trading them. These restricted stock issues have made a
comebackinrecentyearsastheabusesofemployeeoptions
havecometolight. InJuly2003,Microsoftswitchedfrom
usingoptionstoissuingrestrictedstock,representingthemost
prominent example of this trend.
Use of and Accounting for Restricted Stock
Aswithemployeeoptions,webeginbylookingatboththe
prevalenceofrestrictedstockissuesandthequestionofwhat
typesofcompaniesaremostlikelytouserestrictedstock.We
alsolook atthetypicalrestrictions thatarebuiltintothese
shares, and howaccounting rules forrestricted stock have
evolved over time.
Magnitude and Usage
Therehas beena clear shiftaway from employeeoptions,
especiallysincetheannouncementofFAS123R,thoughthe
evidenceis still anecdotal for themost part.A survey by
Mercer, a consulting firm, in May 2004 noted that about
two-thirds of all firms surveyed had changed their equity
compensationprogramsinresponsetotheoptionexpensing
rule.Amongthefirmsthathadalreadyinstitutedchanges, 22
percentoffirmshadreducedoption-basedcompensationby
40 percentormore.Amongthe 36 percentofthefirmsthat
replaced employee options with another form of equity
compensation,restrictedstockwasthemostcommonchoice.
Asanexample,considerAmazon,aheavyuserofemployee
options in the late 1990s. In 2001, Amazon granted 46.2
million options to employees, but the number of options
granteddroppedto3.045millionin 2002 andto226,000in
2003.Thenumberofrestrictedsharesgrantedtoemployees