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Scott Eells/Bloomberg

Mark Zuckerberg has now acknowledged that the disastrous halving of the social network's market value since going public "doesn't help" employee morale. But it may be more problematic than that. The decline – and the company's eventual response – may be a self-reinforcing problem for the multibillionaire Harvard dropout.

Like most of Silicon Valley's hot companies, Facebook doles out equity to employees. In theory, this helps to create an esprit de corps and align the interests of workers, managers and investors. And it can make lots of employees rich. But a slumping stock can have the opposite effect.

Consider a few numbers. Since its bungled debut on the Nasdaq at $38 (U.S.) a share, Facebook's stock price has fallen as low as $17.55. The last time Facebook traded at such levels was as a private company, in November, 2010, when SecondMarket began conducting weekly semi-private auctions of the stock. From then, the shares kept on rising, to as high as $42.72, before the company's initial public offering was priced on May 17.

In November, 2010, Facebook had about 1,700 employees. Today it has around 4,000. That means nearly 60 per cent of its work force arrived since the stock last traded at recent lows. The implication is that any equity those folks received has fallen in value. Even with Wednesday's share price spike of 7.7 per cent – buoyed by an after-hours public appearance Tuesday by Mr. Zuckerberg, his first since the IPO – some of those employees could have lost close to 50 per cent on their shares.

It could be worse. Had Facebook granted options at prices ranging up to the IPO level, those would be intrinsically worth nothing, not just less, and Mr. Zuckerberg could be dealing with mutiny rather than just grumpiness.

But he still faces a dilemma. If Facebook does nothing for employees who are less well-off than they expected, rivals will find it easier to poach top talent, potentially slowing the company's adaptation to a fast-changing market. Yet if Mr. Zuckerberg makes up for losses with more generous awards in the future, the cost could eat into margins and dilute other shareholders. Either way, it's hard to see how to turn the situation into a thumbs-up from investors.

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