- The Washington Times - Monday, October 27, 2003

SAN FRANCISCO - Employee stock options are yielding jackpots again, re-energizing high-tech workers who have been able to cash in on the recent run-up in their companies’ stocks.

The revival is vindicating stock options as an employee incentive tool — and heartening people like David Hughes.

Mr. Hughes, 34, took a big chance when he left a secure job at the Boston Consulting Group in 1999 and accepted a pay cut to join Internet service provider NetZero. The move made sense at the time because NetZero granted him options on its then-desirable stock.

But everything changed when NetZero’s stock began to sink in the dot-com plunge of 2000. Mr. Hughes’ stock options became worthless.

Things began to change last year after NetZero merged with a rival, Juno, to form United Online Inc. The company’s stock, worth as little as a split-adjusted $2.16 per share in late 2001, has been up this year, reaching a high of $43.64.

Mr. Hughes, now United Online’s senior vice president of corporate development, has been periodically exercising some of the options as United Online’s stock has climbed.

He won’t say how much money he has made, but Mr. Hughes allows that it’s been enough to pay off substantial debts he piled up in college.

Although companies such as Microsoft Corp. have abandoned stock options, thousands of businesses nationwide embrace them as an inexpensive way to motivate workers, with Silicon Valley serving as ground zero for the concept.

Options give employees the chance to buy company stock at a fixed cost, known as the exercise price. Options become valuable as a stock rises above the exercise price, but they remain worthless as long as the stock trades below that price. That was common as tech stocks plummeted in recent years.

But many stock options have been regaining their value this year, with the tech-laden Nasdaq Composite Index climbing 38 percent in the six months after Baghdad was seized by U.S. troops.

If it continues, the trend could provide relief for a lot of financially squeezed states, including California, which faces an estimated $8 billion budget deficit.

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