Michael Kinsley ponders the stock option culture upon learning that Microsoft has stopped issuing them to its employees.

One of the charms of the stock-option culture is that it scrambles the usual linear relationship between status and wealth. Secretaries, if they got there in the 1980s, own big boats and second homes. Senior managers who came later have smaller bank accounts than some of their subordinates.

Honestly, I don’t find that particularly charming. On the one hand, it does promote loyalty in the company, which is very good. On the other, it turns the incentive structure upside down. I’m not sure that a secretary for Microsoft provides any more valuable a service as a secretary anywhere else–maybe less.

I wish I could reassure you that money does not buy happiness, but my impression is that on balance it does. Some of these folks retire before their parents can; some keep working as if they still had to. Many go off and start their own companies, looking for a second fortune to prove that the first one wasn’t just a fluke. More than a few pour their lives and their money into good works. Others sink both into residential real estate. The money liberates the imaginations of some. Lack of imagination protects others from realizing how badly they’ve squandered this miraculous opportunity. But one way or another, stock options do seem to have made people happy. Getting shares of stock might make people happy too, but in the slow, old-fashioned way.

Heh. As someone wise once told me, money doesn’t make you happy–but it’ll buy a lot of the things that will.

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.


  1. John Lemon says:

    You and Kinsley, geesh.

    First, stock options do not necessarily cause company loyalty. In fact, if the company’s stock rises quite rapidly, stock options can create incentives to leave early. During the 1990s, Microsoft had one of the highest turnover rates of employees of any Fortune 500 company. I know this for a fact.

    Alternatively, if the company does not perform well and the stock price sinks, people have a strong incentive to bail, which has been happening at Microsoft alot lately too. This is why the stock option plan was changed. It was prompted by MSFT employees who wanted a more predictable form of compensation, yet that would still be tied to the fortunes of the company — hence outright grants of stock.

  2. James Joyner says:

    Good points. I was thinking more of the particular result–it rewards the loyalty of long-time employees if they are able to have oodles of money despite relatively meager skills. But I think you’re right on the general incentive structure.

  3. John Lemon says:

    I also find it annoying that Kinsley is moaning about secretaries having big boats. There are two things to note about this. First, Kinsley has in the past whined about the growing disparity between rich and poor (in the static sense, as there is evidence that there is substantial dynamic mobility through income brackets in our nation). Well, here is a nifty little situation where class barriers break down in an interesting way — secretaries who usually don’t make much, all of a sudden do make much. And guess what? Kinsley has to bitch about this too! Is this guy ever happy.

    Second, typical with Kinsley’s stylistic use of hyperbole and misleading analogies,* the yachting secretary is a rather rare phenomenon at Microsoft. Most administrative assistants don’t get huge stock option packages as part of their compensation, in fact many don’t get options at all. Those that did started when the company was much, much smaller — I’m not talking 15 – 25 years ago(MSFT has gone through tremendous employee growth in the past decade). Finally, some admins do get great compensation packages because they are very valuable — just like a great waiter at a 5 star restaurant. The admins for Bill and Steve are extremely valuable and deserve high compensation for what they go through.

    * I refer you back to Kinsley’s use of “frivolous” to talk about medical malpractice suits. I considered this a sneaky way to associate malpractice suits which involve horrible injury or death with dumb-ass lawsuits like “McDonald’s made me fat.” By doing this he can show shock and outrage that somebody is calling a needless amputation “frivolous.” I have yet to see such a claim (though one could conceivably see this with plastic surgery disasters — i.e., Michael Jackson).

  4. John Lemon says:

    And I bet Kinsley is all whiny because his options — he is paid by MSFT — are “underwater” since he arrived at the peak of MSFT stock prosperity (circa 1998-99) and his secretary has a yacht. Ha!

  5. James Joyner says:

    Heh. Could be. Although, to be fair, it was me that was concerned about secretaries with yachts. Kinsley seemed to like it.

  6. John Lemon says:

    As way of background, the “MSFT millionaire” phenomenon typically applies to people who were at the company prior to 1995 and who stayed for at least 5 years. The exception to this may be those who were brought in as “superstar” programmers or execs (Bob Herbold comes to mind as an example of the latter). Those arriving post-1995 saw a huge valuation of their stock (given that the MSFT stock run-up occurred most dramatically between 1993-99), but did not have enough options to weather the post-1999 plunge in price (thank you Janet Reno, bitch), unless they sold right about February 2000, and most of those suckers were hoarding stock then. Double ha!

  7. Nick says:

    As an aside, many economists blame at least part of the “tech bubble” ordeal on an obscure provision in the 1993 tax increase. Basically, the bill changed something about how companies were allowed to remunerate their high-income employees which led to the lemming-like march towards stock options compensation. Of course 6 or 7 years later, nobody even thought of 1993. The Law of Unintended Consequences is a harsh and ubiquitous mistress, yet nobody ever seems to learn.

  8. John Lemon says:

    Nick is absolutely correct. Also, not directly related to stock compensation but part-and-parcel of how polilticians realize they screw up the economy with their policies, does anybody remember when Hillary took most of her Rose Law Firm compensation early, before the Clinton tax hike kicked in.

  9. John Lemon says:

    Oops, I should’ve ended with a question mark above?