The Millionaires Next Door (If Your Neighbors Work for Microsoft) wp2.washingtonpost.com
This is on the old subject of Microsoft's outstanding stock options and "employee compensation events", the stock buybacks that aren't. The average is over $1million/employee, or $24billion total, though I recall higher figures being cited in the past.
Now for the problem -- there always is one, isn't there? Even Microsoft's $10 billion or so of cash doesn't begin to cover its whole obligation to option-holding employees. The box above shows how fast this obligation is rising. "Most of our financial liabilities are in the form of our employee stock options," Greg Maffei, Microsoft's chief financial officer, said in an interview.
A motivated work force is Microsoft's major asset -- and there's nothing like the possibility of millionaire-hood to get you motivated. But the options that motivate employees dilute the stakes of existing holders. If Microsoft were to issue all 259 option shares today, existing holders' stake in the company would drop to about 83 percent from the current 100 percent. This is known as dilution. And dilution tends to be bad for your stock price.
To keep dilution as low as possible, Microsoft buys shares at today's high price in the market and reissues them at low option prices to employees. Think of it as buying dear and selling cheap -- not exactly what Microsoft is known for. This game gets pretty expensive -- even though, for reasons we have no space to go into, the cost isn't charged against Microsoft's profits. In the three months ended Sept. 30, Microsoft spent $913 million buying its own shares -- more than it spent on sales and marketing ($788 million), research and development ($567 million), or any other single cost item.
Of course, we know from the NYT a month or so back, if they did charge the cost of options to profits, MSFT would have shown a loss last quarter. I think, if somebody presses me I'll dig up the article, I posted the ref here at the time, of course.
Like old Everet Dirksen said, a billion here, a billion there, pretty soon we're talking real money. I used to wonder where Microsoft's profits went, now, it's becoming more clear. Throw a billion at WebTV, another billion or two at cable companies, add in the options thing, a token $150million as the modern equivalent of 30 pieces of silver for Steve Jobs, you can probably account for it all.
Cheers, Dan. |
