Administration April 8, 2005

Microsoft Option Plan Has Little Sway

August 28, 2003 (PLANSPONSOR.com) - Microsoft's decision to Control+Alt+Delete stock options in favor of restricted stock grants has had almost no impact on the rest of the stock option community.
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More than six out of 10 (63%) WorldatWork members said the announcement by the software giant (See  Microsoft Wants to Give Workers a Real Stock “Option” ) had no effect on their stock option philosophy.   Even for those that did report some effect, its magnitude was varied, from a quarter that said it had a minor effect, to 9% reporting somewhat of an effect and a miniscule 2% that responded to a significant impact, according to the 2003 Stock Option Expensing Survey.

However, companies are still on pins-and-needles in anticipation of a change to their stock option plans in the face of mandated expensing (See  FASB Says Yes to Option Expensing ).   Thirty-six percent said they would switch to restricted stock if they were forced to account for stock options as an expense.   Other changes are also anticipated that include:

  • scaling back option grants
  • using more cash as a reward
  • shifting to other long-term incentives.

Comparatively, only 13% of those canvassed said they would not alter their current stock option plans in if option expensing becomes mandatory.

Not surprisingly, the majority of compensation professionals (61%) – not eager to implement any new procedures – said stock options should not be expensed, compared with only 29% that said they should.    Further, 11% would support expensing under certain circumstances, such as through a fair and accurate valuation method.

Some company shareholders decided not to wait, as 11% of those polled said they had shareholder proposals to begin expensing stock options.   Of those, 42% ended up passing.

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