Akamai's Underwater Options (A)

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Case

Reference no. 9-902-069

Subject category: Human Resource Management / Organisational Behaviour

Authors: Brian J Hall (Harvard Business School); Jonathan P Lim (Harvard Business School); Houston Lane (Harvard Business School)

Published by: Harvard Business Publishing

Originally published in: 2002

Version: 11 October 2002

Length: 28 pages

Data source: Field research

Topics: Option pricing; Morale; Compensation; Incentives

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Abstract

Akamai's stock price declines dramatically with the NASDAQ in 2000, causing virtually all employee options to go underwater. Ownership and retention incentives are largely destroyed, and employee morale falls sharply. Management weighs the pros and cons of various alternative ‘solutions’ to this problem (including repricing, issuing a new supplemental grant, canceling the underwater options and issuing a delayed regrant, and making a tender offer to exchange underwater options for fewer shares of restricted stock).

Location:

Massachusetts

Size:

1,300 employees

Other setting(s):

2001