Weak Tech Market Forces Microsoft Benefit Cuts

May 20, 2004 (PLANSPONSOR.com) - To better cope with what the company described as a weak technology market, Microsoft Corp. has slashed prescription drug benefits and workers discounts on its stock in a bid to save at least $80 million annually.

The technology giant is also cutting back vacation time accrued by employees hired after January 1, 2005, to two weeks a year for the first two years – rather than the current three weeks a year, the Associated Press reported. Microsoft is also requiring that employees must take their four weeks of paid parental leave within six months of having or adopting a child starting next year; they now have a year in which to take their leave.

The cuts will “better align our benefits with those of our competition while still keeping us ahead of the market average,” Kenneth DiPietro, vice president of human resources, wrote in an e-mail to employees Tuesday, quoted by the Associated Press.

Despite the benefit cutbacks, the company has left untouched free gym memberships, free beverages on the job, well-stocked cafeterias and flexible time off. The company isn’t expecting its actions to adversely impact its employee relations. “Microsoft has an incredibly generous benefits package,” Cecily Hall, Microsoft’s US director of benefits, told reporters. “Employees recognize that, and I think that these changes offer a lot of choice and flexibility and therefore should not impact overall morale.”

One of the key policies changed in the recent raft of moves involves an option for employees to purchase discounted shares of company stock. Employees can now buy stock for 15% less than the market price as calculated at either the beginning or the end of a designated time period, whichever was lower. There have been two such periods with the “look-back” provision each year.

Starting July 1, the discount drops to 10% and the price will be based solely on the closing share price on the last day of each quarter, allowing four chances for stock purchases annually rather than two but without the look-back feature.

Finally, in a move designed to save about $20 million a year, Microsoft will no longer pay full price for brand-name prescription drugs if generic versions are available, DiPietro wrote, explaining that prescription drug costs are now 16% of the company’s overall benefit budget. Those who opt for a prescription drug instead of a Food and Drug Administration-approved generic alternative must make a $40 co-payment.

In September, Microsoft withdrew a stock option plan that once made a number of employees millionaires, but in recent years yielded little because of stagnant share prices. Since then, Microsoft has given employees smaller amounts of stock outright (See Microsoft Wants to Give Workers a Real Stock “Option” ).