Gates Says Microsoft Won’t Expense Options Unless Required

TORONTO — Microsoft Corp. Chairman Bill Gates said Tuesday that the technology industry wouldn’t see any dramatic hit to innovation if it were forced to begin formally expensing the cost of stock options given to employees.

Just the same, he said, the software giant had no plans to join Coca-Cola Co., General Electric Co. and other blue chips in voluntarily deducting options costs on the company’s official income statement.

“I don’t think a change in the way the accounts are done would have some major impact on technology,” Gates said at a conference here on innovation.

“There’s full disclosure,” he said, referring to the current requirement that companies footnote options expenses. “So it’s hard to think, ‘Would that make some dramatic change in behavior?’ ” if formal expensing of those costs were mandated.

“Investors know the equation they’re buying into,” he said.

Gates said Microsoft would expense options if accounting regulators ordered all companies to do so. But the firm’s unwillingness to begin expensing options voluntarily is based partly on a desire for consistency in corporate reporting, he said. All companies should follow the same expensing rules so investors can compare bottom lines fairly, Gates said.

“Obviously our industry should move in a consistent way, because otherwise you’re not going to get any comparability between results,” he said.

In its latest earnings statement, Microsoft said reported profit in the fiscal year ended June 30 would have been $5.08 billion instead of $7.35 billion if it had to include options costs as an expense.

Though Microsoft is the world’s biggest issuer of stock options in absolute terms, it is under less pressure to issue them now than in the late 1990s, when other companies eager to steal away the company’s employees were dangling large option grants, Gates said.

Microsoft said in July that it will add 5,000 employees to its work force of 50,500 in the next year.

Gates also said he didn’t believe that options are as significant an incentive as some believe. “I think it’s an exaggeration to say they line up the interests of the stockholder and the option holder.”

Microsoft shares fell 96 cents to $51.04 on Nasdaq.