Microsoft's Employee Option Transfer Program

45 Pages Posted: 8 Mar 2006

See all articles by Don M. Chance

Don M. Chance

Louisiana State University, Baton Rouge - Department of Finance; Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Date Written: March 8, 2007

Abstract

In recent years several companies have offered employees the opportunity to transfer out-of-the-money options to a financial institution. This paper is a clinical study of a high-profile program offered by Microsoft in 2003. This program contained some complexities that likely made it unattractive and contributed to a low rate of participation. The counterparty, JPMorgan Chase, though profiting up front, failed to hedge an element of the risk it accepted from the employees and lost nearly the entire value it paid for the options. The experience has important implications for the design of programs that offer liquidity to employee stock options.

Keywords: employee options, compensation, incentives

JEL Classification: G13, G30, J33, M52

Suggested Citation

Chance, Don M., Microsoft's Employee Option Transfer Program (March 8, 2007). Available at SSRN: https://ssrn.com/abstract=746726 or http://dx.doi.org/10.2139/ssrn.746726

Don M. Chance (Contact Author)

Louisiana State University, Baton Rouge - Department of Finance ( email )

2900 BEC
Baton Rouge, LA 70803
United States

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

Baton Rouge, LA 70803-6308
United States
225-578-0372 (Phone)
225-578-6366 (Fax)

HOME PAGE: http://www.bus.lsu.edu/academics/finance/faculty/dchance/

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