So if you’ve had a chance to see The Social Network
So here is the script from that scene. You’ll just have to imagine it in your head. Fortunately Aaron Sorkin, the screenwriter, creates a visual with his words.
Basically, Eduardo and the other owners of Facebook were awarded stock options once the company incorporated. (They were and still are a private company but shares may be awarded, bought and sold privately. As of this post the Facebook IPO has not yet materialized. Private companies like Facebook and Reliance Protectron review their own financial books and do not have to open them to the public.)
For a public company, stock options awarded to executives are a performance incentive. Their primary purpose is to tie the success of the CEO, or other executive, to the stock price. The incentive based stock options allow the employee to purchase stock at a set price at some point in the future. They are very similar to the stock options we discussed before.
When researching a company for an investment you should check the compensation, or pay structure, of the top decision making executives. Also check to see how often they are cashing in their options. This may give you a heads-up, because bad news means bad stock price. And of there is lots of cashing-in going on then their might be some bad news releasing soon. I wrote a guide on how to find executive pay on Morningstar that would be a good start.
Ok, now I want to watch The Social Network again…
Photo Credits: http://newadvertising.org/the-social-network
The Social Network Script: http://wiscreenwritersforum.org/wp-content/uploads/2010/01/Social-Network-The-by-Aaron-Sorkin-May-28-2009.pdf
Legal stuff: The Social Network is property of Sony Pictures Digital. The screenplay is also available here.
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Interesting article… I’ve also heard it was a good movie, and will definitely make time to watch it. I really don’t know much about stocks or stock options, and so I really appreciated your use of a movie to teach me something new!
Nice article FSYA!
It’s amazing how the media affects the stock prices… nice tip to watch the cashing-in on stock options. 
That may give you a clue if the execs are taking the cash. It could also just signal a good time to take some gains off of the table in general.
I have never seen this movie. I hear it is great. I’d love to watch it sometime.
The dialogue is superb. No wasted words for sure. You will be hooked until the end.
I enjoyed the movie, and I think it’s an inspiring story. It kind of reminded me of our community in some respects, as we compete for clicks. Good points on taking note of the executive compensation…money is a powerful motivator.
It’s definitely one of my favorites. Mostly because I like the start up phase of a business, when everything is new and exciting.
I haven’t watched Social Network yet, but everyone who’s seen it has given it a thumbs up! Definitely on my watch list.
Zuckerberg was smart and even unethical, but a very shrewd guy!
Unethical. Exactly. I think that is the key word. He was a little underhanded but that seems to be the theme in most businesses today.
I haven’t seen Social Network yet. I know, BOO! I enjoyed how you spelled out the stock option section from the movie. Although Eduardo understood dilution, was he being treated fairly or was he being duped?
You have to see it! lol I think being a Harvard business student he should have read the fine print on a contract. That’s really the only reason I don’t feel that bad for him. But then again, he did trust a friend. I’ve been suckered by a ‘friend’ before though so I don’t trust anyone in business anymore.
Facebook is typical of a lot of start ups. Stock is given away to the founders and other early employees to make it very attractive to stay with the company. Social Network was a well written movie by Aaron Sorkin. Most if not all of his movies are well received and become successful.
I think this movie actually caused a mini backlash against Mark Z and Facebook. Mostly because there seemed to be so much backstabbing.