Stock option re-pricing: downtrodden companies reward workers

Peloton wants some of its employees to leave — but not all of them. The fitness company has been forced to backpedal as demand for its stationary bikes has collapsed post-pandemic. It previously announced plans to slash annual costs by $800mn, a plan which included jettisoning 2,800 workers. Now it wants to sweeten the deal for Remainers.

In a news report this week, Peloton said the company would re-price the stock options of salaried workers to an exercise price of $9.13 per share — its closing price on July 1.

Peloton is one of several high-flying companies that timed their initial public offerings in the heady tech boom. Shares are down 90 per cent from their peak. As a result, the wealth creation opportunity used to lure talent has disintegrated.

Still, the company has an ambitious turnround plan under new chief executive Barry McCarthy. Tech recruiting and retention remains cut-throat in the US. Peloton is not the only struggling company seeking ways to halt an exodus.

Stock-based pay has the advantage of avoiding a cash expense. High growth and unprofitable companies eagerly dole out equity in order to preserve liquidity and incentivise workers.

According to a recent securities filing, Peloton had 64mn options granted. Just over half of those are vested and exercisable. It has about 340mn shares outstanding. In its latest quarter, the company reported an adjusted ebitda loss of nearly $200mn, a figure that did not include $70mn of non-cash stock-based remuneration expense.

According to data compiled from the law firm White & Case, more than 200 companies repriced stock options between 2004 and 2009. The pace has slowed during the tech bull market. Shareholders, depending on company documents, must approve repricings. They tend to be unenthusiastic.

That is understandable. It is not as if they can re-price their own losses. Still, companies need workers. Sometimes forcing costs on shareholders, including stock dilution, is necessary.