Even though it has minted more millionaires than perhaps any company in
history, Microsoft is finding that recruiting employees, particularly in
Silicon Valley, is getting harder than ever.
Facing a hiring crunch in California, Microsoft has boosted salaries of its
Silicon Valley employees by 15 percent to stem turnover and increase
staffing, the software giant confirmed. In other words, a Silicon Valley
programmer receives 15 percent
more in salary than one based in Redmond, Wash., for doing the same job.
In the past, Microsoft has not offered regional cost-of-living raises.
Like a lot of big high-tech companies, Microsoft is finding it increasingly
difficult and expensive to land and retain hot employees--particularly at
its high-profile WebTV operation. In the past, Microsoft could afford to
give workers lower salaries than competitors because the company's stock-option plan would more often than not compensate for any gap.
But now, those days of easy gains for Microsoft's stock may
be gone because of uncertainty
around the federal antitrust case and other factors. The skyrocketing
stock from start-ups, of course, also makes life more difficult.
"We're having a candidate flow problem," Gabrielle Toledano, director of
human resources for Microsoft's Silicon Valley operations, acknowledged.
Those operations include WebTV.
According to people familiar with the situation, Microsoft has been facing
growing disenchantment from some employees about the cost of living in
Silicon Valley, particularly those at WebTV.
"It's no secret that Microsoft leverages stock equity more than straight salary. With the hungry market of
today, they may not have kept up," said one recent departee who is now at a
fast-growing, pre-IPO company.
In early February, Microsoft instituted a 15 percent pay raise for
full-time employees living in Silicon Valley. In the past, Microsoft's
practice was to pay salaries based on the cost of living in Redmond, which
is the company's headquarters, no matter where the
That isn't the only departure from the norm. The company has pulled out all
the stops in transit stations, placing ads on the floor, steps and walls of
San Francisco junctions in an attempt to get noticed in the hot high-technology job market.
In the San Francisco-San Jose region, Microsoft has employees in several locations, including Hotmail's operations and development group, some
Windows and Mac software development teams, its bCentral small-business
Web site team, and a small research group. Microsoft's total work force is
normally about 1,400 regular employees, and about 1,100 to 1,200 are currently employed, according to Microsoft executives.
Arguably, the highest-profile operation is that of WebTV in
Cupertino, with about 700 permanent employees. The hot job market, in
combination with other factors, seems to have hit WebTV particularly
hard, according to interviews conducted with a number of ex-WebTV employees
and industry executives.
Microsoft's Toledano noted that the rate at which prospective employees are
turning down offers from Microsoft has gone down in recent months, but to
address the very competitive Bay Area market, the company has boosted pay
for employees in the region and introduced other perks and programs to help
keep employees in the fold.
Microsoft implemented the "geographic differential," as it is called, at
the beginning of February, executives confirmed. About 596 employees at
WebTV were affected by the change, according to an email obtained by CNET
News.com that was sent by Bruce Leak, president of WebTV operations, to
Still, the pay raise alone has not been enough to keep some employees, a
situation faced by many high-technology firms in Silicon Valley.
"Even with the stock as valuable as that is, at its market value, it's still
not compensating for the loss in annual salary that you would receive for a
position in your field," said one former WebTV employee. Employees in
advertising, for instance, have been able to find similar positions with a
salary double what Microsoft is offering in addition to stock options,
At WebTV, a number of key employees who have been present from the
inception of the company, including one of the principle designers of the
WebTV operating system, have left within the last few months, according to
various sources. Toledano noted that two of the company's three
founders--Leak and Phil Goldman--are still on board, and the company's board of directors remains largely the same, too.
Still, turnover in the company's marketing group is nearly 100 percent
since co-founder Steve Perlman's departure, and there is a significant shortage of engineers, which could affect the company's ability to continue to develop new products, sources said. As of March 3, there were 56 engineering positions
advertised on WebTV's site, including managerial positions such as vice
president of platform engineering. That number is up from February's
listings based on postings on the site.
"It's hard to add a new feature, because even though one guy may be needed
to develop the feature, you need ten guys testing that feature among the
various services on the platform," said one former WebTV employee.
"People are playing the job lottery," said Michael Kelley, manager of
retention strategies for Saratoga Institute. "Salary demand is being pushed up to the upper edges of what companies, especially
start-ups, can afford. They can't keep paying (those) salaries, so they have
to add things like
stock options and hiring bonuses."
But with employees expecting options
now, "there's almost a lottery madness. People are coming up to companies
at jobs fairs asking if they are pre-IPO. They walk away if they aren't,"
"At Microsoft in general we're facing a tight labor market," said Chris
Williams, Microsoft vice president of human resources. "We're feeling
the strain both in Redmond, and frankly, around the world."
In relation to questions about problems retaining employees at WebTV
specifically, Williams said, "As has happened with Amazon.com and Yahoo, (it
probably takes a) different characteristic to be a founder of a small
start-up than a manager of a very large project.
"Sometimes (for) a company's founders, like at WebTV, financial
compensation has met its peak. They go do another start-up, and that's not
uncommon. We try to point out all the good things about working at
Microsoft, but for some, it's really no substitute for the thrill of the
chase," said Williams. "You could get this exact same story from 10 to 15
other major firms in the Valley," he added.
Toledano cautions that any comparisons to companies similar to WebTV
are hard to make, because many are either privately held or have only
recently gone public, leaving most employees "locked" into their positions
until at least a percentage of their stock options vest. After that lockup
period ends, firms typically see up to 50 percent employee turnover,
according to Toledano.
The industry's overall average is around 15 percent, based on figures
from the Saratoga Institute, compared with Microsoft's stated figures of
around 7.5 percent.
Ken Morse, CTO of PowerTV, a firm developing software for interactive TV services, has seen some WebTV people come on board with his firm in recent
months. Morse thinks the departures are because of a combination of the
expiration of "golden handcuff" agreements--agreements that give an
employee stock in a company after a
certain period of time--and because the people who started with the company don't feel comfortable in the new organizational structure.
"It's the equivalent of a start-up having growing pains; that happens
whenever a company gets acquired," he said.
Once a company starts to lose its internal leaders, it doesn't matter if
it has a lot of employees, Morse added.
"It's like they become a flock of sheep saying, 'Where are we going?' You
can't afford to lose motivational leaders. It takes a long time to build
that," he said.
Microsoft's Williams said his company is instituting programs to show how
employees can move between different jobs within Microsoft, not just one of
its units, to gain experience. In addition, the company is looking at
turning each of its offices into "satellite offices" for other operations
to address concerns about commuting in the area.
"We're doing everything we can to listen to everything employees are
saying," Williams said. "We're not unlike other employers. We're struggling to find ways to
attract the best and brightest, but we're having some success now."