Why Facebook Employees Are Dumping Shares

Business Insider reports this morning that employees at Facebook are leaving the company at an alarming rate over concerns that their compensation via stock options may lose value by the time the company finally decides to go public. Three senior level officials, Jim Midgal, Marcel Laverdet, and Jonathan Heiliger have all recently abdicated their posts at Facebook, and were reportedly joined by a “number of rank and file engineers” who have departed in recent weeks. Commentators speculate that the “exodus” from Facebook is motivated by employees’ desire to cash in on stock options, which in some cases they are restricted from doing if they are still employed by the firm.

Employees with significant stock holdings have been offloading shares via secondary trading markets such as SecondMarket where Facebook-share trades accounted for more than 45% of all deals last year. One recent Facebook employee commented, “Even if I could sell all 20 percent [of Facebook holdings], having 80 percent of your wealth in one illiquid asset is pretty insane…It’s not enough to make yourself bulletproof if the world blows up.” Another added, “It seemed very risky to stay in a situation where all of your liquidity was tied up in what I consider a high-risk company.”

With preliminary valuations putting an IPO price tag of close to $100 billion on the company, Facebook employees do have some cause for concern over whether their company is the flagship of a looming social media bubble. If these valuations are artificially high, employees who hold vast sums in Facebook stock could see their fortunes wither by the date of the company’s IPO, or a time shortly thereafter when the bubble comes crashing down.

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