![]() ![]() Microsoft being Microsoft, the company provides an interactive intranet portal that allows employees to see how their compensation would shift based on different performance ratings. Employees’ proven capabilities based on the above inputs plus their long-term performance record.The behavior used to achieve those results as reflected in feedback from peers and managers.their goals/commitments, relative to the achievements of their peers. What employees did during the year vs.This allows the company to target its compensation investment to those positions deemed most critical and to disciplines most significant to the company's success, such as engineering research and development.Īs explained by Ritchie and Brown, three inputs determine the single performance rating: The single rating triggers increases in merit pay, bonus and RSUs, with the size of the increase tied to factors such as job family and discipline. Targeted distribution limits the percentage of employees in each rating category. A "3" rating equals target compensation that is market competitive locally. The rating ranges from "1" (highest) to "5" (lowest). 2.8 percent bonus."Įffective with 2011 performance reviews, employees receive one rating based on their manager's assessment and a calibration process (typically with managers one or two levels above the employee). "The aim was to reduce 'process' and improve the line of sight between employees contributions to the company's success and increases in compensation."Īdded Ritchie, "we wanted to increase clarity with a single rating hard-wired to rewards" and to avoid "wasting managers' time weighing a 2.7 percent vs. "We wanted to more clearly connect rewards to performance," explained Brown. In response to these issues, in 2011 a simplified system was implemented companywide using an integrated approach. This system rewarded employees with merit pay increases, annual bonuses and RSUs, but it proved confusing and cumbersome for managers who had to determine separate increases in each of those buckets. Microsoft has mostly phased out stock options in favor of RSUs globally, he said.Ĭhanges in compensation continued at the firm, and in 2006 a more flexible rewards system, dubbed MyMicrosft, was introduced. "As the stock price had risen, it made sense to give full shares" with a time restriction, Ritchie noted. In 2003, as the stock price stabilized at the maturing firm, management shifted equity compensation from stock options to restricted stock units (RSUs) that reward retention over time. After the 2000 dot-com bust, every Microsoft employee received a 15 percent increase in base pay, and equity as a percentage of overall compensation was reduced in favor of cash. Before 2000, management relied heavily on stock options as a dominant part of employee pay packages at a firm whose stock price was surging. The pay mix at Microsoft has evolved significantly over time, Ritchie explained. Julie Tschida Brown, Microsoft's director of global compensation programs, during their presentation at the 2012 WorldatWork Total Rewards Conference in Orlando, May 21-23, 2012. Ritchie, the firm's corporate vice president for compensation, benefits and performance management, and ![]() With that in mind, Microsoft redesigned its performance management system and total rewards program, integrating the two systems to allow for simplified, transparent and differentiated rewards, explained Microsoft Corp.'s pay-for-performance philosophy recognizes that top performers provide the highest value to the firm-and that they have the greatest opportunities in the external job market. Our report on stack ranking at Microsoft, posted in May 2012, appears below. To learn more, see the November 2013 SHRM Online articles " ‘Stack Ranking’ Ends at Microsoft, Generating Heated Debate " and " Announcements on ‘Stack Rankings’ Touch Off Debate ," which also discusses Yahoo's commitment to stack ranking. However, stack ranking is still championed at many companies, and in particular at technology firms. The most contentious aspect of this approach was its targeted, or forced, distribution requirements, which meant managers were required to designate a small percentage of their direct reports as underperformers. announced it had ended its controversial "stack ranking" employee-review and compensation system, and no longer requires managers to grade employees against one another and rank them on a scale of one to five, as described below. Update: 'Stack Ranking' Ended at Microsoft ![]()
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