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Will Facebook, Zynga, and Groupon Do the Unthinkable?

Rick Aristotle Munarriz
September 12, 2012

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It was Google's (Nasdaq: GOOG  ) darkest hour.

The "do no evil" company turned to the dark side three years ago, giving employees the opportunity to reprice their employee stock options.

The world's leading search engine could argue that it didn't have much of a choice. Stock options are supposed to be a vesting incentive, but a brutal market correction had pummeled the stock to the point where 85% of the options granted had strike prices that were underwater. How effective can stock options be as retention tools when their exercise prices are just so out of reach?

Q is for quandary
Google knew that investors wouldn't like it. They didn't get the right to adjust their cost basis. The company could've taken up to a $460 million modification charge if all of the underwater options were exchanged.

However, Google knew what it was doing. Facebook (Nasdaq: FB  ) and Twitter were gaining momentum, and the dot-com giant didn't want to lose key executives that could walk away from underwater options the way that foreclosed homeowners could walk away from underwater mortgages.

The repricing wasn't popular with the outside world, but it helped rebalance Google's compensation packages.

Morale was restored. Employees going for the swap had to extend their vesting schedules by a year, and perhaps that may have kept a few key hires at the company.

We don't know. We'll never know. However, now that so many of the new wave of Internet companies are waffling about as busted IPOs, could it be their turn to go the same route?

When good IPOs go bad
Facebook, Zynga (Nasdaq: ZNGA  ) , and Groupon (Nasdaq: GRPN  ) are in trouble.

Zynga is