Beginning in September, Microsoft (NASDAQ:MSFT) will grant its employees awards of actual stock in lieu of options. Well done, Mr. Softy.
As a source of motivation, stock options are overrated. Perhaps they offer an incentive to stick around until fully vested, but options rarely enhance performance -- even less so when they are woefully out of the money. Realistically, how many employees even remember their respective strike prices?
What's worse, far too many companies, when faced with a plunging stock, go ahead and adjust their strike prices downward (the dreaded "repricing") or replace existing grants altogether with lower-priced options. To what effect? The only certainty is that shareholders wind up with the short end of the stick with unexpected dilution of an already devalued investment.
You could argue that granting workers actual shares of stock fosters a situation where a company's stock could potentially sink to pennies and the employees still come out ahead. Maybe, but the expense of restricted stock grants is recognized up front and at least they work to motivate and retain workers. Can the same really be said about options?
Microsoft was set to expense stock options in fiscal 2004 anyway, but this is still a gutsy move. Hopefully, other companies in the option-heavy tech space will follow Mr. Softy's example. Who knows? Maybe the "option pass" will become the play to call in the corporate huddle.
Do you think that Microsoft is right to roll out its Stock Awards program? Is the company simply buying time until it does something with its $46 billion cash hoard? All this and more -- in the Microsoft discussion board . Only on Fool.com.
