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.