Microsoft Corporation Compensation Plan and Benefits Evaluation and Analysis

Compensation can be defined as all types of financial returns, benefits and tangible services an individual receives as part of an employment agreement or relationship (Milkovich, Newman and Gerhart, 2010). Non-financial and monetary compensation consist of the main factors of compensation which ultimately lead to retention. Leonard (2008) observe that compensation programs by organizations are measured in regard to the general pay effectiveness, employees’ contribution to organizational objectives, applied as recruitment tools as well as used as retention and motivational tool for employees. The main purpose of this essay is to evaluate and analyze the best practices in terms of compensation plans and benefits that are adopted by firms in the high tech industry, with a main focus on Microsoft Corporation.

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High tech organizations tend to incur high costs when it comes to recruitment and retention of human resources hence they are forced to come up with a design that is suitable for their compensation programs that are crucial to a firm’s bottom line. Microsoft, one of the pioneers in the tech industry, was founded by Bill Gates in 1975 with a main focus of selling a BASIC programming language version (Microsoft, 2018). The organization is one of the leading technology giants as well as the leader in the software market, which makes their compensation strategy to be one of the bottom lines for the organization.

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Microsoft Compensation Strategy

According to the Microsoft website in 2018, the organization main focus is empowering their employees by bringing the best in them through supporting their objectives and goals as well as enabling the employees to find a purpose in what they do. Thus, the organization has designed Compensation and Benefits plan, which is managed by a third party, Global HR Operating Team, and their main aim, is to ensure that the needs of the employees are catered for from the various Microsoft subsidiaries across the globe (Singh, 2016). Microsoft, being one of the fortune 500 firms, practices best fit strategy due to the fact that the organization has a high number of engineers and scientists, high expenditures especially on research and development, rapid technical innovation, geographic concentration very limited market for high tech engineers, which makes the attraction rates to be high thus the adaptation of a compensation plan that best fit the organizations’ activities.

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The compensation strategies for Microsoft are seen to have evolved especially over the last two decade. Before the year 2000, most of the portion of the pay packages for the organization consisted of stock options, although after the dotcom crash, Microsoft decided to graduate from the idea of stock options to a combination that entails merit pay rises, bonuses that are given annually as well as restricted stock units (Microsoft, 2018). Nevertheless, most managers in Microsoft considered this approach to be very cumbersome thus contributing to the organization adopting an integrated system, which clearly connect the rewards based on performance. The Microsoft compensation integrated approach entailed performance reviews of the employees where they received ratings from their immediate managers based on the achievements of the set goals, good behaviors with peers and managers as well as long-term performance records. These ratings enable the managers to be able to award bonuses to the employees accordingly as well as merit pays and restricted stock units. Moreover, the organization also introduced a portal, which allows the employees to be able to evaluate the shifts in regard to compensation based on performance hence ensuring that their process of benefits and compensation is transparent and clear. With the incentive based system, employees of an organization are able to be more satisfied by the compensation offered, which makes the system to work best for Microsoft.

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When it comes to rewarding results and achievements of goals, employees of an organization are encouraged to perform better towards achieving their goals as well as the organization’s goals. On the other hand, increasing compensation based on time or seniority, this does not necessary motivates the individuals in the workplace to improve their performance or the organization general and financial performance. Employees in an organization play the part of being the most valuable assets in an organization. Not only does the Microsoft Compensation and Benefit plan concerned and focuses on the with the well-being of their employees they also ensure that the working environment is conducive for the employees where they can work comfortably and be confident of the benefits accrued (Van De Voorde et al., 2012). Clearly, when it comes to employee relation, it is a function that mostly works hand in hand with the compensation strategy. According to Cascio (2018) employee relation broadly consist of the various factors from negotiations, the issue of employment legislation and collective bargaining to the modern issues affecting an employee in the workplace such as the issue of diversity and how the employees can deal with this issue at workplace, how to balance work-life as well as maintaining and promoting workplace equality. Thus, maintaining healthy employee relations in terms of good compensation and benefits plan in an organization act as a pre-requisite in terms of an organization success and development and growth.

Compensation Systems

Some companies prefer internal consistent of compensation systems while other prefer market consistent compensation systems based on the operations of an organization. Martocchio et al. (2007) indicate that the internally consistent compensation system entails the value of all the jobs in an organization, where most of these jobs require high qualifications and responsibilities where market consistent of compensation systems is based on the most qualified employees in the market. Thus, due to Microsoft being a high-tech company that requires employees that are most qualified for the job, the beneficial ration of internally consistent and market consistent for Microsoft would be the internally consistent compensation system (Microsoft, 2018). The organization requires employees that have the right qualifications for a certain task with the knowledge, skills as well as the ability to perform a given task.

