Variable Pay , Medium and Long term Incentives

1. Variable Pay , Medium and Long term Incentives Vladimir Khimanych HR Director, Microsoft Russia September 21, 2007

2. Agenda • What is Microsoft • Compensation Philosophy of Microsoft • Compensation Components • Base Pay • Variable Pay: • Incentive Components • Microsoft Variable Pay Programs • Benefits • Q&A

3. Microsoft Russia - Organization • Organization is doubling in its size every 18 months • “War for Talents” – cliché or a fact? • Getting and retaining talents across all organization layers/geographies: • Students • Junior and Mid management roles • Local/expat • Senior positions (GM-1) and Key Roles

4. Compensation and Benefits Philosophy Compensation and Benefits will set direction, design and flawlessly execute recognition and reward programs that support building a performance-based culture of accountability • Compensation Components: • Merit Budgets • Promotion Budgets • Adjustment Budgets • Sales Pay Mix Change Budgets • Stock Award Budgets • Benefits Components: • Key Initiatives/New Benefits • Changes in Existing Benefits

5. MS concept of Total Reward Benefits & Perquisites Pay Base salary Variable pay Recognition Stock Retirement Risk benefits Perquisites Medical services Time off Performance management Learning experiences Orientation and Training Career management Succession Planning Leadership Performance support Culture and climate Diversity Work Environment Learning & Development

6. The concept of Total Reward Benefits & Perquisites Pay Base salary Variable pay Recognition Stock Retirement Risk benefits Perquisites Medical services Time off Performance management Learning experiences Orientation and Training Career management Succession Planning Leadership Performance support Culture and climate Diversity Work Environment Learning & Development

7. Compensation Philosophy Overall Principle: Pay for performance relative to the market We target our average employee’s pay above the pay of 2/3rds of those employees with comparable jobs at major technology companies. Base pay Bonus/Sales Incentives + Reward for outstanding results achieved in the past year performance period Stock Awards Provide ownership and share the company’s success with long-term contributors + Total Direct Compensation Provide total direct compensation (salary, bonus, stock) that enables us to attract and retain key talent =

8. Base Pay • The foundation of our compensation programme • Each job is evaluated and assigned a level • For every level there is a range of appropriate salaries • We target our average employee’s pay above the pay of 2/3rds of those employees with comparable jobs at major technology • Actual base pay will depend on the size and scope of a job, employee skills, experience and performance.

9. What are they? • Award based on achievement of stretch objectives during the review period • Not to address salary issues • All salaried employees are eligible • Paid annually in September • Guidelines • Target = 10%, 20% or 30% depending on level • Based on % of base salary • Differentiate award size based on individual performance Individual Bonus • What are they? • Paid to employees who directly influence the sale: • Example Jobs: Account Executives, Solution Specialists, Telesales Reps • Guidelines • Pay components vary based on job, level, selling model, business factors • May have an individual revenue and/or team revenue component • Include performance payout (Commitments) Sales Incentives Bonuses/Incentive Pay

10. How Is Incentive Compensation structured? “Pay Mix”is the mix between base pay and Incentive which varies by role and will always equal 100% = + “Incentive Mix” is the relative weight of RBI/CBI which varies by role and will always equal 100% Revenue, Utilization or PP based incentive (RBI, UBI, PPI) • RBI is based on individual or team performance against revenue goals (Sales) • UBI is based on individual performance against utilization targets (Services only) • PPI is based on performance against profit and productivity metrics (for leaders in selected roles) Commitment-based incentive (CBI) • Commitments are individually agreed objectives selected by the employee and manager.

11. Microsoft’s Variable Pay Programs - Summary

12. Microsoft’s Stock Programs

13. Stock Awards • Industry leader in providing more stable and predictable equity compensation • Granted annually and vest over five years - 20% per year • At vest, the employee will receive Microsoft shares. Vested shares are eligible for dividend payments and voting rights, and can be sold at any time • Employee must remain employed through each vesting anniversary to be eligible for Microsoft stock

14. Benefits Philosophy • Competitiveness and Positioning:  Benefit environments vary by country and types of benefit plans offered will reflect the prevailing local market conditions and practice.  • Compliance:  Programs will comply with local statutory requirements and collective bargaining agreements.  The introduction of new programs and modification to existing ones needs to be coordinated through International Compensation & Benefits • Cost:   Employee benefit programs will aim to be delivered in an optimally effective manner, both in terms of financial and administrative efficiency.  They should minimize company cost while maintaining market competitiveness.  In order to ensure benefit cost savings and take advantage of bulk purchasing power, each subsidiary will evaluate multinational benefits pooling opportunities for all insured benefits coverage. • Protection:  The fundamental objective of our core benefit plans is to protect the basic welfare of our employees and provide adequate security to them in the event of personal injury, illness, and death.  Benefit programs should minimize risk to employees and to Microsoft by building on statutory benefits and benefits provided through any government systems. Coverage for medical, disability and death should be given priority when implementing benefits programs. • Benefits Changes need to go through the appropriate proposal process before they are implemented.

15. Balanced set of benefits – company philosophy • “Standard” set: • Medical Insurance • Life insurance • Lunch • Mobile phone • “Non standard” set – is this benefit or enhanced work environment? • Subsidized gym • Paid Broadband Internet at home • GPS navigator in car • Employee stock purchase plan • Work from home • Various learning opportunities (MBA, corporate, e-learning)

16. Questions?