The Example

10 July 2003

Doing away with things that are so common they seem ”normal” is hard in any organization. Cultures develop in such a way that they begin to expect things. Microsoft’s decision to do away with options, rather than expensing them, is a huge win for investors.

No, it’s not a win for investors who think only in one- to three-year periods, but it is a win for those who make investing decisions about businesses and not about stocks. There are many ways to compensate and reward employees. From the standpoint of a business owner, each of these has some cost or expense to the business.

Some have tried to argue otherwise, but their agendas often were clouded by other issues. Arguing against the expensing of options because you don’t like having a ”standards body” tell you what to do clouds the issue.

I’ve received options and I’ve granted options awards. I like the reward and others did, too. Yet, there are many other ways that the companies I was working for could have rewarded employees. The question of how to reward employees has now been addressed by the biggest technology company of all.

At a minimum the removal of options grants will take away one more thing that can obscure a company’s bottom line. Removing options from compensation plans also eliminates another possible accounting abuse for those in charge.

Though Enron has become the symbol for shareholder abuse, there is no shortage of egregious conduct elsewhere in corporate America. One story Ive heard illustrates the all-too-common attitude of managers toward owners: A gorgeous woman slinks up to a CEO at a party and through moist lips purrs, ”Ill do anything – anything – you want. Just tell me what you would like.” With no hesitation, he replies, ”Reprice my options.”

Warren Buffett
2001 Letter to Shareholders

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