Microsoft cuts pay of Bay-area staff

Published 9:00 pm Thursday, March 14, 2002

Associated Press

SEATTLE — Microsoft Corp.’s approximately 1,600 San Francisco Bay Area employees are in for a rude surprise this summer —smaller paychecks.

Beginning Aug. 1, the software giant will cut the "geographic differential" it pays its Bay Area employees by 40 percent, from 25 percent of their base salaries to 15 percent, spokesman Jim Bak said Thursday.

The 10 percentage-point cut, announced in an e-mail sent to workers Feb. 4, affects employees in Mountain View, Foster City and San Francisco, the company said.

The bonus pay was introduced in February 2000 as a way to lure and retain employees in what was then a highly competitive market, Bak said. The incentive was originally 15 percent, then increased to 25 percent in November 2000 as demand for tech workers grew.

Now, with the market in a slump, Bak said the company decided it didn’t need such a strong economic incentive.

Voluntary attrition at Microsoft’s Bay Area units has dropped from nearly 30 percent in the company’s fiscal year 2001 to just over 9 percent in fiscal year 2002, he said.

Bak said the bonus pay was never intended to help employees deal with the high cost of living in the Bay Area and was only meant to help recruit and retain employees.

"There’s not a company (in Silicon Valley) that could probably afford to pay employees what they need to be paid to live down there, because it’s ridiculous," Bak said.

The company may raise or lower the incentive again if the market changes, Bak added.

Stephen Levy, director of the Center for Continuing Study of the California Economy, said it’s not surprising that Microsoft would make the change.

"The economy is in a downturn, so that bidding frenzy where people were paying what seemed like unsustainable salaries has stopped," Levy said. "You no longer have to pay that much."

Many employees at other companies have seen their pay decrease as stock options have bottomed out, he said.

Levy doubted many employees would leave the company over the bonus cut, mainly because unemployment in Silicon Valley is at 7.5 percent and there are few better offers out there right now.

Microsoft also pays a 15 percent geographic differential to its employees in New York City, Bak said, but hasn’t announced plans to change that.

Shares in Microsoft were down 81 cents to $61.29 in Thursday afternoon trading on the Nasdaq stock market.

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