Unions Press Corporate Us to Abandon Share Options

Corporate America is being pressed to follow the example of Microsoft, which earlier this week announced a ground-breaking decision to abandon share options as a means of rewarding workers.

Influential trade union grouping the American Federation of Labour and Congress of Industrial Organisations, which advises many public pension funds, has written to the chief executives of the biggest firms urging them to reform compensation.

"Stock options provide incentives to executives that significantly differ from the interests of shareholders," stated the letter, signed by AFL-CIO treasurer Richard Trumka.

"Microsoft's announcement establishes an important executive compensation precedent. Stock options can serve as a powerful incentive for executives to manipulate earnings or engage in accounting fraud."

They have also "contributed to the unprecedented growth in compensation for top executives and a dramatic widening of the gap between compensation of executives and average workers."

Microsoft joins a handful of companies that are ending or cutting back on stock options, including Philip Morris parent Altria, Dell Computer and Amazon.com. On Wednesday DaimlerChysler said it, too, was considering dropping share options. Microsoft announced on Tuesday that it would replace its stock options programme with restricted shares for its 50,000 workers.

Options give staff the right to buy shares at a fixed price over a specified period. Restricted shares are actual equity in the company released in chunks to the holder over a five-year period.

Critics argue that options can encourage entrepreneurs, but in many cases during the dot.com boom, they spurred executives to bend the rules in order to keep share prices flying. Because restricted shares have a higher inherent value, companies give far less to employees than they would options - usually about a third as many. That means there is less chance of making huge sums, but equally workers will not lose out altogether if the share price falls.

Microsoft also said it would begin expensing the cost of its incentive programme, something many financial experts, including Federal Reserve chairman Alan Greenspan, have long advocated.

Investment banks are eyeing the change as a potentially lucrative bonanza.