If you are an employee of Starbucks with stock options, you were one happy investor last week when Starbucks employees swapped over 14 million stocks for stocks at a lower strike price. But will the stock swap have investors drinking caramel mocha frappuccinos or heading to McDonald's for the McCafe?

What is an employee stock swap?
An employee stock swap is when employees are offered new stock in exchange for their old stock. This is commonly done because of a major drop in the worth of the stock.

Why did Starbucks do an employee stock swap?
Just two years ago Starbucks stock was worth $28, and the stock was issued at a discount to employee, thus giving employees options to buy stock at a reduced price, a huge perk. Today Starbuck's stock is percolating around the $15 mark. If the price the employee had to buy the stock at was based on the stock having a higher value, the stock option would be worthless.

What's the difference in stock worth? If an employee owned 1,000 shares of stock, it would be worth $13,000 less or 3,250 Grande frappuccinos.

If the stock hadn't been exchanged for stock with a lower strike price, the employee stock incentive would have been worthless. In order to keep baristas from turning in their aprons and heading elsewhere, Starbucks initiated the employee stock swap.

What does the employee stock swap mean to investors?
As an investor, the last thing you want in any company is a venti-sized group of unhappy employees - especially in a business like Starbucks where customer service is a key component of its business. With employees feeling like they still own a share of the business, which they wouldn't without the lower stock price, more employees will continue to work for Starbucks and perform their jobs well.

The gain the employees feel makes Starbucks a much better long-term investment. It allows investors to know exactly what kind of company, and what kind of customer service, they are investing their dollars in.

According to Starbucks spokesperson Anna Kim-Williams, "At Starbucks, stock options constitute a key component of our incentive and retention programs because we believe that equity compensation encourages partners to act like owners of the business, motivating them to work toward our success and rewarding their contributions by allowing them to benefit from increases in the value of our shares."

In other words, happy baristas = happy investors.

For further reading about employee stock options checkout Get The Most Out Of Employee Stock Options and How Restricted Stock And RSUs Are Taxed.

Related Articles
  1. Investing

    Is it Time to “Buy” Inflation?

    Based on recent data from the Treasury-Inflation Protected Securities (TIPS) market, it would seem that most investors aren’t worried about inflation.
  2. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  3. Investing

    What is Cumulative Preferred Stock?

    Cumulative preferred stock is a type of stock that stipulates any skipped or omitted dividends must be paid to its holders before common shareholders can receive dividends.
  4. Mutual Funds & ETFs

    How to Lower Investment Account Fees in Retirement

    Retired investors need all the money they have, which is why they should keep an eye on investment fees, as high fees can lower returns.
  5. Fundamental Analysis

    Top Reasons IPO Valuations Miss The Mark

    The costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
  6. Insurance

    All About Impaired Risk Annuites and Insurance

    What are impaired risk insurance products and understanding life insurance rate classes, table ratings and flat extra premiums.
  7. Mutual Funds & ETFs

    The Risks of Investing in Inverse ETFs

    Discover analyses of the risks inherent to inverse exchange-traded funds (ETFs) that investors must understand before considering an investment in this type of ETF.
  8. Mutual Funds & ETFs

    Top 4 Inverse Equities ETFs

    Explore analysis of some of the most popular inverse and leveraged-inverse ETFs that track equity indexes, and learn about the suitability of these ETFs.
  9. Economics

    What Do Central Counterparty Clearing Houses Do?

    A central counterparty clearing house facilitates trading in European derivatives and equities markets.
  10. Professionals

    How to Deal with Restricted Stock Units

    RSUs can be an important part of an employee's compensation package. Here's how to help clients understand how they differ from traditional stock options.
  1. Does my employer's matching contribution count towards the maximum I can contribute ...

    Contributions to 401(k) plans come from employee salary deferral and employer match dollars. According to the IRS, employees ... Read Full Answer >>
  2. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  3. How is marginal propensity to save calculated?

    Marginal propensity to save is used in Keynesian macroeconomics to quantify the relationship between changes in income and ... Read Full Answer >>
  4. Should you calculate Value at Risk (VaR) for counterparty credit risk?

    Value at risk (VaR) calculations may be helpful for risk management when trading credit default swaps and other derivatives ... Read Full Answer >>
  5. For what financial instruments is a modified duration relevant?

    The modified duration is a formula used to calculate the percent change in the price of a financial instrument when there ... Read Full Answer >>
  6. What is the difference between derivatives and swaps?

    Derivatives are securities with prices dependent on one or multiple underlying assets. Common derivatives include forward ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!