Microsoft chops its Silicon Valley carrots

Employees in the San Francisco Bay Area technology industry are losing some of their economic pull, at least at Microsoft Corp., which Thursday confirmed it plans to cut back on the bonuses it uses to lure talent there.

Microsoft offers what it calls a “geographic differential” bonus to its employees in the Bay Area and New York. First implemented in February 2000, the bonuses were intended to help the company compete in a tight job market and retain employees. The bonus scale is determined using a number of economic indicators, the company said.

In February 2000, workers here made an additional 15 per cent on top of Microsoft’s base salary for employees, comparable to Microsoft employees working in New York. A review of the differential in November 2000 led to an increase in Bay Area bonuses to 25 per cent of the base salary.

However, following a second review of the Bay Area geographic differential last month, Redmond, Wash.-based Microsoft said it will bring Bay Area bonuses back to 15 per cent, according to Carol Sacks, a spokeswoman for Microsoft.

A shift in the local labor market has turned it from a seller’s market to a buyer’s market that in many cases favors employers, Sacks said. In addition, Microsoft said that its attrition rate in the region – the proportion of employees who voluntarily leave — has dropped to about one-third what it was in November 2000.

Roughly 1,600 employees who work at Microsoft’s offices in Mountain View, Foster City and San Francisco will be affected by the bonus reduction, which will take effect on Aug. 1, Sacks said.

In an internal Microsoft memo posted on a rumor Web site Thursday, which Sacks said was authentic, the company said it has always intended to re-evaluate the geographic differential based on labor conditions. In San Jose, for example, the unemployment rate reached 7.5 per cent in January 2002 compared to 1.7 per cent in the same month last year, according to data from the U.S. Bureau of Labor Statistics. In San Francisco, the unemployment rate was at 5.4 percent in January this year, compared to 2.4 per cent in January 2001.

“The market data and economy supported a 15 percent differential,” Sacks said.