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