Equity Compensation Changed

Beginning with its annual compensation review in summer 2003, Microsoft will eliminate stock options and instead offer stock grants.

Since 1986, when Microsoft stock was first offered to the public, many full-time Microsoft employees have received nonqualified stock options as part of their compensation. These options give employees the right to buy shares at various points in the future (vesting dates), based on the stock price (strike price) at the time the options were granted (grant date).

With grants, in contrast, employees will receive shares of stock on a periodic vesting schedule, rather than being offered the option to buy shares at a certain price. The grants will generally vest over a period of five years, with one-fifth of the total amount vesting each year, and employees who quit before all their shares vest will not receive the unvested (or remaining) shares. All employees previously eligible for options will be eligible for grants, but will generally receive between one-third and one-quarter as many shares as they would have received under the stock option plan.