Ex-Microsoft HR VP reveals why most executives don't take pay cuts to prevent massive layoffs

OpenAI staffers joining Microsoft
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What you need to know

  • Massive layoffs have hit the tech and gaming industries by storm.
  • Microsoft has been greatly impacted having cut over 10,000 jobs with the latest round of layoffs impacting its gaming division.
  • People argue that making pay cuts for top executives at the firm could salvage the situation.
  • A former VP of HR at the firm recently disclosed that pay cuts won't be enough to stop the massive layoffs.

The tech and gaming industries have been hit hard by massive layoffs, especially during and after the COVID-19 pandemic. At the beginning of 2023, Microsoft CEO Satya Nadella confirmed that the company would cut 10,000 jobs by the end of FY23 Q3, with the most recent round of layoffs affecting its gaming department. 1900 people lost their jobs across Activision Blizzard, Xbox Game Studios, and ZeniMax Media.

Several reasons can be attributed to the massive layoffs impacting most tech firms at the moment, with tough economic times being at the top of the list. Interestingly, Microsoft is seemingly on the verge of becoming the world's most valuable company after recently becoming the second company to hit the $3 trillion market cap. Apple has held this position for the longest time due to the high demand for iPhones across the globe. However, this is no longer the case as iPhone 15 sales didn't perform as well as initially expected, especially in China.

The solution to the massive layoffs impacting tech firms is complicated at best

(Image credit: Image Creator from Designer | Windows Central )

Some people might argue that top executives should consider taking pay cuts to save some of these jobs. But as it turns out, it's not that simple. Chris Williams, an executive-level advisor and consultant, who previously served as Microsoft's VP of the Human Resource department, told Business Insider that making pay cuts for top executives wouldn't be significant enough to salvage the situation.

Putting this into perspective, Microsoft incurs up to a billion dollars in costs for 10,000 employees. This essentially means that the company gets to save the same amount after laying off 10,000 employees from its workforce.

Last year's regulatory filing disclosed that Microsoft's CEO, Satya Nadella compensation was $48,512,537 down from 2022's $54,946,310 compensation. If Satya were to take a pay cut, Microsoft would only be able to save 0.2% out of the expected billion dollars.

According to a leaked Microsoft payment guideline, the highest-ranking employee pockets a base pay ranging from $231,700 to $361,500, a hiring bonus of up to $1.2 million, and $1 million in annual stock awards. Whereas, the lowest-ranking employee takes home a $42,500 salary with no extra compensation. It is from this premise that top executives at the firm argue and conclude that pay cuts aren't a plausible solution for the massive layoffs.

Compensation plus stock grants

(Image credit: Windows Central | Kevin Okemwa)

As highlighted above, Microsoft's Satya Nadella was compensated $48,512,537 last year. But this is misconstrued to be what the company pays its CEO. According to Chris Williams, this is usually a combination of the agreed salary range and stock grants.   

This is why we often witness irregular fluctuations and a decline in the yearly compensation for top executives at some of these firms. If we go by this premise, Microsoft's CEO is likely to laugh to the back this year owing to the firm's early lead and investment in AI bundled up together with its extended partnership with OpenAI. 13 market analysts unanimously voted that Microsoft will be the world's most valuable company in the next five years ahead of Apple. We're likely to see more investors gravitate towards Microsoft, owing to its incredible performance in the stock market since the year began.

RELATED: Microsoft's financial results for FY24 Q2

It's worth noting that stock grants don't cost the company any money, thus making the approach easier to manage. This way, if the company's value increases so does its stock price in the market. Ultimately, this makes the company more valuable and has a positive impact on the CEO's compensation package.

Top players get top dollar

(Image credit: Future)

As a general rule of thumb, it only makes sense that the company CEO gets the best compensation. Also, considering the compensation a company like Microsoft holds in the world right now, the worst decision its board of directors could ever make would be to adjust the CEO's compensation package. 

Finding someone with a good work ethic, impeccable leadership skills, and more is no easy feat. Not to mention that the competition is always lurking to get the top performers at a company. 

Still, the situation remains highly concerning, and my heart goes out to everyone impacted.

Kevin Okemwa
Contributor

Kevin Okemwa is a seasoned tech journalist based in Nairobi, Kenya with lots of experience covering the latest trends and developments in the industry. With a passion for innovation and a keen eye for detail, he has written for leading publications such as OnMSFT, MakeUseOf, and Windows Report, providing insightful analysis and breaking news on everything revolving around the Microsoft ecosystem. While AFK and not busy following the ever-emerging trends in tech, you can find him exploring the world or listening to music.

  • Kevin Okemwa
    Do you think top executives at Microsoft getting pay cuts would reduce/stop the ongoing layoffs? Personally, I think it would help save several jobs at the very least. Share your thoughts with me in the comments
    Reply
  • Rumpystiltskin
    What is a company? Is it a mechanism to employ people or is it to make money? If it is the former then yes they should take the cut and save as many jobs as possible. If it is the latter then they should not. A good CEO is very very very very hard to find. Microsoft have a great one and letting him go because you cut his pay would be a money losing disaster.

