Gift for Googlers: $2.3 billion

Like many companies, Google has a tradition of giving holiday presents to its employees--an Android phone last year, $1,000 in cash net of taxes the year before. This year, they got Google's soon-to-be-released phone.

The phone is not yet available to the public, so the gift could make some gadget aficionados jealous. But most Googlers got another holiday gift far more worthy of envy.

In March, Google allowed nearly all employees to swap their stock options for new ones. Since Google shares had plummeted from more than $740 in late 2007 to around $300 by early this year, about 85 percent of employees held options that were under water, and Google executives said they needed to do something nice to retain employees.

To say the company has thrived since is an understatement. Google's shares have been on a tear for most of the year. They crossed $600 earlier this week for the first time in nearly two years. On Thursday, they were trading at around $617. That's more than twice the value of early March, when the old options were swapped for new ones with a strike price of $308.57. March was also the low point for the broader stock market.

Since employees exchanged 7.6 million shares, the potential windfall to Google's work force is more than $2.3 billion, assuming stock prices stay at these levels as the options vest. That's more than $117,000 on average for each of Google's roughly 20,000 employees. (Not all employees participated in the exchange, so the windfall for those that did is actually higher, on average.)

The timing of the option exchange was nearly perfect. After dipping slightly below the exchange price, Google's shares have been on a steady climb for the remainder of the year.

Google initially estimated the cost of the exchange to shareholders would be about $460 million. In later filings, it said the charge was approximately $360 million.

Many shareholder advocates frown on this kind of option exchange, arguing, among other things, that it is not available to average shareholders. In this case, they might also say that with the sharp climb in Google shares, the exchange was not necessary in the first place. Employees, no doubt, will beg to differ.

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