No More Retiring At 30

By Michael Kinsley

The first time I realized that stock options were more than just a nice perk--that they had created a culture of their own, different in unexpected ways from the one in which most of us live--came about a year after I went to work for Microsoft in the mid-1990s. One of the software jockeys I worked with announced he was going to "retire." He had joined the company straight out of college and had been there seven or eight years. He was 30 years old. Why retire? He explained, "Well, as you know, I just got married, and we want to start having kids. So it seems like a good time for both of us to stop working."

I assumed that this young fellow was rich, though I had, and still have, no clear idea how rich. What hadn't occurred to me is how becoming rich, more or less unexpectedly, at the beginning of your adult life must make the world look different. Different than it looks to normal people who have to worry about money all their lives. Different than it looks to the conventionally rich, who get that way over the course of many years. Different, even, than it looks to those who inherit wealth and therefore grow up knowing it's coming. Of course! You get married, then you retire, then you have kids. That's life. In the stock-option culture, it makes perfect sense.

At Microsoft, until last week, almost every employee got stock options, in varying amounts, every year. Whether they made you rich depended on how early you got there, how long you stayed and how smart or lucky you were about when you cashed them in. (I was moderately late, and moderately stupid.) 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.

Microsoft announced last week that it would stop handing out stock options and start giving employees shares of stock instead. Other tech companies are expected to do likewise. What's the difference? An option is the right to buy a share at a certain price--usually the market price at the time the option is issued. So an option is valuable only if the stock goes up. For most of Microsoft's history, that has not been a problem. In recent years, it has been a problem. Most recent options are "under water." They give you the unappealing right to buy the company's stock for more than it's currently selling for.

Actual shares of stock are worth something even if the price goes down. But shares don't increase in value as fast as options when the price is rising. (If a stock goes from $50 to $60, it has increased in value by $10, or 20% before taxes. If you have an option to buy a share of that same stock at $40, when the stock goes from $50 to $60, the value of the option increases from $10 to $20, or 100% before taxes.) And shares cost more for the company to issue, so companies won't hand out as many. In essence, employees will be giving up a risky bet on a lot of money in exchange for a safer bet on somewhat less money. It is an appropriate trade-off for a more sober financial age.

But in the Stock Auction Archipelago--places like Seattle and Silicon Valley--the stock-option culture will linger. It's a place where people who raise money for worthy causes and are used to circling their prey for months or years get blindsided by large checks from people they've never heard of. It's a world where many dads tend to the home while Mom goes off to work--not to prove any political point but just because Mom and Dad took jobs long ago at different companies. Dad's job may even have been bigger. But Mom's company turned out to be Microsoft.

The stock-option culture has been a controlled experiment addressing the great unsolved question: Does money buy happiness? What do you do when, with most of your life still ahead, the thing that gets most of us up most mornings disappears? No doubt it is a nice problem to have, but it is a problem nevertheless. It may not be a problem for Bill Gates and the other high-tech visionaries for whom the company is a crusade. But what about all the ordinary-Joe or -Jane millionaires for whom it may be a great job but it's still just a job?

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.