John Paczkowski

Recent Posts by John Paczkowski

New Microsoft Pay Plan: More Cash, Fewer Microbucks

“While the exact number is not known, it is reasonable to assume that there were approximately 10,000 Microsoft millionaires created by the year 2000.”

Economist Richard S. Conway Jr.

Remember the Microsoft millionaires? The Redmond rank-and-file who were catapulted into heady tax brackets when Microsoft’s stock spiked more than a hundredfold in the late ’80s?

Neither does the company’s workforce.

Or the IT talent pool.

Which is likely why Microsoft is rolling out a new compensation plan, one that stresses cash up front over stock awards bled of their retention incentive by Microsoft’s stagnant share price. It can’t be easy recruiting and retaining top talent these days with Google shares trading north of $524 and obscene valuations being given to Twitter and Facebook. And the rejiggering of Microsoft’s compensation plan with an across-the-board salary increase is an implicit recognition of that.

“Through our history, we have been THE place people came when they wanted to make a difference in the world through software, hardware and services,” Microsoft CEO Steve Ballmer said in a companywide memo Thursday morning. “This is as true today as it has been at any time in our history, and the changes we’re rolling out today will help ensure Microsoft continues to be the place that top talent comes to change the world.”

Ballmer’s memo in full, below.

There are many things that are true about Microsoft. We have big goals, big dreams and big aspirations for the future. We have great products and services. We have great people. We are competitive both with our products and in the way we attract and retain talent. For me, the most important factor is competition for talent, because I know our success comes from the people who work here.

Attracting and retaining great talent has at least three critical components: enabling and supporting people doing exciting and innovative work, creating a great environment where people can grow and be recognized, and providing the right overall compensation. In the same way we continuously improve our products and services, we must also improve the ways we support and reward our talented people. In line with that, today we’re announcing changes that will benefit our employees by sharpening the clarity of our performance review process and increasing compensation. These changes represent the most significant investment in overall compensation we have ever made.

Reviews. We are retiring our current system (commitment rating and contribution ranking) and moving to a single performance rating with clear rewards. We are making this change so all employees see a clear, simple, and predictable link between their performance, their rating, and their compensation. Each rating at each level will now have set compensation tied to the rating.

These ratings will be based on the results you accomplished during the review period (assessed against your commitments), how you accomplished them, and your proven capability. Ratings will be a simple 1-5 system with relative performance being assessed across common peer groups.

Compensation. We are increasing our investment in compensation across the board.

The following changes will take place at review this September:

    For all employees, we will have merit increase opportunities aligned with local market dynamics and performance rating.

  • We will make important increases in compensation for specific populations where the market has moved the most – early and mid-level R&D, mid-level company-wide and certain geographies.
  • For all employees, we will shift a portion of stock award targets into base salary, providing more cash up front and obvious incremental employee value. Senior leaders will continue to have a large portion of their overall compensation in stock to ensure their compensation is heavily tied to the financial performance of the company.
  • We are increasing funding for our bonus and stock awards so we can deliver 100% or more of target bonus and stock awards to 80% of our eligible employees. This is up from about 50% in prior years. The additional funding ensures our approach continues to support higher payouts to top performers.
    • The easiest way to understand these changes is to look at how you could be affected here.

      There is a lot of information available about these changes on HRWeb and via conversations with your manager.

      But I’ll finish how I started. Our ability to deliver great value to our billions of customers is driven by the ideas and passions of our employees. Through our history, we have been THE place people came when they wanted to make a difference in the world through software, hardware and services. This is as true today as it has been at any time in our history, and the changes we’re rolling out today will help ensure Microsoft continues to be the place that top talent comes to change the world.

      Thanks,
      Steve


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