<PAGE>   1

                                                           Exhibit (10)(iii)(A)

                            HOUGHTON MIFFLIN COMPANY
                          1998 STOCK COMPENSATION PLAN

     The primary purpose of this Plan is to attract, retain, and motivate the
employees of Houghton Mifflin Company (the "Company") and of any subsidiary
corporation of which more than 50% of the outstanding voting stock is owned by
the Company (a "Subsidiary") who will most assist the Company or its
Subsidiaries in achieving the Company's long-term goals and objectives, and to
provide an opportunity for these employees to acquire an interest in the Company
through the granting of options or restricted or bonus stock or other
performance awards, as herein provided. Additionally, the Plan is intended to
provide an incentive to non-employee members of the Board of Directors of the
Company ("director-participants") to increase their efforts for the success of
the Company by increasing their proprietary interest in the Company, through the
receipt of shares of the Company's common stock and options to purchase shares
of the Company's Common Stock. To achieve those purposes, the Plan amends and
restates the 1995 Stock Compensation Plan (the "1995 Plan").

1.   SHARES OF STOCK SUBJECT TO THE PLAN

     The stock that may be issued under the Plan shall not exceed, in the
aggregate, the sum of 1,800,000 shares of the Company's common stock ("Company
Stock"), which may be either authorized but unissued shares or treasury shares,
plus any shares of Company stock that were authorized but unused under either
the 1995 Plan or the 1992 Stock Compensation Plan (the "1992 Plan"), including,
without limitation, shares represented by awards which are forfeited, expire, or
are canceled without delivery of shares of Company Stock or which result in the
forfeiture of shares of Company Stock back to the Company.

     In determining the number of shares of Company Stock available for grant
under the Plan, (i) any shares of Company Stock granted or reserved for issue
under the Plan that are forfeited because of the failure to meet an award
contingency or condition, or shares reserved for issue on exercise of options
under the Plan which have expired or been terminated shall again be available
for use pursuant to new awards under the Plan; (ii) to the extent that shares of
Company Stock covered by an award are not delivered to a participant because the
award is forfeited or canceled, or the shares are not delivered because the
award is settled in cash, such shares shall not be deemed to have been delivered
for purposes of determining the maximum number of shares available for delivery
under the Plan; (iii) if the exercise price of any stock option granted under
the Plan, the 1995 Plan, or the 1992


                                      -1-


<PAGE>   2

Plan is paid by tendering shares of Company Stock to the Company or by
withholding pursuant to an election under Section 8 of the Plan or Section 7 of
the 1995 Plan, only the number of shares of Company Stock issued net of the
shares tendered or withheld shall be deemed delivered for purposes of
determining the maximum number of shares available for delivery under the Plan;
and (iv) shares of Company Stock delivered under the Plan in settlement,
assumption, or substitution of outstanding awards (or obligations to grant
future awards) under the plans or arrangements of another entity shall not
reduce the maximum number of shares of Company Stock available for delivery
under the Plan to the extent that such settlement, assumption, or substitution
is a result of the Company or a Subsidiary acquiring such other entity (or an
interest in such other entity).

     The stock that may be issued under the Plan to any one individual between
the Plan's Effective Date (as defined in Section 12 hereof) and its termination
shall not exceed, in the aggregate, 500,000 shares of Company Stock. The number
of shares subject to the Plan and the number of shares which can be issued to
any one individual thereunder shall, however, be subject to adjustment as
provided in Section 10 hereof.

     On and after the Effective Date of the Plan, no further grants of options
or restricted stock shall be made under the 1995 Plan. Options and other awards
granted under either the 1995 Plan or the 1992 Plan which are outstanding on and
after the Effective Date shall be subject to and governed by the terms and
conditions of the Plan. The actual provisions of any such outstanding option
agreement or other award agreement, however, shall not be altered unless an
amendment thereto is approved by the Committee (as defined in Section 2 below)
and (if the affected participant's approval is required by the 1995 Plan, the
1992 Plan, the Plan, the appropriate agreement, or applicable law) approved by
the affected participant.

