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Workers Take Stock In Options

Workers at theglobe.com don't get big paychecks every week, but they have a good shot at becoming rich one day, reports CBS News Correspondent Anthony Mason.

That's because they also get stock options which let them buy company shares at a discount.

Stock options made founders Todd Krizelman and Stephan Paternot millionaires at age 25. They're the latest in a wave of Internet moguls whose companies have gone public.

"Its commonplace to give people a lot of options to incent [sic] someone to come on board, mainly cause you don't want to spend a lot of cash in order to recruit top talent," says Paternot.

"In our business, something around 95, 96 percent of all employees have stock options," says Krizelman.

Now corporate America is discovering it's no longer enough to pay someone just a salary.

Take a look at the companies that make up the Standard and Poor's 500 Index: They issued 1.6 billion shares to employees in 1994; by 1998 that number jumped to 4.4 billion.

On the tech-heavy Nasdaq 100, ten percent of its value -- or $220 billion worth of shares -- is held by company insiders.

"It's a form of cheap money," says N.Y.U. professor Baruch Lev. "You don't pay cash, so it's not considered an expense on your income statement."

Standup stock options are part of the reason America's economy has been so successful in the 1990s. They help companies expand at a lower cost and employees get incentives to work harder in return for a piece of the company.

But some analysts say if a company gives away too much stock, ordinary investors may not get their payday.

"These companies have to go out and buy these shares on the open market, and frequently they have to borrow money to do it," says Bob Gabele of First Call Thompson Financial. "This can cause some deterioration of the balance sheet."

Borrowing to pay for stock repurchases is at an all time high: $200 billion last year. Another risk is if all those employees with stock options decide to sell at once, the value of those shares is likely to plunge.

Still, handing out stock options is worth the gamble for an ambitious company.

"Could we create a billion-dollar company, the two of us, or would we be willing to give away a little piece at a time in order to help?" asks Paternot. "Well, of course the answer is we have to give it away."

Sharing the wealth at theglobe.com has meant a move from a dorm room to a room of plush offices in Silicon Alley. Next stop for Krizelman and Paternot: the world.

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