Microsoft to replace stock options with share awards 08.07.2003 22:44 Headlines
SAN FRANCISCO (AFX) -- Microsoft said Tuesday that starting in September
2003, employees will be granted stock awards instead of stock options.
The company will give employees a shares of Microsoft stock over time, rather
than options that give employees the right to purchase stock at a set price.
Microsoft also said that a "significant portion" of stock-based compensation for
more than 600 senior executives will depend on growth in the number and
satisfaction of Microsoft customers. Ballmer and Chairman and Chief Software
Architect Bill Gates will not receive stock awards, management said. The company
plans to issue shares of stock that vest over a period of five years.
"Our compensation philosophy is simple," Ballmer said. "We want to be a magnet
for the best people by paying smarter. We want to attract and retain employees
by offering real ownership and great long-term financial incentives."
Microsoft shares fell 11 cents in after-hours trading to $27.59, topping the
list of most actively traded stocks on Island. The stock rose 28 cents to $27.70
in regular Nasdaq trading.
Unlike stock options, current accounting rules require companies to fully
expense the cost of stock awards immediately. As a result of the compensation
changes, Microsoft said it will begin expensing all equity-based compensation,
including previously granted stock options, starting in 2004.
Microsoft could not immediately be reached to calculate how the stock awards
would affect previously reported earnings, or the company's earnings going
forward.
The company also said it is working on a plan to let employees get back some
value on the portion of their stock options that are currently under water, by
selling their options to a third-party financial institution. If approved, the
company expects to start allowing employees to trade in their underwater options
by year's end.
While Microsoft becomes one of the first large technology companies to fully
expense the cost of options, management did not come out and say that other
technology companies should do the same.
"We agree with others in our industry that there's no one-size-fits-all approach
when it comes to equity compensation programs and the resultant accounting for
them," said John Connors, Microsoft's chief financial officer. "Every company
has a unique set of circumstances, and this is the appropriate accounting
treatment for our new compensation plan."
This story was supplied by CBSMarketWatch. For further information see
www.cbsmarketwatch.com.
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