2.   ELIGIBILITY AND ADMINISTRATION

     Except with respect to director-participants, awards will be granted only
to persons who are employees of the Company or a Subsidiary whose efforts are
important to the continued success and growth of the Company and, in the case of
incentive stock options, who are eligible to receive an incentive stock option
under the Internal Revenue Code of 1986, as amended from time to time (the
"Code"). The Board of Directors of the Company (the "Board") shall appoint a
committee to administer the Plan (the "Committee"). The Committee shall consist
of two or more directors of the Company, each of whom is a "non-employee
director" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, as amended, and an "outside director" within the meaning of Section 162(m)


                                      -2-


<PAGE>   3


of the Code. The Committee, acting by a majority of its members, shall determine
the participants in the Plan to whom grants will be made, the number of shares
subject to each grant, and the terms of the grant, consistent with the
provisions of this Plan.

3.   GRANTS TO EMPLOYEES

     The Committee may make grants to employees under this Plan in the form of
Stock Options (either Incentive Stock Options ("ISOs") or Non-Qualified Options
("NQOs")), Restricted Stock, Bonus Stock, or Performance Awards, each as defined
below. Unless prohibited by law or regulation, the Committee may make grants
under this Plan (except ISO grants) "in tandem" (i.e., the participant may be
given the right to select the form in which the grant is exercised) or in
combination with other grants. The Committee may also make cash awards (i) in
connection with, or as part or all of, a Performance Award or (ii) pursuant to
Section 9 hereof with respect to any Bonus Stock or Restricted Stock.

     *    Incentive Stock Options

          ISOs are a right to buy shares of Company Stock in the future at the
          market price at the time of grant, subject to the requirements of
          Section 422 of the Code. A stock option intended to be an ISO shall be
          designated as an ISO in its grant. The aggregate fair market value
          (determined at the time the ISO is granted) of the Company Stock with
          respect to which ISOs are exercisable for the first time by an
          optionholder during any calendar year (under all plans of the Company
          and any Subsidiary) shall not exceed $100,000.

     *    Non-Qualified Options

          NQOs are stock options (i) which do not meet the ISO restrictions,
          either in the grant itself or as the participant treats the grant, or
          (ii) the terms of which provide that the options will not be treated
          as ISOs. NQOs do not receive the special tax consequences given ISOs
          by the Code.

     *    Restricted Stock

          Restricted Stock is a grant of Company Stock to an individual subject
          to forfeiture during the restriction period if specific requirements
          (including continued employment or 


                                      -3-


<PAGE>   4


          performance goals) described in the grant documents are not met for
          the restriction period.

     *    Bonus Stock

          Bonus Stock is a grant of Company Stock to an individual which is made
          free of any restrictions. Bonus Stock may be granted as a bonus or
          instead of cash under other compensatory arrangements of the Company
          or a Subsidiary.

     *    Performance Awards

          Performance Awards are awards granted, subject to applicable law, with
          value, payment, or other terms contingent upon performance of the
          Company or specified Subsidiaries or any other factors designated by
          the Committee. Performance Awards, in whole or in part, may be (i)
          denominated or payable in cash, (ii) denominated or payable in, valued
          by reference to, or otherwise based on, or related to Company Stock,
          or (iii) denominated or payable in, valued by reference to, or
          otherwise based on, or related to, either Company Stock or cash, to be
          determined in the discretion of the Committee.

4.   GRANTS TO DIRECTOR-PARTICIPANTS

     Each individual who has served as a non-employee member of the Board during
any calendar year shall be a director-participant in the Plan with respect to
such year. With respect to each calendar year each director-participant shall be
granted, as compensation, (x) 1,000 shares of Company Stock, and (y) options to
purchase 2,000 shares of Company Stock, in each case as of the day before the
regularly scheduled meeting of the Board in the month of January following the
close of such calendar year; provided, however, that the number of shares or
options so granted shall be prorated in the case of any director-participant
whose service on the Board began during such year or who retired or resigned
from the Board during such year. The proration shall be based on the portion of
such year the director-participant served as a non-employee member of the Board.

     For each calendar year beginning with 1999, a director-participant may
elect to receive a whole number of shares of Company Stock equal in value to all
or any part of his or her annual retainer fee earned for services as a director
during such calendar year in place of payment in cash. A director-participant's
election must be made in writing delivered to the Committee before the beginning
of the calendar year in which the retainer fee is earned, and becomes
irrevocable on the last day prior to the beginning of that 


                                      -4-


<PAGE>   5


calendar year. Any election shall continue and apply to subsequent calendar
years until terminated or modified by written notice delivered to the Committee.
A notice of termination or modification will be effective as of the end of the
calendar year in which the notice is delivered, and shall apply to retainer fees
payable in subsequent years. Any shares to be delivered pursuant to such an
election shall be delivered quarterly, and shall be valued at the closing price
per share of Company Stock as reported by the New York Stock Exchange on the
last business day of each calendar quarter. The value of fractional shares shall
be paid in cash.

