Stock options lose allure

The ability of Internet start-ups to attract top-notch technical talent may evaporate if the free fall in dot-com stocks continues much longer.

That hasn't happened yet, analysts and recruiters said last week. But "the current market volatility is giving people some pause," said Gene Manheim, managing director at Herbert Mines Associates, a New York executive placement firm whose clients include Priceline.com in Stamford, Connecticut.

E-commerce companies are famous for using stock options to lure technical workers with the hottest skills. "Typically, e-market companies don't pay much, so the stock market component is critical," Manheim said.

Concerns over stock volatility are causing "many to ask really hard questions about these companies and where they are in terms of market capitalisation, their ability to raise money, their brand and their competition," he added.

Fueling such concerns are the signs of growing investor impatience with Internet companies - especially consumer-oriented Web sites - that aren't making profits.

Examples include Peapod in Skokie, Illinois., CDnow in Fort Washington, Pennsylvania., and eToys in Santa Monica, California; the latter company's stock has fallen from a high of $86 per share in October to just under $10 last week.

This reality check is a good thing, said Ashok Kumar, an analyst at US Bancorp Piper Jaffray in Minneapolis. "You have such a high [employee] churn rate in the industry. Now maybe there'll be less incentive for people to just keep jumping to the next stock option," he said.

In some cases, employees are leaving dot-coms to return to their former brick-and-mortar employers, said Jeffrey Heath, president of The Landstone Group, an affiliate of New York-based Management Recruiters International. Often, employers welcome them back because it can be cheaper than hiring and training new employees, he said.

As more Web sites lose money and workers realize that dot-com life means grueling hours, "people are starting to realize that click-and-mortars are the safe haven," said David Foote, a managing partner at Foote Partners, a New Canaan, Connecticut-based workforce consultancy.

Also, many of the larger brick-and-mortar companies are simply getting better at retaining existing employees, by creating dot-com spin-offs or offering more stock options, said Barbara Gomolski, an analyst at Gartner Institute in Eden Prairie, Minnesota.

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