According to an internal message seen by an insider, a Microsoft executive said the reasoning behind the company’s decision to halt pay increases this year and cut bonuses and stock compensation was “we want to invest in the AI wave.”
After CEO Satya Nadella announced the plans in an email earlier this month, employees joined Yammer’s internal bulletin board, “Senior Leadership Connections,” which aims to connect employees with Microsoft’s leadership team. Post a response or question.
“I would appreciate hearing the rationale for not giving a salary increase (commensurate with merit or inflation) if: 1. Inflation is very high. 2. Our net income compares to last quarter and last year. 3. Our CEO got a 10. We’re getting a % raise this year,” wrote one employee. “Even though our senior executives have received raises and our work continues to deliver high returns to our shareholders, taking a 5% pay cut to account for inflation has really taken a toll on morale, motivation and productivity. To do.”
Nadella’s email announcing the change said the same principles would apply to the senior executive team, with no salary increases and bonus reductions.
Microsoft chief marketing officer Chris Capossela responded at the Yammer group, citing the change as driven by customer demand and the labor market, adding, “We want to invest in the AI wave.” I agreed to the email of Through his partnership with OpenAI, Microsoft has found early success in this so-called wave by releasing his AI-powered versions of its own products such as Bing search and Edge browser.
“The stock price is the most important driver of pay increases for almost all employees,” Capossella wrote in his message. “A very strong quarterly result will help make the stock price more attractive, which in turn will increase the total compensation for everyone.”
Some Microsoft employees have spoken out about the blow to morale from salary changes and recent job cuts, saying in an internal message to executives seen by an insider:
Microsoft did not respond to a request for comment.
In a subsequent message to the Yammer board, Capossela said that the cash belongs to investors and that Microsoft needs to use it to drive new growth, so Microsoft’s recent financial successes should be taken into account. explained that it is not used to raise salaries.
“Some would argue that the focus on driving growth is correct because growth drives a stock price that benefits everyone (including employees). You can’t help but feel the urgency,” Capossela said. “Some would argue that even if it reduces profitability, it would tie up companies’ hands and prevent them from spending the way they want.”
Read an excerpt from Capossela’s message.
It’s easy to think that companies that generate a lot of cash (such as Microsoft) can spend that cash as they please (i.e. raise salaries, add more employees, spend more on marketing, etc.) I think. However, we found that investors are very focused on revenue growth, tight OPEX management and profitability. The absolute amount of each is also important, but the growth rate and profitability percentage are much more important. Once the percentage starts to drop, the attractiveness of that stock may decline (because investors prefer fast-growing companies). So, oddly enough, there may be quarters where margins are declining despite achieving “best ever earnings.” I think it’s no exaggeration to say that investors will be more afraid of the drop in profit margins than they are of “maximum profits.” This means any level of growth over past results).
So if you spend a lot of cash on marketing or on people (new or existing) without a commensurate increase in revenue, it will increase OPEX without increasing revenue, thus reducing your profitability. increase. As a result, the stock price falls, hurting everyone (especially employees whose compensation depends heavily on a healthy stock price).
We’ve come to believe that the cash we generate actually belongs to our investors. This is why companies use excess cash to drive new growth more directly. That could be buying an already profitable company (such as Activision or Nuance) or building a new data center (i.e. buying inventory to increase future sales). .
Companies also use excess cash to pay off debt (which I don’t think is too much of a problem for Microsoft), invest in the market for profit, buy back their own shares, and even pay dividends to shareholders. . Give them a profit on their stock investment.
This may seem like a strange constraint. “Hey, we made all this cash, so you can spend it as you please!” That may be true if we’re a privately held company like a private law firm, but like Microsoft. Investors are key stakeholders in public companies. One of the consequences of being a public company is that our cash is less fungible than you might first think.
Some would argue that the focus on driving growth is right because growth drives stocks that benefit everyone (including employees). It makes leaders feel the urgency of future growth and makes them cry. Others would argue that it would tie up companies’ hands and prevent them from spending as much as they would like, even if it means less profitability.
Are you a Microsoft employee or have an insight you’d like to share? Please contact Ashley Stewart.
