Razorfish Employees Take Compensation Hit in Publicis Deal

Staffers to Lose Some Stock Options, Benefits in Transition to Holding Co.

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NEW YORK (AdAge.com) -- Staffers at Razorfish are realizing that leaving Microsoft for Publicis Groupe is going to hit them in the wallet.

Razorfish staff was informed Friday that when Publicis closes its $530 million deal to acquire the digital agency, they're going to lose 75% of their unvested stock options, a key incentive Microsoft had used to retain employees.

Razorfish employees have long been compensated as they would at a startup, and when aQuantive was acquired by Microsoft, employees were issued equivalent new options in Microsoft shares. But that won't be the case when Publicis closes its deal to acquire Razorfish.

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Instead, Publicis told Razorfish employees they'll get 25% of the value of their options, but they'll have to stick around until June 1 to receive it.

"It's a slap in the face," said one staffer. "There are a lot of people here talking to lawyers. Some of them blame Publicis."

Publicis doesn't offer stock-based compensation widely, and doesn't feel obligated to match the incentives Razorfish employees had as Microsoft employees. As of publication, Publicis had not yet responded with comment.

The flap illustrates the difference in culture between a digital shop that has been run in many ways like a tech company and a traditional holding company. Employees of tech companies and startups are typically compensated with stock options. At advertising holding companies? Not so much. It's hard financially for them to pay Microsoft-style options and benefits.

So Publicis had a choice: continue to honor its new Razorfish unit's stock options and risk alienating current staff that doesn't have them, or just discontinue them. A former Microsoft Advertising senior staffer said it sounded like Publicis was "trying to get away paying pennies on the dollar."

Holders of shares in aQuantive did quite well when Microsoft acquired the company. But Razorfish hasn't been owned by Microsoft long enough for much of the new stock options to vest.

Now the question is how many senior staffers will stick around until June 1 for a quarter of their invested options -- and how many will stick around after. That could figure into the plans of Razorfish clients as they plan for 2010 and beyond.

"The challenge for the holding company is how do they motivate these people," said Bruce Eatroff, partner at Halyard Capital. "My guess is some will stay and some who are more entrepreneurial will go elsewhere."

Publicis is exchanging Microsoft employee stock awards with the equivalent value of Publicis stock, and those grants will be made within 10 days of the close of the deal. Microsoft recently disclosed Razorfish lost $50 million on $360 million revenue in fiscal 2009, which ended June 30.

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