Compensation at Microsoft
Compensation and Benefits – MGT420
Angela Ingram
Argosy University
November 5, 2014

The shift at Microsoft from stock options to performance based pay has been met with both negative and optimistic responses. It is Microsoft’s belief that the staffs that are the best performers are the most valuable to the organization. Microsoft also understands that these same employees would have the greatest opportunity to find work outside of the organization. Previously, including stock options in the employee compensation package was a major perk because company stock was on the rise (2003). Because their stock was up Microsoft felt that it made sense to give their employees full shares in the company, but eventually Microsoft changed to a more flexible pay system that rewarded employees with merit pay increases, and annual bonuses. However, this new system was challenging for company managers who were responsible for determining both pay increases and bonuses for staff. As a result of these challenges Microsoft switched to a companywide-integrated approach that would connect directly to the employee’s performance (Miller, S. 2012). Beginning with staff performance reviews in 2011 Microsoft began to use one rating that was determined solely on the manager’s assessment of how well the employee did during that particular rating period. The idea was to no longer utilize the process of determining the difference between a 2.7 percent bonus and 2.8 percent bonus. The new rating system would still be a numeric system but the numerical ranking would be from 1-5 with 1 being the highest and 5 being the lowest. This new system was also supposed to be comparable to the industry norms. The new rating system is based on what the employee accomplished during the year, how they accomplished those achievements and how their cohorts and other managers within the organization view them. The ratings are also determined based on the employees overall abilities based on their accomplishments over time (Nachtigal, J. 2006). With the new review process many of the staff at Microsoft worried that they could be fired if their score was low enough since only a percentage of them received the high score and some of the feedback required for the review is peer based. The opinion is that the review of a staff person who is not well liked by either their manager or co-worker would be biased and would result in a negative score. Managers were also required to grade staff on production, and a percentage of their score was still based on staffs overall performance (Nachtigal, J. 2006). The concern is how would this new system would go over with staff, and how would this calibrate since now managers are required to do either one or three different review scores. There was no clarity for the employees with this new rating system because employees will not know until their actual review takes place how their performance was for that year. The most significant point to remember is that these changes were made to attract and retain top performing employees and remain competitive with organizations like Google, Facebook, and Amazon (Nachtigal, J. 2006). With major competition from all of these major companies Microsoft felt the change in compensation plan was needed especially with Google giving a 10 percent increase to its employees across the board. Although Microsoft did not give an exact amount on the raises their staff would be receiving because of the new rating system they did specify that management’s compensation package would continue to include major stock options. At the time Microsoft was making changes in responses to the changing climate both inside and outside their organization. Their stance is that they need to improve the way that exemplary staff is rewarded just as they make continuous improvements to their products and those changes should be something that their top staff would not want to