Ted S. Warren  /  AP
Microsoft Chairman Bill Gates answers questions at a Society of American Business Editors and Writers conference in Seattle on Monday. Gates said he regrets offering stock options to employees as part of his company's compensation package.
By Martin Wolk Executive business editor
updated 5/5/2005 1:58:51 PM ET 2005-05-05T17:58:51

Microsoft Corp. Chairman Bill Gates said Monday that he regretted ever offering stock options to employees as part of the software giant’s compensation package.

“We probably never should have used stock options,” Gates told a conference of business journalists meeting in Seattle. (MSNBC is a joint venture of Microsoft and NBC.)

“I actually regret we ever used them,” he said. “The approach we have now is just a better approach.”

In 2003, Microsoft abandoned its signature program of providing stock options to all employees — a program that created thousands of “Microsoft millionaires” since the company went public in 1986. Although such universal stock options were credited with creating the incentive that fueled much of the technology revolution of the 1990s in Silicon Valley and elsewhere, they also were criticized because of the way they allowed companies to compensate employees without fully accounting for the expense.

Amid growing criticism over the accounting rules, Microsoft switched to a program of offering stock grants to employees that vest over time and are accounted for as an expense.

Gates, speaking to the Society of American Business Editors and Writers, did not specify exactly why he thought stock options had been a mistake, but he pointed to their abandonment as an example of how the company has become more sophisticated as it has grown larger.

Billionaire buddies
Gates recently joined the board of directors of Berkshire Hathaway, whose chairman, Gates’ good friend Warren Buffett, long complained about accounting rules that allowed companies to grant stock options but not count them as an expense.

Gates spoke to the same annual conference that was the forum six years ago for a comment from his deputy Steve Ballmer, now Microsoft’s chief executive officer, that roiled an overheated stock market. Ballmer said at the time that he thought Microsoft stock probably was overvalued, along with most other technology companies. “He was right, too,” Gates said.

Gates offered no such sweeping statement, saying that he thought as many stocks are overvalued today as are undervalued. “It’s not like ’99 where you just have to say, ‘What? How can you possibly grow into that kind of multiple?’”

In response to a question about MSNBC, Gates said Microsoft remains “very committed” to the news joint venture. He said he had “no news” to report regarding published reports that Microsoft and NBC were negotiating changes in their joint venture agreement.

But he said Microsoft has a lot of interest in staying involved in “content” as broadly defined.

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“We can afford to be in a lot of different things and take our time trying to figure it out,” he said.

Gates said the world of technology is changing as rapidly today as it was five years ago at the height of the dot-com bubble, but the changes are more often going unnoticed. He referred to improvements in computing speed, security and interoperability as contributing to a future in which computers will be better able to carry out more sophisticated tasks like speech recognition.

High-def madness
Gates highlighted the growing pervasiveness of high-definition computer and video monitors as ushering in a new age of graphic realism in video games and other interactive content.

He also discussed the next generation of the Xbox gaming console, due to be unveiled later this month, will give Microsoft a chance to overtake the Sony as the leader in the gaming business.

“Our goal in the last generation was to be in the game,” Gates told reporters, “We came out of this round a strong No. 2.”

Gates said that the newest version of the Xbox, code-named Xenon, would have an array of features that will make the device a more versatile tool for games, music, video and pictures in the living room.

Gates also emphasized how Xenon would take advantage of the growing availability of televisions and content in high-definition format, which allows clearer pictures to be displayed on large, wide screens.

Microsoft is planning release details of its next generation Xbox on May 12 in an MTV special, ahead of a key gaming conference later this month where Sony is also expected to talk about its successor to the PlayStation 2, its current generation console and market leader.

Reuters contributed to this report.


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