Microsoft Employee Compensation (RSUs/ESPPs)

Employee compensation is a key component of any business. Microsoft is one of the most competitive companies in the world, and it strives to offer employees competitive compensation as well. Restricted stock units (RSUs) and Employee stock purchase plans (ESPPs) are two of the important tools of employee compensation that help Microsoft match employee talent to business needs. These compensation plans help develop a sense of ownership and belonging among employees, who in turn work to make the company a success. In this article, we will look at employee compensation in detail, including RSUs and ESPPs.

About Microsoft

Microsoft Corporation is a leading multinational technology company headquartered in Redmond, Washington, USA. The company develops, manufactures, licenses supports, and sells computer software, consumer electronics, and personal computers and services. It has a global reach, selling products in over 100 countries and territories and employing a workforce of over 150,000 worldwide. 

History of Microsoft

In 1975, the Microsoft Corporation was founded by Bill Gates and Paul Allen in Albuquerque, New Mexico. With a strong history of technological innovation and leadership, Microsoft has been an innovator in all fields of technology. It has developed a number of software applications that are used by millions of people worldwide, including MS Office and Windows. In 1986, Microsoft went public, and the first Microsoft IPO was listed on the NASDAQ exchange. 

How far Microsoft has come?

The company has seen significant growth in the past decades. Since the 1990s, Microsoft has increasingly diversified and has continued its advancement by making a number of acquisitions and strategic alliances that have helped it to mitigate some of its competitive threats. In 2021, the revenue of the company was estimated to be around $161 billion, ranking 37th on the Fortune 500. The company has been listed among the top 100 companies in the world by market capitalization, with a market capitalization of $2.158 trillion.

Microsoft employee compensation

A large part of a company’s success depends on its employees, and Microsoft recognizes this fact. The company is committed to providing competitive compensation programs that match employee talent to business needs. Being one of the leaders in the industry, Microsoft provides competitive compensation to its employees, including RSU/ESPP. In addition to RSU/ESPP, Microsoft regularly conducts annual compensation reviews and maintains an open-door policy that seeks employee feedback in order to ensure that employees are well taken care of. The employee compensation program at Microsoft has been developed to keep in sync with the business goals.

What is employee compensation?

Compensation is any form of payment or return, direct or indirect, in cash or in kind, paid to an employee for services rendered or as a reward for past services. Employee compensation is calculated based on various factors such as the employee’s position, experience, performance, and location. What propels a company to offer competitive compensation is the need to attract top talent and retain employees. 

What are restricted stock units?

Restricted Stock Units (RSUs) are an employee benefit plan designed to provide employees with an opportunity to own a part of their company known as shares. The RSU is issued and paid out in accordance with each employee’s work period, number of years of continuous service, or depending on the performance. In essence, RSU is restricted or not fully transferable till the time the employee fulfills certain conditions. RSU gives employees a vested interest in the company and encourages them to work hard to make it a success. 

Moreover, employees are motivated and encouraged to take the initiative and come up with ideas to help the company progress and grow. Therefore, RSU is a comprehensive employee compensation tool that helps in the professional and social development of employees. RSU offered at Microsoft is designed to benefit employees and the company alike. Moving forward to the ESPPs, let us learn in detail about the employee stock purchase plan.

What is an employee stock purchase plan?

Employee stock purchase plan, also known as ESPPs, is a type of employee benefits program that gives employees an opportunity to buy company stock at a reduced price. The plan is designed as a bonus incentive to encourage employees to stay onboard and take part in the success of the company. By taking part in the program, employees show their dedication and make a contribution to the growth of the business. 

Also, the plan is designed as an employee-friendly program that allows them to contribute toward their savings and investment. An employee stock purchase plan allows employees who are interested in owning shares to purchase a set amount of shares at a reduced price.

Benefits of having employee compensation

The benefits of employee compensation are numerous. The general assumption is that businesses will often seek to compete with others by offering more lucrative compensation packages to their employees. Here are a few benefits of having employee compensation:

• Boost Employee Loyalty – It is a natural instinct for businesses to want their employees to be loyal to them. A business will have an easier time gaining the trust of its employees and become more successful as a result of this loyalty. Having employee compensation ensures that only the most dedicated of workers are hired by companies, which helps increase customer satisfaction as well as build customer loyalty.
• Increase Productivity Levels – The reason why businesses want all of their employees to be highly productive is that they want to achieve the greatest possible profit with the least amount of effort possible. When employees are well-rewarded for their efforts, they will be happier and more productive. In order to ensure that employees remain loyal and continuously produce good results, a company should offer them financial rewards for the jobs that they do.
• Attract Top Talent – If you want to hire the best possible employees for your business, it is important to have compensation packages that are attractive and competitive. Without offering anything in return for the work that employees do, companies will not be able to attract top talent in any industry. But by giving employees a reason to work harder as well as receive something of value in return, companies will find themselves with higher quality workers.
• Active Retention – There are always new jobs popping up in any industry, and there are many employees who may be looking to find a new job if they feel that they are not being given the respect that they deserve. Compensation packages can make your workers feel more respected, confident, and loyal to your company, making them less likely to look for a new job.
• Motivational Factor – Employees need to feel as if they are being recognized for the work that they do. If a company does not offer employee compensation, then workers may not feel motivated to work and may be more inclined to slack off during work hours. Offering employee compensation packages is a very effective way of ensuring that employees remain hard-working and productive members of the company.
• Stable Workforce – One of the biggest benefits that come with offering employee compensation packages is the ability to create a stable workforce, which is especially advantageous for businesses that rely heavily on labor for their success. Without offering worker compensation, it can be difficult for businesses to maintain a consistent workforce of dedicated professionals who are working towards helping the business become more successful.