    Now if it is about saving face and looking good, then the whole working for $1 would be a good way to do it. Prevent some layoffs, CEO looks like a saint and still gets paid (stock options). That would probably be the way to go.
    Reply
  • GraniteStateColin
    I don't think cutting exec pay would save a single job. That's not why there are layoffs. It might if it were a choice of cut pay somewhere or go out of business, but that's not the situation with MS. Microsoft does not layoff staff because they are losing money (they are not -- MS is highly profitable). They lay off staff because those positions are deemed (right or wrong) as unnecessary and therefore a waste of money. They generally decide we're going to reduce investment in project X by 10%, 50%, or 100% (eliminated), and that means that portion of the workforce is deemed unnecessary.

    Further, on the executive pay side, this is not a one-sided choice. If MS lowers its executive pay, some portion of them will quit to take jobs at other companies who pay more. This means either MS is left with a weaker executive leadership team than its competitors (those who can't command higher pay) or is understaffed in leadership positions. It's a competitive market and salaries are set more by the marketplace than by any one company. Google, Meta, Apple, etc. are constantly trying to hire executives away from MS. Other would just quit to start their own companies.

    I agree (as do many) with the premise that layoffs are not a good thing. The way to avoid or reduce them is to be slower to add positions and hire and then work harder to find ways to reallocate work when some positions become unnecessary, instead of just letting those people go. Companies that do these things benefit from higher morale and a more loyal and motivated workforce. On the other hand, this also means they are more sluggish to react to growth opportunities, so there are tradeoffs.
    Reply
  • Rumpystiltskin
    GraniteStateColin said:
    I agree (as do many) with the premise that layoffs are not a good thing. The way to avoid or reduce them is to be slower to add positions and hire and then work harder to find ways to reallocate work when some positions become unnecessary, instead of just letting those people go. Companies that do these things benefit from higher morale and a more loyal and motivated workforce. On the other hand, this also means they are more sluggish to react to growth opportunities, so there are tradeoffs.
    Is there anything to be said for hire and fire fast? With a proper explanation of "this program is experimental/ on probation/ whatever" and that way people who are out of work get some employment with a chance to be in on the ground floor of the next big thing?

    I feel like I didn't explain that well but hopefully you get my meaning.
    Reply
  • fjtorres5591
    Since you asked:

    No.
    Now anybody losing their job is a BAD thing, but looking at the layoffs alone without context or solely within the context of stock price/capitalization completely misses the reality of a very complex situation.

    1- Microsoft has no direct control over stock price which determined by investors looking at their past, present, and projected future performance.

    2- Microsoft, like most large multinationals are not a monolithic oeration but rather a federation of distinct units, each operating autonomously and responsible for its own profit/loss/growth balance. Exceptions are made from time to time for strategic reasons (AI investment, buying a "distressed property" like ABK cheap, etc), but as a rule profits from one unit are not used to prop up another. Not only is it bad business to use a thriving unit to prop up a failing one, regulators and stockholders frown upon that and tend to sue. That kind of drama is not good business either.

    3- Microsoft has a 50 year track record on how they manage priorities, staff levels, and staff *performance*. For example it used to be something of a joke that "if MS is reorganizing, it must be January." The annual reorgs were a way MS *routinely* let go the bottom 5% of performers. Usually along with cancelled projects or changes in product line focus. This has been toned down under Nadella but under that "gentle glove" of the "kinder gentler" CEO necessity and corporate culture still prevails. MS is (according to the glassdoor website) one of the highest paying tech companies (on average) but with that salary come performance expectations at all levels. From the lowest level temp to Nadella everybody is expected to "sing for their supper". Nobody cracks whips but everybody is weighed and measured. MS has survived 50 years by those rules, which include keeping enough cash on hand to operate for a full year with zero income. That might be inconcievable today but in 1980 it was not just pssible but even likely. (There are several MS corporate histories around. Look one up.)

    4- To the current matter, gaming, only the uninformed coukd have been unaware that layoffs at ABK were coming right about now. And not just Kotick and the execs tainted by the drama of '21-22. Mergers *always* result in layoffs. The weasel word term is "made redundant" as the new units are integrated into the ways of the acquiring company. Look closely at the reports of who exactly has been cut and it isn't hard to see why for many, if not most. Customer support? MS long ago outsourced that, ABK did it inhouse. Which way was going to prevail? You have to go unit by unit to judge the whys but these cuts are rarely done without some driving logic other than just cutting costs as is often presented in the media.

    5- The recent quarterly financials from MS offer some guidance as to why and why now: Gaming is now the third largest revenue stream at MS thanks to that $70B investment. And it is now expected to perform as effectively as the rest of the company. No more "underdog" excuses. With the new status and structure changes were and remain inevitable. No more Redfalls. No more Odyssey(?) projects running 6 years and producing nothing usable. No more HR drama and Dept of Labor lawsuits. Spencer's charm offensive in October was about showing the plusses of working within the MS structures. January showed the constraints. Chief among them, accountability.

