May 25, 2004 3:01 PM PDT

Cut in stock benefits disappoints Microsoft staff

An informal poll found that 90 percent of Microsoft employees were disappointed with recently announced changes to the company's employee stock purchase program.

About 70 percent of Microsoft employees that responded to a poll, posted by a worker in a personal section of Microsoft's internal corporate Web site, said they were "very disappointed" with the changes. Another 20 percent of the 260 workers who took part in the survey said they were "disappointed."

The survey comes a week after Microsoft announced revisions to its employee stock purchase program, including cutting the discount that employees receive on stock purchases to 10 percent from 15 percent, and removing a "look back" feature that based the discount on the price either at time of purchase or six months previous, whichever was lower. Purchases will now be made quarterly, with the price based on the last day of the period.

About 98 percent of the 260 employees that responded to the survey said the changes would cut their overall compensation, with 37 percent saying the change would be "significant."

"I believe we should cut costs, but when cutting costs that affect employee morale, the result is poor productivity, which goes straight to the bottom line," wrote one respondent.

A Microsoft representative noted that the survey was not company-sponsored and "is simply a vehicle for employee discussion."

"Microsoft stands by the changes, which were a result of a routine review of the Microsoft's benefit package and industry standards," the representative said in an e-mail. "We believe they are the right move for us now in order to ensure we maintain fiscal responsibility while offering employees a competitive, comprehensive benefits package and more value to our shareholders."

A growing number of tech firms are looking at making tweaks to their stock-based compensation programs. Although much of the attention has gone to stock option programs, following a ruling that companies must expense the cost of giving options, many companies are also looking at programs that allow workers to buy company stock at a discount.

A 2003 Deloitte study found that 46 percent of tech firms were considering reducing the discount offered to employees, while nearly half of firms were thinking of eliminating the "look back" feature.

Still, Microsoft's decision was surprising to some in the field, including Corey Rosen, the director of the National Center for Employee Ownership, a group that promotes publicity around employee ownership programs.

"The accounting amount they are going to save for this is so small," Rosen said. "This is really small change compared to the overall cost of their equity programs."

Such a move by a thriving, high-profile company like Microsoft could spur other companies to go ahead with changes, he said. "It provides some cover."

But Rosen also held out hope that some companies may reverse plans to change their programs once they see a negative reaction from employees. "Many of the consultants in this area think that once companies start rolling these (changes) out and they get a negative reaction, that they are going to pull back."

Another option companies have, Rosen said, is to lower the cap on how much a worker can invest in company stock. That would affect a smaller number of workers than cutting the discount, he said, while potentially passing along greater dollar savings to the company.

Microsoft's stock purchase program changes came as part of the company's annual adjustment of benefits and was one of several changes announced last week. The company shortened the period of time during which employees can take leave following the birth or adoption of a child, though the length of the leave itself was not changed. Microsoft also said that it would start charging employees a $40 co-payment if they chose a brand name drug when an FDA-approved generic drug is available.

In an e-mail to staff, human resources chief Ken DiPietro said the benefit changes would "significantly reduce" the company's operating costs. "They also better align our benefits with those of our competition, while still keeping us ahead of the market average," he said.

The changes to the stock purchase program will go into effect July 1, while the changes to the prescription drug program will take effect at the beginning of next year.

Last July, Microsoft made a sweeping change of its stock compensation program, replacing the stock option program with grants of restricted stock. The company also allowed employees to trade in their underwater options for cash.

 

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