Understand Microsoft employee compensation

Microsoft offers its employees a variety of benefits to help maintain the highest quality of employees on board, which are designed to benefit both the company and its employees. The benefits offered by Microsoft range from financial compensation packages and stock options to complimentary food and housing allowances. Therefore, Microsoft ensures that the employees feel appreciated and rewarded for the hard work that they put in.

How does Microsoft compensation work?

Microsoft employee compensation works in a way that enables employees to receive the benefits that they need in order to stay on the path toward success. In determining the amount of money that is allocated towards various employee compensation packages, Microsoft uses a set percentage of each employee’s wages. After going through all of the expenses related to housing and food, as well as taxes and insurance, Microsoft then divides up what is left into different compensation packages. This strategy helps Microsoft ensure that their employees are always provided with compensation packages that work to motivate them to be more productive members of the team who are focused on helping bring success to the company.

How does Microsoft pay its employees?

From salary to bonus and awards, all Microsoft employees are paid according to the standards set by Microsoft. Following are the payment standards at Microsoft:

• Salary – The salary at Microsoft is the base pay for all employees which is paid out twice each month. With the increase in responsibilities, pay would increase.
• Annual cash bonus – The annual cash bonus is paid every September of the year. It is said that the range is based on between 0 – 40% of eligible salary.
• On-hire cash bonus – The on-hire cash bonus is a set amount of money given to all new employees as soon as they join the team. Typically within the first 30-60 days of employment, the employees are granted the on-hire cash bonus.
• Stock awards – The stock awards are a very important part of the compensation package at Microsoft. The stock awards at Microsoft are set up on the basis of the On-hire stock award and Annual stock award, which are discussed below.

When do Microsoft employees get RSU?

When it comes to RSU allocation, Microsoft has two options either On-hire stock awards or Annual stock awards.

• On-hire stock awards – The vest for these awards is 25% over four years, with one award being made annually on your anniversary of service. You will not receive On-hire stock awards until you have completed one year after employment.
• Annual stock awards – Once every August, Microsoft employees receive new stock awards. If you started early, you could receive your first stock award in November. These Stock Awards grant 20% annually, quarterly over a five-year period. 

How does the Microsoft employee stock purchase plan work?

Microsoft has a stock purchase plan in place which allows employees to buy Microsoft shares at a 10% discounted price. Although it isn’t a tax-advantaged investment, it is the least preferred option as compared to other benefits. However, ESPP helps the employees by providing them an opportunity to buy Microsoft shares at a lower price, and they can sell their shares at the market price, which will become higher than the purchase price.

In addition to ESPP, Microsoft 401K and Microsoft Deferred Compensation Plan are also a part of the compensation package and are both highly beneficial for employees.

• Microsoft 401K – Microsoft will match up to 50 percent of contributions made, up to a maximum allocation of $19,500. That’s $9,750 in free money from Microsoft, making a huge amount of sense for employees to max out their 401K contributions.
• Microsoft Deferred Compensation Plan – Employees level 67 and above are applicable to the Microsoft Deferred Compensation Plan. As with a 401K, funds deposited (or deferred) are pre-tax, which means they reduce taxable income for that year. The employees invest the money in selected investment funds, and the income grows with tax privileges. Tax implications of Microsoft employee compensation are significant and need to be taken care of.

The vesting schedule for Microsoft employees 

In August, Microsoft awards RSUs. Today’s new hires will get 5% of their RSUs every three months for the first five years. For five years, older employees receive 10% of their RSUs every six months.

How do Microsoft employees are taxed?

Employees are taxed four times a year when their RSUs vest. Microsoft retains a portion of the stock issued, liquidating them to satisfy the tax liability. This does not mean it covers the entire liability; consult your tax advisor regarding any tax implications of the RSUs in case your tax burden is larger than anticipated.

The longer you retain the stocks, the lower your tax liability. If you wait at least one year, you will pay lesser long-term capital gains taxes than you would for regular income.

Choose Eqvista to manage your employee compensation

Microsoft is one of the leading companies in the world to offer employee compensation in order to provide a sufficient reward for hard work, and this reflects in the fact that they are able to attract a large number of strong employees who work towards making the company more successful. RSU/ESPP are key components of the stock awards package and are a critical aspect of employee compensation. Visit Eqvista and get the best guidance to enhance your employee compensation packages. Our experts will guide you through the process of finding the best compensation structure for your organization.