Microsoft – the company that grew its revenue year-on-year by 18% and net income by 8% last quarter – is seemingly feeling the economic pinch. The company has announced that it will not provide salary increases for its full-time salaried employees this year, citing economic uncertainties and a major platform shift in the era of generative AI. The company will also reduce its bonus and stock award budget, bringing it closer to its historical averages.
So, despite bringing in $49.9 billion in revenue and $16.7 billion net income last quarter, Microsoft is not wealthy enough to hand out pay rises in 2023.
The decision was communicated by CEO Satya Nadella in an email to staff on Wednesday, which was leaked online shortly after. Nadella wrote that the company was facing a dynamic and competitive environment, as well as global macroeconomic challenges, and had to make critical decisions on how to invest in its people, its business, and its future.
“While we will have salary increases for certain hourly or equivalent roles, we will not have salary increases for full-time salaried employees this year,” Nadella wrote. “We will maintain our bonus and stock award budget again this year, however, we will not overfund to the extent we did last year, bringing it closer to our historical averages.”
Nadella added that the promotion budget would remain the same, and that exceptional performance would be recognized with high rewards. He also said that the senior leadership team, including himself, would experience lower performance-based bonuses compared with the previous year. Nadella has previously spoken about a global receission during an interview with Yahoo Finance last year:
Microsoft Caught in an Economic Downturn Affecting the Tech Industry
In 2022, Microsoft doubled its overall salary budget to provide pay rises across its workforce. This was seen as a necessary step to retain staff amid competition from other companies and the potential rivals would poach Microsoft's employees.
Since then, Microsoft and the tech industry at large have decided that they are in the midst of a major economic downturn. It is a tough sell for Microsoft as the company continues to grow and generate massive revenues. Even so, the company took the decision in January to lay off 10,000 people from its global workforce.
Microsoft brushed off reports of major job cuts as “rumor” before then confirming it will slash over 10,000 employees over the next three months. Since then, several divisions have been decimated by the layoffs. HoloLens has lost many employees while some departments such as the AI Ethics and Society team was removed entirely.
Microsoft is not alone in making tough decisions. Amazon has recently let go of 18,000 workers across its corporate and non-corporate businesses. This is the largest layoff plan amid a glut of Big Tech companies cutting staff. Google is cutting 12,000, while companies such as Meta, PayPal, Twitter, and Spotify are also swinging the axe.
Is Microsoft Busting Concerns about a Wage-Price Spiral?
On Wednesday, veteran economist David Rosenberg sent out a tweet linking Microsoft's salary freeze with slowing inflation in the United States:
“Adding to today's disinflation news — Microsoft hitting the tapes stating that it won't be giving raises to full-time employees this year.” The president of Rosenberg Research then quipped “What ever happened to that 1970's wage-price spiral??“
Adding to today's disinflation news — Microsoft hitting the tapes stating that it won't be giving raises to full-time employees this year. What ever happened to that 1970's wage-price spiral??
— David Rosenberg (@EconguyRosie) May 10, 2023
During 2022, many economists predicted the increasing (at the time) inflation crisis in the US would lead to a wager spiral as employees sought wager increase to keep up with inflating prices. In the 1970s, the wager-price spiral was something President Nixon was afraid of during a high inflation period, causing him to issue a price freeze in the United States.
Last month, economists eased their concerns about a similar situation happening again. Rosenberg's tweet suggests that Microsoft's decision to freeze salaries proves that there is no danger of a wager-price spiral happening.