    6- I called ABK a distressed property earlier. Here's why: in summer 2021 ABK stock hit 100+ on the strength of a $9B year. Before MS announced their deal, the stock was down a third with more to come among the drama, declining revenues, and the prospect of talent leaving. MS on paper paid a premium based on where ABK was in Dec 2021 but a discount based on where it was in the summer and, more importantly, where it shoud be based on its IP, staff size, and the performance of KING (notice they seem to be untouched). ABK should be doing better than just $7B a years, despite $4B from King. ZENIMAX and even MGS have also had some misfires and underperformers in recent times so its not just Activision and Blizzard that need to figure things out. Better management practices are a must.

    7- It is all to easy that gaming and, indeed, all of entertainent relies of good times and disposable income. We are *not* in good times. Global gaming is not likely to remain a $350B a year business so belt tightening is a must and that is what is happening. And it's not just Embracer and Sony that are under the gun, they're just the ones that misjudged the market. EA and Ubisoft have also made cuts, SEGA too. By current standards MS is actually being proactive and conservative in minimzing developer cuts. They're not waiting for a crisis to hit and they are not cutting staff to simply cut costs, which is a simplistic view.

    And that is, cold though it seems, a sign of *good* corporate management. Which is the reason for the stock going up: doing what is necessary though it mightblook bad.

    The visuals *are* bad, that a growing prosperous company should be cutting staff as investors look for their roll to continue, but gaming is *not* on a roll. Not at MS and not elsewhere. (Palworld windfall aside.) And that is what needs to be judged: MS gaming, not enterprise, not AI, not health care or any of the other businesses. Just gaming.

    Management is well compensated indeed but that compensation is based on how they run *their* units: avoid disfunctions, rogue projects, HR drama, public spectacle (did STARFIELD really need defending publicly?), and above all maximize the value of the assets they are entrusted with. That is what their pay is based on.

    Only time will tell how well they perform in the ongoing times of global turmoil.
    Reply
  • fjtorres5591
    Rumpystiltskin said:
    What is a company? Is it a mechanism to employ people or is it to make money? If it is the former then yes they should take the cut and save as many jobs as possible. If it is the latter then they should not. A good CEO is very very very very hard to find. Microsoft have a great one and letting him go because you cut his pay would be a money losing disaster.

    Now if it is about saving face and looking good, then the whole working for $1 would be a good way to do it. Prevent some layoffs, CEO looks like a saint and still gets paid (stock options). That would probably be the way to go.
    Steve Jobs did that.
    On paper and in the press.
    In reality, he made hundreds of millions a year. Just not in "salary".
    It's a common sleight of hand in companies that care morevabout perception than transparency.
    Reply
  • GraniteStateColin
    Rumpystiltskin said:
    Is there anything to be said for hire and fire fast? With a proper explanation of "this program is experimental/ on probation/ whatever" and that way people who are out of work get some employment with a chance to be in on the ground floor of the next big thing?

    I feel like I didn't explain that well but hopefully you get my meaning.

    Well, yes, but not much benefit for the employees, more for the employer. The company who hires quickly and fires quickly can rapidly scale up and down staffing and costs to react to changing strategies and market conditions. It's fast and nimble, but comes with the significant cost of people never feeling safe for their job and always on the lookout for an alternative. Time that would be spent helping the employer instead goes to looking for other work.

    For the people hired quickly, yes there's a benefit that they got a job and that can be lubrication on their resume for the next one, so that's clearly a positive. But getting fired quickly? I don't think there's much advantage to them on that side of things. The only positive I can see on that is (and maybe this is the same thing you're getting at): if a company keeps them on a dead-end project just to avoid a layoff, they probably won't get much in the way of a raise (b/c the project isn't generating much profit) and they won't get any respect from the company. In that case, releasing them could result in their ending up in something that better aligns their skills with market needs. And in turn if they are therefore in a roll that contributes more value, they will be better appreciated, earn bigger raises, etc. But they could achieve the same thing by quitting, so I don't think that's really an advantage, except to people who perhaps lack the self-confidence to quit, but that seems a twisted justification for layoffs :-).

    On net, I think companies should try not to do layoffs if they can be avoided. Yes, fire the people who aren't contributing, but don't do mass layoffs. Instead, reallocate people to other areas where their skills can contribute more value.
    Reply
  • fjtorres5591
    Rumpystiltskin said:
    Is there anything to be said for hire and fire fast? With a proper explanation of "this program is experimental/ on probation/ whatever" and that way people who are out of work get some employment with a chance to be in on the ground floor of the next big thing?

    I feel like I didn't explain that well but hopefully you get my meaning.

    Several europeans countries suffer very low hiring because firing is very hard. So companies are very careful who and when they hire them because they'll be stuck with them indefinitely. Another result is they are reluctant to expand into risky ventures that might bloom into new product lines or implode, leaving them with excess staff they can't easily shed.

    The key is having the flexibility and foresight to know when to growcand when to, reluctantly shrink before its forced on you.
    Reply