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Compensation Practice


Compensation practices have an outstanding impact on the success of any company because they affect the productivity of labor forces. Besides, modern organizations also attempt to empower employees with resources and flexibility to make them successful at work and have healthy, balanced life (Microsoft, n.d.). Microsoft Corp. is one of the publicly traded companies, which has developed an efficient compensation practice. By using the example of Microsoft, this paper determines the compensation-related strategies, the best practices, and factors that affect the compensation and the feasibility of traditional approaches in modern business.

Description of the Company

The history of Microsoft Corp. dates back to the year of its foundation, 1975. In 1986, it became a publicly traded company. Microsoft Corp. creates and markets software, hardware, and services that provide customers with new opportunities and greater user experience. In particular, its product range includes operating systems for PCs, servers, mobile phones and other devices; server, productivity, and business solution applications; video games and online advertising. According to Forbes (2015), Microsoft holds the second position in the list of the most valuable brands. However, it has only 221st position in the list of America’s best employers. The number of employees reaches 128,000 (Forbes, 2015).

Compensation Strategy, Best Practices, and Compensation-Related Challenges

The main goal of Microsoft’s compensation strategy is to help the organization to attract and keep the most skilled workers. Furthermore, the company aims at satisfying the interests of the staff members and the needs of shareholders, which it considers the key factor of a long-term success (Wash, 2003). Particularly, Microsoft’s employees began to receive stock awards in 2003. The following program allows workers to earn actual shares of the company’s stock over some time. The amount of stock-based compensation of top executives depends on the increase of customers’ number and their satisfaction. Microsoft became the first large organization that implemented opportunities for its employees to become direct owners with a help of stock awards (Wash, 2003). The corporation created its current compensation plan as the result of the long-term preparation work, which reflects the feedback of the employees. In particular, the company’s specialists determined that equality-based compensation fits Microsoft more than other methods (Wash, 2003).

Furthermore, Microsoft operates in the industry with high demand for talented personnel. Therefore, the company sets not only high salaries for its employees but also attractive benefits and perks. In fact, the benefits package could be called the company’s best practice. According to the Microsoft’s official website, the organization realizes the importance of benefits for potential workers; thus, it tries to offer benefits that meet current needs of people. The main objective is to provide all necessary resources and flexibility, which would allow employees to succeed at work and have a balanced life. Moreover, Microsoft has a reputation of the company that has one of the best compensation and benefits packages in the United States. The corporation begins with competitive salary, bonuses, and stock awards to qualified staff members (Microsoft, n.d.). These offerings depend on the individual performance of a person. Later, the company adds some intriguing benefits that may surprise employees, which increases their motivation to demonstrate high productivity on the regular basis.

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Moreover, Microsoft demonstrates that it cares about health and wellness of its staff by providing the range of services in this field. First, employees receive the best health coverage in the industry. They can undergo one eye examination per year as well as receive reimbursement for pairs of glasses or contact lenses. Furthermore, workers also have access to such benefits as dental care, physician house calls, 24-hour health care, and the company’s on-site health screening and flu shots. Second, Microsoft offers life and disability insurances, legal coverage, and weight management programs (Microsoft, n.d.).

In addition, savings and investments look attractive. Microsoft offers 401(k) plan, 10% discount on the stock purchase, and specific investment programs (Microsoft, n.d.). Employees also receive fifteen vacation days, ten paid sick-leave days, eight paid U.S. holidays, and two personal days. Furthermore, Microsoft offers extras that allow staff members to save much money, which increases the value of the compensation plan. First, the company has such extras in the form of volunteering and gift matching. Particularly, volunteering in the community brings Microsoft’s donations to the eligible organizations. Second, the company provides paid memberships to gyms or pays for fitness programs. Third, employees could spend their free time in on-site retail stores and sports fields. For example, individuals may use services of a salon and spa or visit one of eleven restaurants. Moreover, Microsoft also has on-site cafes and kitchens. For instance, Redmond campus comprises thirty-three cafes, thirty-seven espresso stands, and five hundred kitchenettes. Besides, workers can save money on transportation because Microsoft has fifty-five coaches and shuttles that take staff from and to Seattle-area. In addition, the company provides numerous discounts for restaurants, spa, travel, car repair, entertainment, arts, and sporting events. Finally, the corporation even offers charging stations for electronic cars (Microsoft, n.d.).