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Microsoft pay structure

Microsoft pay structure is one of the most lucrative pay structures for most organizations due to their high pay accrued to its employees. The organization has an attractive salary with the average salary for Microsoft employees being at $117,000 and the average hourly rate at $31, which is favorable compared to the organization competitors (PayScale, 2018). Their pay structure also have a stock-based compensation strategy which aim at ensuring that it provides ownership stake of the company’s success to its employees, where more than 85% of the employees are eligible to restricted stock units every year in the annual stock awards. Moreover, Microsoft employees also receive a 10% discount when it comes to the organization’s stock. The organization also has a cash bonus, which is attached to the employee’s performance especially in regard to meeting the set objectives or improving the organization’s performance.

When it comes to the organization’s benefits, Microsoft is generous to their employees and ensures that they receive the best benefits. Insurance, welfare and retirement benefits are among the benefits Microsoft offer to its employees. Among this includes a group health insurance scheme, which is tax-free for the company’s employees that cover health issues, vision as well as dental. The organization also offers a group life insurance, death benefits for deaths that have identified causes as well as short- and long-term disability insurance. Microsoft operates 401 (k) programs that sponsor its employees in regard to pension plans where they adequately cater for the organization’s retired employees (Microsoft, 2018). As a result, the Microsoft pension plan is highly rated in various review sites such as compared to other high tech companies or other organizations in the fortune 500. Furthermore, the organization has a prepaid legal for its employees in case they are faced with legal charges as well as severance pay schemes.

Since the main focus of Microsoft is to ensure that the employees work in the best conducive environments that in return ensures good performance, it has one of the best employee-friendly environments across the globe. This involve working hours that are flexible, where Microsoft employees are given 15 paid time offs, eight weeks of parental leave and ten sick days (Singh, 2016). In addition, the organization allow their employees to either work from office or home, where the working environment also entail some benefits for the employees such as free dining with ‘3-star green’ corporate dining table, staff comfort and leisure including health and fitness facilities, which are all provided as part of the benefits for the employees (Microsoft, 2018). The organization also offer free transport services especially in their headquarters and further transport to neighboring towns. Moreover, the organization also gives their employees’ the benefits of receiving their products on discount, as well as other discounts services on travel, pet care, various events and restaurants and technology products, entertainment, sports and art.

Competitive Benefits among High Tech Companies

However, despite the organization being one of the leading tech giant and having some of the best employee’s benefits other players in the industry also offer benefits to their employees. Among the insurance benefits Microsoft offers its employees include group health insurance scheme, which is tax-free for the company’s employees that cover health issues, vision as well as dental, group life insurance, death benefits for deaths that have identified causes as well as short- and long-term disability insurance (Singh, 2016). In regard to welfare and retirement benefits Microsoft operates 401 (k) programs that sponsor its employees in regard to pension plans where they adequately cater for the organization’s retired employees. IBM, a computer manufacturing company, which is one of the Microsoft competitors also offers such benefits but in indirect financial rewards. IBM offers its employees welfare and health benefits and retirement and savings plan (Rumpel and Medcof, 2006).

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Other tech giants such as Apple also offer various healths, insurance, retirement as well as other benefits, which ensure that they promote their employee relations. However, compared to other tech companies such as IBM and Apple, Microsoft offers the best health, retirement, welfare and insurance benefits to their employees. As such, the organization pension plan is highly rated in various review sites such as compared to other high tech companies or other organizations in the fortune 500.


Despite Microsoft being on the forefront in regard to the employee’s benefits, the following recommendations can be applied to improve their benefits:

  • Personalize their benefits towards an employee’s profile. For example, a certain employee may be offered a vacation benefit but do not like vacations whereas they might be another employee who likes vacations more.
  •  Work on coming up with compensation and benefit system that serve as the ‘best-fit’ more than ‘best-practice’ since it serve as a better solution for an innovative company like Microsoft.


The issue of compensation is very crucial as well as serves as a powerful tool for a company to influence, retain, motivate and recruit employees. Coming up with a solid compensation strategy is beneficial for an organization since when the compensation strategy is in sync with the organizational strategy such as Microsoft where they understand the needs of the employees, the organization is able to achieve its objectives. Microsoft is a high tech company, which requires skilled human resource and compensation plays a major role especially in reducing the employee turnover. Microsoft compensation strategy as well as their pay structure has evolved to ensure that they consider the needs of their employees and ensure the success of the organization in the process. Other tech giants such as IBM and Apple also shows their prowess in catering for their employees by providing them with retirement plans and health insurance programs although Microsoft remain the best in terms of the Compensation and benefits plan.

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