Edison Project To Offer Stock Options to School Staff Members

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In a novel form of employee compensation in public education, the Edison Project announced last week that it will offer stock options to all teachers, principals, and staff members in the public schools it manages.

Edison, which this year manages 51 public and charter schools across the country, said that its 90 teachers and other staff members at Henry S. Reeves Elementary school in the Miami-Dade County school district will be the first to be offered the stock-option plan.

Teachers at the school have overwhelmingly accepted the offer, said Pat Tornillo, the executive vice president of United Teachers of Dade, an affiliate of the American Federation of Teachers.

"We've never had stock options in the public schools," Mr. Tornillo said. "This allows teachers at Reeves to own a piece of the rock, so to speak."

The New York City-based Edison Project is one of the most closely watched experiments in private management of public education. The company has spent some $160 million in private capital so far, but it is not yet profitable.

Edison executives say they hope the company will turn a profit within a year. Within about three years, it might have an initial public offering of stock.

The stock-option plan is unusual in several respects. Not only is it apparently unprecedented in public education, but most principals, teachers, and other workers in Edison-managed schools are not employees of the company. In public schools, they generally have remained employees of the school district, while in charter arrangements, they are employees of the charter board.

Still, Edison officials say the stock-options program will give school staff members a direct interest in the success of the company.

"Our goal here was to make teachers economic stakeholders in their enterprise," said Christopher Cerf, the executive vice president and general counsel of the Edison Project. "Their enterprise is schools and doing great things for kids."

Options Growing

Stock options give an employee the right to purchase a certain number of shares of a company's stock at a fixed price. The price is usually the market value on the day the options officially become available.

Employees then hope for a company's stock price to increase. They can purchase their options at the lower fixed price and, typically, turn right around and sell their shares at the higher market price for a profit.

There is no risk to an employee for accepting stock options. If the company's stock never rises above the option value, the employee does not have to exercise the option to buy shares.

Principals will each have options on shares with a total exercise price of $10,500. Lead teachers will have $5,400 worth of options, while regular teachers will get $3,000 in options and other personnel will get $1,000.

Stock options were once largely reserved for a company's top executives. But more companies now offer broad-based options programs for a majority of their employees.

"Before, they were mostly a form of executive compensation," said Scott Roderick, a spokesman for the National Center on Employee Ownership, a nonprofit research organization based in Oakland, Calif. "Now you see more broad-based plans, not only in high-tech companies, but in other corporations as well."

A 1997 survey of 350 large companies by William M. Mercer Inc., a New York City-based human resources consulting firm, found that 35 percent offer broad-based stock-option programs.

Stock options are not the same as employee-stock-ownership plans, in which shares are issued directly to a retirement trust and an employee cashes them in after leaving a company.

Sharing Profits

The Edison Project took pains to emphasize that its options program would not affect current salaries and "normal increases."

"We are very careful to say two things," Mr. Cerf said. "One, this is not in lieu of regular compensation. Two, while we think this has the potential to lead to significant financial rewards, there is absolutely no guarantee it will do that. It all depends on the future value of Edison stock."

The plan hinges on Edison going public at some point. It is currently owned by a number of investors, including a group led by its founder, Christopher Whittle. Other investors include venture capital firms such as the Sprout Group and J.P. Morgan Capital Corp., both of New York City, and Investor AB, a Swedish holding company.

Mr. Tornillo said the plan gives an ownership interest to educators working in the company's schools. "If Edison is going to make money, then the teachers and staff should share in it," he said.

Mr. Cerf said any Edison Project school that requests participation in the stock-options program will be allowed to do so.

The options will vest at 20 percent a year over five years, although current Edison teachers will be given credit for the time they already have accrued.

Vol. 18, Issue 9, Page 5

Published in Print: October 28, 1998, as Edison Project To Offer Stock Options to School Staff Members
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