Microsoft to Give Stock Over Options

Microsoft Corp. will start giving shares of stock to employees instead of granting stock options and will record the expenses on its books.

In a move that Microsoft Corp. says will help it continue to attract and retain key staff, the Redmond, Wash., software maker on Tuesday restructured the way it compensates employees, saying that starting in September it will give staff actual shares in the company rather than stock options as is currently the case.

The new Stock Award program will allow staff to earn actual shares of Microsoft stock over time, rather than being awarded options that give them the right to purchase stock at a set price.

In addition, a large portion of stock-based compensation for more than 600 of Microsofts senior leaders will now depend on growth in the number and satisfaction of Microsoft customers, CEO Steve Ballmer said.

Ballmer said these move will help the company attract and retain "the best employees, and better align their interests with those of our shareholders. These changes are a key step in our ongoing effort to position Microsoft for long-term success."

Ballmer and Microsoft Chairman and Chief Software Architect Bill Gates will not receive Stock Awards, just as they have never received stock options.

Microsoft is also working on a plan that will let its staff realize some value on the portion of their stock options that are currently "underwater," by selling their options to a third-party financial institution. If approved, this plan should be implemented by the end of this year.

"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. And we want to ensure that our senior employees total compensation is even more closely linked to growth in the number and satisfaction of our customers," Ballmer said in a statement.

The new compensation plan is the result of more than a year of review by Microsofts senior executive team and human resources staff, and reflects feedback from employees. As a result of these changes, Microsoft will begin expensing all equity-based compensation, including previously granted stock options from its 2004 fiscal year.

"Because Stock Awards must be expensed as they vest, we will include the cost of all equity-based compensation in both future and prior years financial statements to preserve year-over-year comparability," said John Connors, Microsofts chief financial officer.