9 July 2003 Microsoft has signalled the end of stock options — and the ‘Microsoft millionaires’ its scheme spawned — by announcing that it will stop its options plan in September and give all employees restricted stock instead.
CEO Steve Ballmer told the Wall Street Journal that the change in the compensation plan would better align staff interests with those of the company. “It’s always good to have the employees thinking as much like the shareholders as possible,” he said.
Microsoft staff cashed in stock options worth $16.3 billion in 2000 and despite the downturn, still made $5 billion last year. However, many are holding options that are essentially worthless, because the strike price at which they can be exercised is less than Microsoft’s current stock price.
The change in policy also means that staff are unlikely to enjoy the big financial gains that many made between 1982, when Microsoft first floated on the Nasdaq stock exchange, and 2000, before the stock market went into freefall.
It also represents a tacit admission that the days of helter-skelter growth are well and truly behind Microsoft — and, perhaps, the software industry as a whole.
Microsoft’s move follows a similar shift last year by online retail giant Amazon. However, the adoption of such a policy by the world’s biggest software company will add further weight to moves to require companies to fully expense their stock options schemes in their accounts.
It comes amid growing pressure on technology companies to reign in their stock options schemes by fully expensing the cost of such programs in their accounts — all in the name of good corporate governance.
In addition, the 2005 introduction of the International Accounting Standard (IAS) also mandates the expensing of stock options, although this is currently being hotly contested in the US, particularly by technology companies such as semiconductor maker Intel.
