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Microsoft begins option trade-in program

The software giant starts signing up employees for a program that lets workers trade in their "underwater" stock options for cash.

Microsoft has begun signing up employees for a program that lets workers trade in their "underwater" stock options for cash.

The program, which Microsoft announced in July as part of a sweeping change to its stock compensation policy, lets workers trade in options that have an exercise price of at least $33 and don't expire until Feb. 29, at the earliest. In a filing made Wednesday with the Securities and Exchange Commission, Microsoft said it has begun a 20-day period in which employees can decide whether to sell underwater stock options to J.P. Morgan Chase.

Once the window for joining the program has closed, a 15-day period will be used to average the price of Microsoft shares. That average price will become part of a complex formula used to value the options, an exchange ratio that varies based on a number of factors, including the "strike price" of each option being exchanged and when the options expire.

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.

For overseas employees, rules vary by country. Workers in a few countries--Belgium, Italy and Pakistan--are not eligible for the program because of local rules. Microsoft is working with Italian regulators to try to get a similar program in place for workers in that country. The payment schedule also differs in some countries, including Australia, Canada, Germany, Hungary, India, Japan, the Netherlands, Poland, Singapore, Spain and Venezuela.

Although the averaging period will determine the exact amount employees will receive, Microsoft has set up an online tool for workers to estimate how much their options will be worth before deciding whether to participate in the program. Those that keep their options could still benefit if Microsoft shares rise above the exercise price of the options.

In addition to allowing employees to sell their underwater options, Microsoft also said in July that it would award employees restricted shares of stock rather than options. The company has so far rejected calls from shareholders to return more of the company's $49 billion in cash through a one-time payout or an increased dividend.