Microsoft said last night it will end its long-held practice of awarding stock options to its employees and instead start issuing direct stock grants that will be expensed.
The sweeping move, part of a plan to overhaul compensation for the more than 50,000 employees of the world's largest software company, would put the cost of stock-based pay on Microsoft's books, marking a departure from the practice of other technology industry leaders.
The cost of Microsoft's stock award plan, which will take effect from September, will be recorded against the company's earnings for the current fiscal year to June 2004.
Redmond, Washington-based Microsoft will also expense the value of its previously granted stock options and restate past results to show the cost of such compensation, it said.
In addition, employees with options that have exercise prices above the current stock price, or underwater options, will be able to cash them in by selling them to a financial intermediary.
Chief Executive Mr Steve Ballmer said that the new stock award plan better aligned employee compensation with the interests of shareholders since it would ensure that all staff have an equity interest in the company.
"Employees will always have some long-term equity value to look forward to," Mr Ballmer told analysts in a conference call.
Microsoft's shares dipped slightly to $27.54 from their Nasdaq close of $27.70 after the announcement.