Silicon Insider: A Defense of Stock Options

Nov. 26 -- When it comes to money, always bet that people will choose short-term cash over long-term financial gain … and that Washington will always back them, even if it wrecks the economy.

A case in point is stock options. For the last 40 years, stock options have been the most egalitarian force in the U.S. economy. Options put corporate ownership in the hands of people who never held stock before. In uncounted cases, options have given ordinary folks an opportunity they never dreamed of: to become rich.

And thousands did. When Apple Computer went public in the early '80s, it created more than 100 millionaires, many of them secretaries and clerks. In the years that followed, Cisco, Siebel, eBay, Microsoft, Oracle and many other high-flying companies did the same for thousands more.

Stock options, in fact, founded Silicon Valley. It was frustration over Fairchild Camera's unwillingness to share its wealth in the form of stock that led the employees of subsidiary Fairchild Semiconductor to depart en masse and start Intel, AMD, National Semiconductor and all of the other pioneering companies of Silicon Valley.

More than that, stock options have always been the heart of high tech entrepreneurship. Why else would you leave a comfortable, high-paying job at an established firm to take on the long hours, hard work and high risk of a tech start-up if not for the stock options and the chance to become a tycoon on the back end?

Without stock options, there would be no semiconductor chips, no personal computers, no video games and no Internet. Throw in software too, because Gates, Ellison and the others never could have started their companies — and retained talent — without the bait of founders stock.

Stock Option Backlash

Of course, like many other things, stock option frenzy reached a kind of insane apogee during the dot.com bubble.

Suddenly, every 20-year-old dot-commie was sitting on a pile of options, a self-proclaimed paper millionaire. That infuriated people who had worked hard for years in normal jobs. Many found themselves deeply resentful at the arrogance of these children and the ease with which they'd apparently grown rich.