Will Microsoft's overhaul of its employee review system boost morale?

Will Microsoft's overhaul of its employee review system boost morale?

Summary: Microsoft CEO Steve Ballmer announced to the troops on April 21 plans to overhaul the company's employee review and compensation system.

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Microsoft CEO Steve Ballmer announced to the troops on April 21 plans to overhaul the company's employee review and compensation system.

Microsoft is hoping the changes will stem employee defections and help the company attract new talent. It's also counting on the changes, due to be implemented starting this September, reducing employee disgruntlement with the stagnant stock price, one of my sources said.

One of my contacts sent me what he said was the text of the Ballmer memo. (I'm asking Microsoft if it's real, but I believe it is.)

Update: A Microsoft spokesperson said this is the real deal. Here's the text in full:

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.

One of my tipsters explained the change this way: "Basically, they're giving up on stock growth all together as a motivator and shrinking that down while cranking up cash both base pay and bonuses. Yet another new review model that is supposedly simpler. Will be interesting to see how it effects earnings and morale."

Update: Anonymous Microsoft blogger Who 'da Punk of Mini MIcrosoft fame weighs in on the just-announced changes.

Topics: IT Employment, CXO, Legal, Microsoft

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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20 comments
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  • Positive move...changing with the times.

    This is a great move in my opinion. MSFT just had their best fiscal year in history, but it's tough to grow the stock rapidly when you are a $46billion company. I think Zeus Kerravala at The Yankee Group summed this up very well this week on nojitter.com when discussing Cisco: "Growing a $43 billion company at 15% means growing it by $6.5 billion each year. That's bigger than the combined revenue of Juniper, Aruba, F5, Riverbed and other (Cisco) competitors. Being a $43 billion growth company is nearly impossible, even for a company as well run as Cisco." http://www.nojitter.com/feature/229401656



    I know there are exceptions, but typically huge stock growth comes from smaller corporations than this in the Tech sector. Win 7, Office, XBOX, and Kinect are all selling at all time highs...so I don't see any problems with this at all. Times have changed, and MS is evolving hugely successful as well.
    guinnessc
    • I agree. There is a platue that all will reach one day

      @guinnessc<br>in which it will be difficult to up a stock price, it is the nature of the system.

      Google's had the same issue, defections and a stock price that hasn't come close to 740 it once was at, so an overhaul of their employee plans helped raise moral and slow defections.

      Even Apple had these problems in the past, I just wonder why MS waited so long in this economy?
      Will Farrell
    • What Ballmer didn't tell you...

      ...were the inevitable layoffs, the H1B substitutions and the further outsourcing of work to India and China.

      All in a good day's work, right Steve? ;)
      anonymous
      • RE: Will Microsoft's overhaul of its employee review system boost morale?

        @LTV10
        And more power to Steve for those bold moves. The company really needs that! Especially since the competition has been doing much more of it for a longer time.
        jaykayess
      • RE: Will Microsoft's overhaul of its employee review system boost morale?

        [i]Especially since the competition has been doing much more of it for a longer time.[/i]

        What competition?
        blind obedience
  • Message has been deleted.

    CaptOska
    • You described every company out there

      @CaptOska
      So what was your point?
      Will Farrell
    • RE: Will Microsoft's overhaul of its employee review system boost morale?

      @CaptOska Very true. depending on how you look at it. Your perspective is wrong.
      jk_10
    • RE: Will Microsoft's overhaul of its employee review system boost morale?

      @CaptOska Welcome to capitalism, comrade!
      Gritztastic
    • RE: Will Microsoft's overhaul of its employee review system boost morale?

      @CaptOska
      So I suppose you are a free lancer, totally disconnected from society, and are not dependent on anyone for your paycheck. In that case, you're not a monkey - you're an alien!
      jaykayess
  • RE: Will Microsoft's overhaul of its employee review system boost morale?

    Another Safety and Security Talk from the Captain of the Titanic. The most morale-boosting action Ballmer could take would be to walk the plank. This guy is the nemesis of Microsoft.
    oriorda
    • RE: Will Microsoft's overhaul of its employee review system boost morale?

      @steftheref ... DITTO!

      Why drink this Koolaid when can join a major competitor with young intelligent innovative management who offers a 10% no strings attached raise and free full meals!
      CustomComputers
    • RE: Will Microsoft's overhaul of its employee review system boost morale?

      @steftheref ... I wonder why the popularity of other companies' consumer gadgets is so often interpreted as a sinking ship for Microsoft and other large companies. I mean, think about it this way... Apple is focused on a handful of products and releases very deliberate updates in fixed, obvious intervals. Microsoft does the same thing on a much MUCH bigger product scale with dozens of products, and they are successful at it CONTINUALLY. Just like Apple, they just announced a hugely successful business quarter, so contrary to your ignorant comment, they aren't sinking, and they aren't going anywhere.
      GoodThings2Life
  • Re-arranging deck chairs

    With Amazon stock soaring, Facebook equity at a premium and flush with cash, Google being Google, I don't think a little bit of cash (that will be going back out to cover the new health benefits) with a dead and dying stock will not stem the exodus. Sure cash is great but it's losing value too, even faster than Microsoft stock.
    hawks5999
  • It's the ole &quot;King Rat&quot; rating system

    This quote from Anonymous at the MINI MICROSOFT blog tells it all
    "...The system is geared for individual compensation where I'm constantly in competition with my peers for my slice of the pie. There's little incentive to help out others, unless their failure will directly affect my success. "

    I worked for one of the big US Techs (until the job went bye-bye to India), it was exactly like that. Help your brother -- but not too much because you are competing with him for a space at the corporate Pigs Trough.
    Telexer
    • RE: Will Microsoft's overhaul of its employee review system boost morale?

      @Telexer ... on the contrary, if your entire team fails to deliver a great, marketable, profiting product, then you're all to blame. Sure, you might end up with a small raise because you worked your butt off, but most of the funding is being diverted to the product groups that are doing well.

      Point is, work hard-- absolutely. Work hard with others-- most definitely. When you all succeed, you all get rewarded.
      GoodThings2Life
  • RE: Will Microsoft's overhaul of its employee review system boost morale?

    About time, softies always complain about the old review system. See GlassDoor for proof. Glad to see feedback made it to the top.
    joeymaloney@...
  • What About the First and Second Points?

    The money is pretty much irrelevant when MS failures to deliver:<br>1) Innovative work<br>2) Growth and recognition
    SorryThatUsernameIsTaken
    • RE: Will Microsoft's overhaul of its employee review system boost morale?

      @SorryThatUsernameIsTaken
      This is what you are saying: "I don't like MS products. They are not innovative. Therefore their employees don't grow. Therefore money is irrelevant to the employees."

      Who cares a fig whether you like MS products or not? Those MS employees think they deserve a raise because they've worked their but*s off, but the product probably sucked because some exec killed some of the most innovative features in it to get it out in time to meet his personal targets.
      jaykayess
  • Microsoft and Apple

    Microsoft makes great hardware, just not a lot of variety. They don't make computers but do make keyboards and mice. They could make their own computers and software, Apple does and it's doing well. It's ironic to me that a monopoly does less than a non monopoly.
    trm1945