Ah, bailouts. First, there were the banks. Now, we're thinking of one for Detroit. Will Silicon Valley be next?

More than 80% of the Valley's 150 largest publicly traded companies had some employees holding stock options that had fallen below their strike prices as of Oct. 24, The Wall Street Journal reports.

That's a huge problem. Options have long been the compensation tool of choice in Silicon Valley. When the Rule Breakers team met with him during our recent "Innovation Tour" of the area, Benchmark Capital's Bill Gurley told us he loves them. As he sees it, options align shareholders and employees.

But is this always true? Not when shareholders subsidize the risk of holding options -- yet that's exactly what you'll see in the coming months. VMware (NYSE:VMW) has already received approval to set lower prices for some outstanding options. Advanced Micro Devices (NYSE:AMD) has similar designs, the Journal reports.

They're in good company: Apple (NASDAQ:AAPL), Oracle (NASDAQ:ORCL), and Adobe (NASDAQ:ADBE) repriced following the dot-com bust.

Here, repricing is intended to (a) keep employees from leaving to get a better options deal elsewhere and (b) give those who stay a chance to reap upside from a tech recovery, when one occurs. It's a smart, well intended strategy, but also a wealth transfer from shareholders to employees.

Will Google prove to be evil, after all?
I'm opposed to repricing because it violates the spirit of aligning interests. It's evil. I'm worried that Google (NASDAQ:GOOG), a stock I own, will see it as a necessary evil. Behold the numbers:

Company

2007

2006

2005

2004

Options granted

3,408,101

3,425,848

5,335,542

4,775,058

Exercised or vested

(3,572,930)

(8,128,241)

(11,511,586)

(8,033,820)

Canceled or forfeited

(367,157)

(462,381)

(839,811)

(486,341)

OPTIONS OUTSTANDING

12,892,886

13,424,872

18,589,646

25,605,501

Source: SEC filings.

Even though options outstanding are down 50% in four years, those 12.9 million on the books still amount to roughly 641 per employee. Yet, they don't matter much at present; yesterday's close of $311.46 is roughly 7% below the weighted average exercise price. The stock is heading lower again today.

Thus, Google's options are ripe for repricing.

Avoid the temptation, sirs. Not just for my sake, as a shareholder, but for your own. Repricing is an admission of defeat, a chance to lower expectations, to get more from less. That's not the Google we know; that's Yahoo! (NASDAQ:YHOO).

Ask more of yourselves. Innovate. Excel. Beat expectations. Because if you do, you won't need repricing. The market will have repriced your shares for you -- at multiples far higher than we're seeing today.

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