Despite such impressive compensation and benefits packages, the company still faces compensation-related challenges. The most significant issue is compensation plans for executives. For example, Institutional Shareholder Services recommended the company’s shareholders to vote against $91 million pay package planned for CEO Satya Nadella in 2014 (Keiser, 2014). The problem is that compensation packages are too high and do not reflect the real experience and qualifications. Instead of serving a reward system for lasting business increase and investment, the pay package itself has converted into the goal (Keiser, 2014). Consequently, it may have adverse effects on the company’s financial performance.

Use of Compensation Practice for Determining the Impact on the Company

As mentioned earlier, Microsoft has various compensation packages based on individual accomplishments, which allows the company to determine the negative and positive impact of employees on its performance (Microsoft, n.d.). For example, the most productive staff members receive extra benefits and bonuses. In any case, the corporation carefully monitors achievements of each employee and demonstrates an appreciation of efforts through expanding pay package. It is in the interest of the organization to keep productive workers because the technology industry faces a high demand for skilled personnel.

The Impact of Laws, Labor Unions, and Market Factors on the Compensation Practices

Market factors have the most significant impact on the compensation practices of Microsoft because the organization provides better compensation practices than laws or labor unions require. For example, laws do not demand such varied benefits packages and high salaries. The intensive competition of labor forces in the technology industry has led to numerous attractive offerings at Microsoft Corp. Moreover, the corporation seems to have one of the best compensation practices in the industry. Despite positive achievements in this developing compensation practices, the company continues to study feedback of employees about labor conditions as well as attempts to respond to their needs and desires.

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Effectiveness of Traditional Bases for Pay

Traditional bases for pay are no longer effective for Microsoft. Employees of the organization understand their value; therefore, they are not satisfied with traditional methods and lack the motivation to demonstrate high productivity. Payment systems based on individual, business, team, and organizational performance demonstrate much higher effectiveness. Besides, Microsoft tries to increase the effectiveness of its pay system through offering differentiated approaches to determining compensation packages. Thus, new staff members only get competitive salary, bonuses, and stock awards that reflect individual performance. Over some time, Microsoft starts making some surprises to the employees. Specific characteristics of the technology industry where human resources have a significant impact on a company’s performance can explain the low effectiveness of traditional bases for pay within Microsoft. Sometimes, workers receive money not for their experience and qualifications but because of their personalities. It is particularly common for executive positions and the issue with Satya Nadella’s compensation package illustrates this challenge.


Microsoft’s compensation strategy is to offer the best compensation and benefits in the industry to attract and retain the most skilled staff. The company believes that such approach may bring long-term success. The best practices of Microsoft are the ways in which they create their benefits package as well as its components. In particular, the company offers benefits and rewards that are necessary for the improvement of the productivity of employees. The majority of benefits deals with health, wellness, and entertainment. However, Microsoft faces compensation-relation challenges; particularly, it cannot effectively determine the pay package for executives.

The compensation plan rests on individual performance, hence helping to determine the impact of employees on the organization and its stakeholders. Individuals, who bring higher revenue to the company, receive higher compensation, which raises motivation of personnel to work harder on a regular basis. Laws and labor unions do not have significant influence on Microsoft’s compensation practices because the company offers higher standards that these sides require. Such policy of the corporation appeared in the result of market factors such as high demand for skilled personnel and low supply of experienced labor forces. These aspects also have led to the low efficiency of traditional bases for pay at Microsoft.