Options Out

In the post-Enron, WorldCom business climate, the desire to make business practices more ethical and accounting more transparent should be uppermost in the minds of America's corporate executives.

That's partly why computer giant Microsoft's decision to abandon stock options for its employees and instead issue them shares of its stock outright makes sense. Employees stand to gain greater financial stability by owning actual shares instead of inherently risky options. The company's move should spur other firms to take similar action.

Options (the right to buy stock in the future at a fixed price) were especially popular during the high-tech supernova. But too many employees lured by upstart companies offering stock options in lieu of better pay lost big-time when the boom flamed out.

Options can also unfairly boost executive salaries at shareholder expense. During the stock-market plunge between 2000 and 2002, many executives were able to cash in their stock options at a handsome profit, while shareholders took heavy losses. Some observers believe big options issued to executives encouraged bad accounting to inflate stock prices and mask financial troubles.

Microsoft will also change its accounting to record existing stock options as an expense, a move long advocated by Federal Reserve Chairman Alan Greenspan. Other companies should follow suit. Options are real costs that shouldn't be tucked away in financial-statement footnotes.

Some firms still argue that options spark innovation and growth. But they must balance that against employees' financial security and investors' need for honest accounting - especially as many companies long ago outgrew their need to issue options to attract quality employees.