From...

June 15, 1999
Web posted at: 8:35 a.m. EDT (1235 GMT)

by Kathleen Ohlson

(IDG) -- While investors in Internet companies may be concerned about the recent drop in e-commerce stock prices, experts say the decline isn't yet affecting the recruitment of top-notch technical talent. But it could.

Stock options -- and the potential to strike it rich -- have been a key incentive offered to IT staffers for joining Internet operations. If the meteoric rise in Net issues abates, though, some IT watchers wonder whether talent will prefer positions with guaranteed salaries that rely less on stock options. That could put more traditional companies in a better position as they compete for scarce Internet talent with Web start-ups.

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After seeing trading highs in January (2,505.89) and April (2,542.86), the Nasdaq stock index, which has a high concentration of technology stocks, fell to 2,470.52 in May. The index dropped another 32.29 points, or 1.3%, to 2,487.06 as of mid-afternoon trading today.

If employees enjoy their jobs every day, they're likely to stay through a market correction, argued Beth Buske, principal of Elizabeth Lahey & Associates, a Wayne, Ill.-based consulting firm. Stock options are incentives, and most employees look to them for the long term, Buske said.

However, others believe a change in stock prices can seriously harm recruiting and retention efforts. If a company's stock goes way down, executives may either have to reprice options -- which investors hate -- to attract and keep top people or see employees leave, said Michael Murphy, editor of the "California Technology Stock Letter".

"Employees can cross the street to get a job and fresh options at lower prices," Murphy said.

He said technology stocks haven't been hit too hard during the current downturn but are unlikely to reach their highs of early 1999 again anytime soon. There will be a "significant downturn" by August, Murphy predicted. America Online Inc., eBay Inc. and ETrade Group Inc. and other top-tier companies are likely to go down a bit, but second-tier companies may get "creamed."

Capers Jones, chief scientist at Artemis Management Systems Inc. in Burlington, Mass., said start-up companies are creating most new jobs and leading-edge research. But the risk facing the start-ups is that over half don't survive, he said.

Elaine Rubin, vice chairman at the e-commerce trade group Shop.org, conceded some employees might be skittish about joining or staying with young companies if the outlook appears too risky, opting for more conventional brick-and-mortar operations and a steady paycheck. Yet many people, believing they have the chance to become millionaires, are willing to take lower salaries for a higher risk and greater reward, she said. Employees get the biggest impact of stock options when private companies go public, and options become a major incentive to help retain and recruit employees, Rubin added.

Whatever the stock market does, options can't be the only incentive offered, experts said. They are helpful, but companies need to offer a complete package, including health and medical benefits, and interesting projects, Jones said.

"There's a huge [employee] shortage in the software industry, and Y2K has locked others up," Jones said. "Top talent requires top dollars."