Executive Compensation - Microsoft's Risk-return Tradeoff
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Code : GOV0006
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Region : USA |
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Introduction: Microsoft, in response to the growing unhappiness among shareholders and its executives over its traditional way of compensating its employees with stock options3 , declared its shift to restricted stock4 in 2003. The shareholders were unhappy over the fall in stock price and the company’s dividend policy. Executives on the other hand were worried about their ability to exercise their options for profit amid dropping share price. Amajor part of their compensation was in the form of worthless options leading to anxiety among the employees over their pay. The new package was implemented from September 2003.Announcing the shift in the compensation package, Steve Ballmer, CEO,Microsoft, said, “There will be no new stock options grants from Microsoft, instead, we will award actual stock. The stock will vest over time, just like our stock options vested over time – a five-year (period) in our case.”5 The decision was expected to benefit both the shareholders and the employees equally. Restricted stocks were shares of the company issued to the employees at a zero price. So, the employees could gain a value under any stock fluctuations. In addition,Microsoft also announced that it would expense all its options as well as stock in future, in its financial statements.... |
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