Option sop for Microsoft's local staff

Microsoft (MS) employees stationed in India are a luckier lot than their counterparts in other countries with respect to the trade in programme for the stock option scheme which the company has floated sometimes back.

Under the Indian tax structure, Microsoft employees in India will be subject to a larger tax if they decide to participate in the scheme which allows them to sell their stock options in MS to J P Morgan Chase at $33 per stock.

This has prompted the software major to pay off the total receivable by employees participating in the scheme in one go.

This is different from what MS has done in the US, where employees would be paid the amount in two to three annual tranches.

Employees in the United States who are due to receive less than $20,000 from the program will be paid in one installment later this year, while those due more money will be paid over either two or three years, depending on their rank at the company.

Staggering the payments is designed to increase retention, as employees need to remain with Microsoft to receive the payout. India-based employees are therefore out of the purview of such retention tactics of the company.

Microsoft has been advised by external tax advisors that an option holder in India potentially may be subject to foreign tax on the total payment for the transferred options that would exceed the initial payment such holder would be entitled to receive under the programme.

Microsoft determined, as part of its compensation objectives, that imposing this upfront cost on an employee would conflict with Microsoft's goal of providing compensatory incentives to its employees and thus will pay 100 per cent of the total payment or for senior management employees in India an amount calculated by reference to the relevant increased tax imposed to such participating holders.

Approximately 9.3 million options are held by employees outside the US where the tax structure was adverse, which however was only approximately 1.5 per cent of the total number of eligible options.

Microsoft has also asked for the Securities Exchange Commissions permission in the US to reserves the right to accelerate the payment schedules in the event of adverse tax rulings or other regulatory action that would, in Microsoft's judgment taking into account the best interest of the affected employees, make it appropriate to accelerate the payment schedule.