Microsoft Corp. will be reducing by 10 percent the "geographic differential" its 1,600-odd Bay Area employees earn from Aug. 1, meaning a significant cut in their paychecks.
Microsoft employees in San Francisco, Mountain View, Calif., and Foster City, Calif., were told that the "geographic differential" they are paid would be cut from 25 percent to 15 percent of their base salary, putting them on par with Microsoft employees based in New York, Microsoft officials confirmed.
Now that the technology market is in a slump and many people in the Bay Area are out of work following the dot-com collapse, Microsoft feels such a strong economic incentive is no longer necessary to retain employees.
Carol Sacks, a Microsoft spokesman at its Mountain View campus, on Thursday said the differential pay was introduced at 15 percent in Feb. 2000 before growing to 25 percent in late 2000, around the height of the tech hiring frenzy.
But given that voluntary attrition has slumped, to around 9 percent at Microsofts Bay Area locations, from about 30 percent, the company felt the large differential is no longer justified, she said, adding that Microsoft had always made it clear to staff the differential could be changed or removed.
An internal e-mail on the subject stated that "as a result of the latest assessment of the Labor Market in the Bay Area, we will be decreasing the Bay Area differential back to 15 percent of base salary, effective Aug. 1, 2002. Please bear in mind that its Microsofts practice to align compensation to pay approaches of industry leaders—not to the cost of living. In line with our industry, we dont pay cost of living allowances. But we may take action if unusual labor market conditions drive up pay levels," the e-mail said.
Microsoft went on to caution Bay Area employees that the geographic differential would be reviewed at least annually.
"Our current intention is for Microsoft to be able to adjust the differential (up or down), replace it with something else, or discontinue it altogether—based on pay approaches in the region, other changes to Microsoft pay programs, and business needs as determined by the company--decisions about the geographic differential are made at the companys sole discretion," the e-mail said.