Video game company Electronic Arts Inc. told some employees this week that they would get the overtime pay they have demanded but not the stock options that have made millionaires out of countless rank-and-file Silicon Valley workers.
The personnel department of the Redwood City-based company told software engineers, developers and artists this week that granting overtime pay represented a drastic shift from the compensation strategy it has developed over the last two decades.
The change mirrors a trend throughout the technology industry, which is increasingly rewarding workers with big paychecks instead of the kind of stock-option grants that in the 1990s often translated into vast wealth.
The company changed its policy after workers at EA, as well as employees at Sony Computer Entertainment Inc. and Vivendi Universal Games Inc., filed class-action lawsuits to try to collect unpaid overtime.
"The employment environment at EA was built to allow you flexibility as professionals, with the expectation that time on the job could be managed without watching the clock," Rusty Rueff, EA's director of human resources, wrote in an e-mail to 2,750 U.S. employees. "Unfortunately, labor laws have not kept pace with this spirit of entrepreneurialism, innovation and creativity."
EA's new policy is expected to have ripple effects in the video game niche, where workers, spouses, attorneys and labor union organizers say companies have become too demanding of workers.
Last year, the International Game Developers Association polled more than 1,000 industry workers and described the grueling hours: More than one-third said they routinely worked 65 to 80 hours a week. More than three out of five gaming developers complained that their spouses frequently say, "You work too much."
"Crunch time is omnipresent," association researchers wrote. "Overtime is often uncompensated."
EA would not provide details of current salary scales or option packages.
Many technology companies pay slightly less than brick-and-mortar companies in comparable cost-of-living regions. Instead of generous salaries, employees — from senior executives to administrative assistants — often get option grants that, over time, can turn them into millionaires if stock prices increase.
EA stock hit an all-time high last week and traded Friday at $67.87. But EA workers who get overtime wouldn't cash in on options-related windfalls, and business experts said such employees might not care much about stock performance.
If other Silicon Valley companies follow EA's strategy, observers say, a region known for its nerdy workaholics could transform into a cluster of high-tech clock-punchers.
"This could affect people's outlook," said certified public accountant and personal financial planner Karen Goodfriend, vice president Los Altos-based Allied Consulting Group. "They won't see themselves as participating directly in the company's performance — or at least, it won't be as obvious."
EA spokesman Jeff Brown said Thursday that the company hasn't determined exactly how many employees would receive overtime pay. In April, at the start of the fiscal new year, the company will provide details on compensation plans and the impact on finances.
Brown said the change is a result of the lawsuit and comments from employees, who said in a November survey that they would prefer cash to merit-based bonuses and options tied to the company's stock performance.
EA isn't the only company to scale back use of stock options. Since the tech sector collapse of early 2000, the industry has had dramatically fewer IPOs, and options have paid off richly for workers at only a handful of companies — including eBay Inc. and Google Inc. Employees at struggling companies often find their options "under water" — essentially worthless.
Even Microsoft Corp., which couldn't sustain the blistering pace of stock appreciation of the 1990s, announced in 2003 that it would abandon options in favor of higher salaries and other benefits.
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Other companies also are souring on options because of a Financial Accounting Standards Board rule, which could go into effect as early as June and require companies to deduct the value of options.
Expensing options would dent profits of some big firms, including Hewlett-Packard Corp. and Sun Microsystems Inc. Technology executives vigorously opposed the rule and are asking federal lawmakers to block it.
Legal challenges and the accounting rule could force tech companies to take cues from more established companies, which woo prospective workers with competitive salaries, retention bonuses, annual salary reviews and spot bonuses when employees beat a budget or deadline, said Bill Coleman, a compensation expert at Salary.com.
"The pessimistic view is that stock options will die and the work ethic as we know it will end in Silicon Valley," Coleman said. "The reality in my mind is that companies are going to find more creative ways to create incentives for employees. Every company is going to have to recognize the changes and possibly re-evaluate."