Accounting purists cheered Microsoft's recent decision to renounce employee stock options in favor of restricted stock grants. Stock grants count as compensation on income statements. Options, by contrast, are eligible for fantasy accounting in which this form of compensation is not an expense. In fact, between 1999 and 2002 the top ten options-granting companies on the Nasdaq 100 got a combined $27 billion boost to cash flow from operations from associated tax deductions, say accounting professors Michelle Hanlon of the University of Michigan and Terrence Shevlin of the University of Washington.

Other companies that grant options haven't followed in the footsteps of Microsoft. Cisco Systems, Intel, Amgen, Oracle and other technology companies seem to like their compensation systems the way they are. They especially admire the fact that the option payouts count as compensation on their corporate tax returns even while not counting as compensation on their shareholder reports. Microsoft is evidently so awash in profit and cash flow that it can afford to take the high road. Lesser outfits cannot.