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Kandel on stock options
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April 26, 2000: 7:30 p.m. ET
Will Microsoft's reissuing of employee stock options set the market tone?
By CNN Financial Editor Myron Kandel
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NEW YORK (CNNfn) - A dozen years ago a friend told me her company had offered her stock options as part of her compensation package, and she was uncertain whether she should accept them. I patiently explained that there was no risk, since she didn't have to exercise them if they were under water, but potentially they could bring her a big gain.
She thanked me for the advice and accepted the options (which are now worth ten times the price at which she received them).
What this anecdote represents is the fact that until recent years, ordinary employees didn't have much need to know anything about options because they were limited to the big brass at their companies.
 But all that has changed. Many companies now grant options to a wide range of employees, some even to those at the very bottom of the corporate ladder. And a number of companies, especially in the technology sector, have been using options to attract and retain their workers. In many cases, notably among the dot.coms, options are an integral part of the overall compensation package.
That's why the recent precipitous plunge in the price of Microsoft's stock was so worrisome to that company and its employees. The headlines featured the fact that the holdings of co-founder Bill Gates had dropped more than $40 billion dollars. But ordinary workers were much more concerned about their own present and future net worth. Seattle and its suburbs are filled with "Microsoft millionaires" who have profited (some just on paper so far) from the spectacular performance of the company and the growth - until recently - of its stock price.
With those values cut nearly in half, and those options that were granted at higher prices well under water, employee morale and loyalty could be severely affected. That's why Steve Ballmer, Microsoft's chief executive, told employees Tuesday that the company would issue 70 million new options at Monday's closing price of $66.625, a 12-month low. He said the move was designed "to insure that you are able to continue to fulfill your plans for the future despite the unusual volatility in the stock market and our stock price."
With the job market so tight, particularly in the technology sector, Microsoft's action is a smart management move to retain and motivate valued employees, particularly since they were not the ones involved in the company's antitrust battle with the federal and state governments.
The question now is whether this practice will spread through the Silicon Valley and other high-tech enclaves, where company after company has watched its stock price plummet from previously inflated heights. There's likely to be pressure to do so, particularly because so many of them have been using options to lure new employees away from other more-established organizations. I dare say that even the most avaricious stockholder would agree that this is a good idea.
(Myron Kandel is CNN's Financial Editor. His column appears every Wednesday on CNNfn.com.) 
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