HOW TO ANTE UP

Even as regulatory announcements go, this one was anticlimactic. For a decade, corporate bosses and legislators debated what to do about stock options, the compensation tool that launched so many Microsoft Millionaires and inspired so much envy during the '90s boom. But since Enron's collapse, calls for reform have grown too loud to ignore. So last month the Financial Accounting Standards Board, the industry's private rulemaking body, proposed that companies must deduct from earnings the value of options given to employees. Many companies have gotten ahead of those regs, shifting pay practices in ways that are coming to light as they file proxy statements. As more filings are revealed this spring, says consultant Dan Ryterband, there will be "a sea change in compensation."

For both worker bees and top brass, the regulatory shift could have a big effect on how much the above-and-beyond-salary portion of pay packages is ultimately worth. Already, pros expect many companies to replace plain-vanilla stock-option plans with more exotic flavors of compensation. The move away from options began last summer, when Microsoft replaced options with "restricted share units." Unlike options, which give employees a payout only if company stock rises, restricted stock is worth something regardless. Some pros expect restricted stock to be the major replacement for options. But other companies are experimenting with ways to tie restricted-stock payouts to goals other than stock price. At General Electric, for instance, CEO Jeff Immelt's "performance share units"--worth $7.5 million last year--become his for keeps only if GE's operating cash flow grows 10 percent annually and its stock beats the S&P 500 for five years. If more companies follow suit, it could make both CEOs and lower-level workers focus on metrics like profit margins or growth rates.

The other big pay innovation was launched in February by IBM. Its top 300 executives now receive "premium options," which have no practical value until IBM's stock rises 10 percent. IBM says this is a better incentive. "Options say to people, 'You have to perform to get the upside, and without performance there's a downside that results in zero'," says senior vice president Randy MacDonald. Other companies may copy the IBM plan.

For shareholders, which new pay system is better? That depends, says Graef Crystal, a former compensation consultant. Those who fume when executives reap $100 million paydays should like restricted stock, since it results in smaller, more consistent rewards for managers. The downside is, "if the stock drops in half, you're still paying a lot of money to these folks," Crystal says. So for people who would rather see bosses get nothing if a stock languishes, new kinds of options will be preferable. And as the stock market zigs and zags, new types of pay may well emerge. Like the R&D team at Ben & Jerry's, pay consultants live in a world where there are always new flavors waiting to be born.