Microsoft's Gamble

No incentive tactic has been as abused as the stock option grants offered by high-tech concerns to attract good people.

If these companies,and Wall Street,really expect folks to invest in publicly traded companies again, they have to clean up their acts and prove that greed is not the only motivation for corporate executives. And they have a lot to prove in a world where a stock can lose nearly all of its value for investors but high-ranking executives simply ensure their options are repriced so they make money no matter what. Talk about a win-win situation.

Steve Hall, president of Pearl Meyers & Partners, a New York-based compensation specialist, is bullish, at least initially. What Microsoft has done with its stock program is take away the potential huge upside but guarantee at least some reward for its employees, Hall said. The company might lose some bright prospects who will bypass it in favor of a VC firm or another player still operating the old way, but that's a gamble worth taking. Hall thinks it's more likely that other companies will follow Microsoft's lead.

Nearly all tech companies, including Intel and Dell Computer, have long used options to lure and keep talent. During the go-go years, that often meant incredible riches even for mediocre talent and effort. More recently, they have been meaningless. But the options and their exercise raised huge accounting issues,as in, they don't really show up as an expense. In the immortal words of investment god Warren Buffett from an op/ed piece in The New York Times: "Without blushing, almost all CEOs have told their shareholders that options are cost-free. When a company gives something of value to its employees in return for their services, it is clearly a compensation expense. %85 And if expenses don't belong in the earnings statement, where in the world do they belong?"

Good question. It sounds like Buffett's words reverberated in his buddy Bill Gates' ear. (The two play bridge.) Let's hope they start echoing in Silicon Valley, the Route 128 belt, Austin, Texas, and Armonk, N.Y., as well.

CRN Industry Editor Barbara Darrow can be reached at (781) 839-1223 or via e-mail at [email protected].