5.   GRANTS

     Grants may be made under this Plan to participants (including grants to
director-participant which are in addition to grants made to such
director-participant pursuant to Section 4 hereof) by the Committee at any
scheduled or unscheduled meeting. In making a grant to a participant under this
Plan, the Committee will specify (either at the time of grant or thereafter) the
terms and conditions of the grant, all of which shall be subject to the terms
and conditions of this Plan (including Section 13 hereof). Unless the Committee
specifies otherwise or applicable law requires otherwise, with respect to any
grant to an individual of Restricted Stock or Bonus Stock or of Company Stock in
connection with a Performance Award, past services of that individual equal to
the aggregate par value of Company Stock subject to such grant shall constitute
the only consideration paid upon the issuance of such stock. If at any time,
consideration other than past services is required by applicable law with
respect to a grant, such consideration shall be paid within the sixty days
immediately following such grant.

6.   PERIOD OF OPTION AND PAYMENT OF EXERCISE PRICE

     Each stock option grant shall be exercisable at such time or times as the
Committee shall from time to time determine but in no event after the expiration
of ten years from the date of grant. Except as otherwise provided in this
Section 6, the delivery of certificates representing shares under any stock
option grant will be contingent upon receipt by the Company from the
optionholder (or a purchaser acting in his or her stead, in accordance with the
provisions of the grant) of the full purchase price for such shares in the form
of cash and/or shares of Company Stock either previously owned by the
optionholder (provided that such shares have been held for at least six months)
or withheld by the Company pursuant to an election by the optionholder under
Section 8 below, the total value of which is equal to the total purchase price
of the optioned shares then being purchased and the fulfillment of any other
requirements contained in the option or applicable provisions of law. The
purchase price also may be paid in such 


                                      -5-


<PAGE>   6


other form of consideration as the Committee may authorize. The Company may
permit a participant to elect to pay the exercise price by authorizing a third
party to sell shares of Company Stock (or a sufficient portion of the shares)
being acquired upon exercise of an option and to remit to the Company a
sufficient portion of the sale proceeds to pay the entire exercise price and any
tax withholding resulting from such exercise. No optionholder or person entitled
to exercise the stock option grant shall be deemed to be a holder of any shares
subject to the grant for any purpose until such shares are issued to him or her
under the terms of the grant and the Plan.

7.   TRANSFERABILITY OF OPTIONS BY OPTIONHOLDER; ASSIGNMENT OF OBLIGATIONS BY
     COMPANY

     The Committee, in its discretion, may grant transferable options or amend
outstanding options to make them transferable (collectively, "Transferable
Options"). The option agreement with respect to a Transferable Option shall
provide that (i) the optionholder can transfer the Transferable Option to (x)
members of his or her immediate family (i.e., children, grandchildren, or
spouse), (y) trusts for the benefit of such family members, and (z) partnerships
whose only partners are such family members; (ii) no consideration can be paid
for the transfer of the Transferable Option; and (iii) the transferee of a
Transferable Option is subject to all conditions applicable to the Transferable
Option prior to its transfer.

     The option agreement with respect to any option granted hereunder shall
state the transferability restrictions for such option determined by the
Committee.

     The rights and obligations of the Company under the Plan and any grant may
be assigned by the Company to a successor to the whole or any part of its
business if the successor assumes in writing all of such rights and obligations.

8.   WITHHOLDING

     The Company may defer making payment or delivery of any shares of Company
Stock to a participant under the Plan until satisfactory arrangements have been
made for the payment of any federal, state, or local income taxes required to be
withheld with respect to such payment or delivery. Each participant may elect to
have the Company withhold shares of Company Stock having an aggregate value
equal to the amount required to be withheld. If no such election is in effect,
the Company shall 


                                      -6-


<PAGE>   7


nevertheless have the right to impose a mandatory withholding of such shares. In
addition, at the election of a participant, upon exercise of an option, the
Company may withhold shares of Company Stock equal to all or a portion of the
purchase price of the shares then being purchased. The value of fractional
shares remaining after payment of the withholding taxes or the exercise price
shall be paid to such participant in cash. Shares so withheld shall be valued at
fair market value at the close of the regular business day on which the option
is exercised.

