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IT Home reported on October 31 that a large-scale voluntary employee departure compensation plan launched by Microsoft this week has shocked the industry and prompted questions from outsiders: Why would Microsoft consider letting so many people leave?
Microsoft employees are also discussing it: Does the company want to reduce its workforce by 60,000? Will AI replace those jobs? Are layoffs next?
Business Insider recently interviewed several anonymous Microsoft insiders to understand what is behind the plan. Based on the information available so far, Microsoft appears to have inadvertently alarmed employees because the departure compensation plan covered such a broad group, forcing management to move quickly to reassure them.
Microsoft CFO Amy Hood explained in an internal memo that the plan was introduced to “allow employees who want to leave to decide for themselves how to leave the company,” and that she expected only “a very small number of employees” to accept it.
Microsoft subsequently clarified that it expects no more than 3,000 employees to ultimately accept the compensation and leave, representing 5% or less of eligible employees.
Earlier this year, Microsoft offered a voluntary retirement compensation plan based on employees’ age and length of service, which about one-third of employees accepted. But Microsoft carried out another round of layoffs soon afterward, and some employees who declined the retirement offer were ultimately dismissed.
IT Home learned from the report that, after the larger voluntary departure compensation plan was introduced this week, some employees also worried that Microsoft would continue laying people off. Microsoft responded: “Future staffing decisions will continue to depend on business needs and priorities.”
However, several Microsoft executives interviewed believe outsiders have misunderstood the purpose of this plan. These executives could speak only about the teams they oversee, did not explicitly rule out further layoffs, and emphasized several important differences between this plan and the earlier voluntary retirement offer.
One executive, who requested anonymity, said: “Microsoft is not planning to reduce its workforce by 60,000 people. Nor are we trying to replace everyone with AI.” The executive added that Microsoft may have introduced the new plan in response to dissatisfaction among some employees who had not been eligible for the earlier retirement offer.
The earlier retirement plan had one feature: after employees left, Microsoft would not hire replacements but would eliminate their positions. The plan introduced this week is different. After some employees leave, the company will still recruit new people to fill the vacancies.
One reason the new plan covers so many employees is that some department heads thought it would be simpler to include entire departments than to select eligible teams and employees one by one. A Microsoft executive explained: “It’s easier to include an entire large department.”
A person familiar with the matter said Charles Lamanna, the Microsoft executive responsible for AI, Office and Word, decided to make everyone in his division eligible to apply. Even if employees accept the compensation and leave, the division plans to hire replacements for these critical roles.
Another Microsoft executive said the core cloud computing and AI division adopted a slightly different arrangement. Its Azure hardware systems and infrastructure team and its cloud operations and innovation team decided not to participate in this round of departure compensation.
Most other teams in the cloud computing and AI division made employees eligible to apply, and some positions may still be filled through new hires after employees leave.
Hiring replacements does not mean Microsoft cannot save on labor costs. One executive gave the example of a senior employee leaving: the company might well hire someone less experienced as a replacement and potentially pay them less. A Microsoft spokesperson stressed, however, that this is not the company’s official position.
There may be another reason Microsoft has adopted such a complicated arrangement instead of laying employees off directly: the company previously faced criticism for cutting jobs held by U.S. employees while hiring foreign workers.
Recently, the U.S. government suspended Microsoft’s eligibility to participate in a federal employer sponsorship program that allows companies to sponsor foreign employees’ applications for U.S. permanent residency. The White House accused Microsoft of hiring lower-paid foreign workers while dismissing U.S. employees, an allegation Microsoft denied.
A Microsoft executive also said: “We shouldn’t speak too categorically, but everyone is very keen to avoid large-scale layoffs, especially given that Microsoft is an American company.”