5 ms·

Microsoft are giving stock options instead of actual stock? That can't be true. Are they looking for stupid employees or what?

biafra 13y ago
What is the problem with stock options?
- Patrick_Devine 13y ago
  Options are great for a company where there is a lot of growth (ie. a startup). Options are horrible for a company which has no growth (ie. a fortune 500). Options give you the ability to buy a share at the last strike price set by the board (FMV for a share). If FMV for your startup share is $0.01 and you exercise it for $20, you're walking away with $19.99 in your pocket having spent $0.01. Multiply that by 50,000 and you're almost a millionaire. If you get an option for a share of MSFT at $35, unless the stock price goes up, you're not getting a dime. IF it went up by $20 a share, you'd be doing just as well. That's unlikely, however, given how infrequently the stock moves. If they gave you 5,000 shares instead, you'd be sitting on a (more or less) guaranteed $175,000 _even if the stock price didn't move_ instead of absolutely nothing.
  - rmserror 13y ago
    The number of shares in an option grant is not necessarily the number of shares in a stock grant. You're assuming the choice is "5,000 options [for a single share]" or "5,000 shares." That's ridiculous. Clearly the shares are worth strictly more. But that's (typically) not the comparison.
  - biafra 13y ago
    Thank you for the explanation . I assumed options always have a symbolic price.
marshray 13y ago
The current practice which I have observed is for stock grants which vest over a multi-year schedule.
InclinedPlane 13y ago
Stock options used to be the go to method for giving bonuses to employees because they're cheap and potentially very valuable. However, they don't work very well if the stock is stagnant, so in that case the fall back is usually to just give stock grants which are really no different than getting cash. With options employees have an incentive to retain equity in the company, which has a lot of good side benefits, not least of which is that it gives employees more of a stake in the company's future. It's also a way to reward employees financially by making them rich if they stick around long enough to collect enough options, have them vest, and have them increase in value significantly over time. A lot of techies have become millionaires through stock options. Since MSFT's stock has been stagnant since the late '90s stock options as a reward aren't an option, which removes all of those benefits mentioned above and creates a further encouragement for ambitious employees to seek other companies where they have a reason to hold stock in their employer and where they are significantly financially rewarded for sticking around and doing good work.

biafra 13y ago

What is the problem with stock options?

Patrick_Devine 13y ago
Options are great for a company where there is a lot of growth (ie. a startup). Options are horrible for a company which has no growth (ie. a fortune 500). Options give you the ability to buy a share at the last strike price set by the board (FMV for a share). If FMV for your startup share is $0.01 and you exercise it for $20, you're walking away with $19.99 in your pocket having spent $0.01. Multiply that by 50,000 and you're almost a millionaire. If you get an option for a share of MSFT at $35, unless the stock price goes up, you're not getting a dime. IF it went up by $20 a share, you'd be doing just as well. That's unlikely, however, given how infrequently the stock moves. If they gave you 5,000 shares instead, you'd be sitting on a (more or less) guaranteed $175,000 _even if the stock price didn't move_ instead of absolutely nothing.
- rmserror 13y ago
  The number of shares in an option grant is not necessarily the number of shares in a stock grant. You're assuming the choice is "5,000 options [for a single share]" or "5,000 shares." That's ridiculous. Clearly the shares are worth strictly more. But that's (typically) not the comparison.
- biafra 13y ago
  Thank you for the explanation . I assumed options always have a symbolic price.

marshray 13y ago

The current practice which I have observed is for stock grants which vest over a multi-year schedule.

InclinedPlane 13y ago

Stock options used to be the go to method for giving bonuses to employees because they're cheap and potentially very valuable. However, they don't work very well if the stock is stagnant, so in that case the fall back is usually to just give stock grants which are really no different than getting cash. With options employees have an incentive to retain equity in the company, which has a lot of good side benefits, not least of which is that it gives employees more of a stake in the company's future. It's also a way to reward employees financially by making them rich if they stick around long enough to collect enough options, have them vest, and have them increase in value significantly over time. A lot of techies have become millionaires through stock options. Since MSFT's stock has been stagnant since the late '90s stock options as a reward aren't an option, which removes all of those benefits mentioned above and creates a further encouragement for ambitious employees to seek other companies where they have a reason to hold stock in their employer and where they are significantly financially rewarded for sticking around and doing good work.