9.   CASH AWARDS

     If the payment or delivery of (or lapsing of restrictions with respect to)
any Company Stock awarded to a participant under this Plan, the 1995 Plan or the
1992 Plan shall be subject to the imposition of any federal, state, or local
income tax, the Committee, in its discretion, either at the time the award is
granted or thereafter, may also grant the participant a cash award.

10.  EQUITABLE ADJUSTMENTS

     In the event that any dividend or other distribution (whether in the form
of cash, Company Stock, or other property), recapitalization, stock split,
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate transaction or event,
affects the Company Stock in such a way that an adjustment is appropriate to
prevent dilution or enlargement of the rights of participants under the Plan,
then the Committee shall make such equitable changes or adjustments as it deems
appropriate and, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of stock of the Company (or other securities)
which may thereafter be issued in connection with grants under the Plan, (ii)
the number and kind of shares of stock of the Company (or other securities)
issued or issuable in respect of outstanding grants, and (iii) the exercise
price, grant price, or purchase price relating to any grant.

11.  CHANGE IN CONTROL

     Immediately prior to a change in control of the Company, unless otherwise
specified in any granting documents, all outstanding options granted under the
Plan will become exercisable, all restrictions on restricted shares will lapse,
and all performance-based awards will be paid out on a pro rata basis, depending
on how much of the performance period has been completed as of the date of such
change in control.

     For purposes of this Plan, a "change in control" of the Company shall be
deemed to have occurred if any of the following occurs:


                                      -7-


<PAGE>   8


     (a) any "Person" (as defined in this Section 11) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), directly or indirectly, of securities
of the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities;

     (b) during any period of no more than two consecutive years beginning after
the date of any award made under this Plan, individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
whose initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the Company) whose
election by the Board or nomination for election by the Company's stockholders
was approved or recommended by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning of the period or
whose election or whose nomination for election was previously so approved or
recommended, cease for any reason to constitute at least a majority thereof;

     (c) there occurs a merger or consolidation of the Company or a subsidiary
thereof with or into any other entity, other than (x) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior to thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity
or any parent thereof), more than 75% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation or (y) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no Person acquires 25% or more of the combined
voting power of the Company's then outstanding securities; or

     (d) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.

     For purposes of this Plan, "Person" has the meaning given such term in
Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and
14(d) of the Exchange Act, but excludes (a) the Company or any of its
subsidiaries, (b) any trustee or other fiduciary holding securities under an
employee benefit plan of the Company (or of any subsidiary of the Company), (c)
any corporation owned, directly or indirectly by the stockholders of the Company
and (d) an underwriter temporarily holding securities pursuant to an offering of
such securities.


                                      -8-


<PAGE>   9


12.  EFFECTIVE DATE AND STOCKHOLDER APPROVAL

     The Effective Date of the Plan shall be the date the Plan is approved by
the stockholders of the Company. Until the Effective Date of the Plan, the 1995
Plan shall continue in full force and effect in accordance with its terms.

13.  ADMINISTRATION AND AMENDMENT OF THE PLAN

     The Plan shall be administered by the Committee, as provided in Section 2
hereof, which shall make the grants under the Plan, determine the form of
options or other awards to be granted in each case (either at the time of grant
or thereafter), and make any other determination under or interpretation of any
provisions of the Plan.

     Any of the actions taken by the Committee shall be final and conclusive.
Without the consent of the affected participant, however, no amendment or other
action with respect to any outstanding award hereunder may impair or adversely
affect the rights of the participant holding the award.

     The Board may amend the Plan as it may deem proper and in the best interest
of the Company. However, no such action shall adversely affect or impair any
options or other awards previously granted under the Plan, the 1995 Plan, or the
1992 Plan without the consent of the grantee.

14.  EXPIRATION AND TERMINATION OF THE PLAN

     Unless earlier terminated by the Board, the Plan shall be unlimited in
duration and, in the event of Plan termination, shall remain in effect as to
awards granted under the Plan prior to its termination as long as any such
awards are outstanding. Grants may be made under the Plan at any time, or from
time to time, prior to the termination of the Plan. The Plan may be abandoned or
terminated at any time by the Board, except with respect to any awards then
outstanding.


                                      -9-