| No More Soft Options |
14 July 2003
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Microsoft Ends Employee Options
Microsoft announced last week that it would discontinue the practice of awarding employees stock options. Instead, future equity transfers would be done as straightforward grants of shares. In addition, existing options would be expensed and those that are far from their strike price would be bought back. A wise decision that gets rid of a good idea gone bad.
When a company does well its shareholders should spread the wealth; it prevents that ugly human feeling of jealousy from rearing its head an undermining the success of the organization. There is also a hypothesis that employees who can profit from rising share prices are better motivated and will work harder for the firm -- judging by the number of CEOs who refused excessive pay when their firms tanked, one would say this idea is unproved at best.
And options were created as a way of dealing with this. Moreover, in the technology business, they were a way to let an employee gamble his or her paychecks. Rather than get paid in money, the right to buy stock at a price one hoped was far below the market value would make any deputy assistant's aid a millionaire, in time.
But the accountants did not have to put any value on these options, and boards awarded each other millions of shares, diluting equity and essentially robbing the company's owners. Microsoft bit the bullet last week and cleaned up the mess, but it is a shame it ever came to this. One of the best chances the workers had to seize control of the means of production is gone, and Wall Street is moaning about it.