Microsoft will cut the salaries for some 1,600 of its employees in Silicon Valley. The reduction isn't in base pay, but in the "geographic differential" paid to employees who work in high-cost areas. That differential will be reduced from 25% to 15% of base salaries beginning Aug. 1. Although the practice of paying a geographic differential is nothing new for many large firms, it's relatively new to Microsoft. A spokesman says the company "regularly evaluates the corporate structure to be sure it's still competitive." Based on that, Microsoft decided in February 2000 that in order to be competitive it needed to boost the paychecks of its Silicon Valley workers.
That initial 15% increase rose to 25% in November 2000, at the height of the IT talent shortage when companies tried to outbid each other in salary and perks to win the workers they needed to fuel the E-business boom. In addition to retention, the idea was that the differential would make it easier for people to buy a home in the area.
Those days seem so long ago and far away. Employers now have the upper hand, and they're making adjustments. For example, Microsoft explains that attrition in the Bay area is way down: It has dropped from 30% when the differential began two years ago, to only 9% today. Companywide, attrition is a bit lower than that, but overall, the downward trend is similar, the spokesman says.
The idea that the recession has reduced prices is cold comfort to Bay area IT workers who are hoping to buy into the market. Housing prices are on the rise again, says real-estate broker Michael Johnston, who sells homes in Menlo Park and the surrounding area. Many people who were saving to buy last year put their plans on hold, worrying that they might need the money in the event of a layoff, Johnston says. Now they're feeling more confident. "There's a backlog of people waiting," he says. "They're saying, 'Well, it's time to buy,' and everyone's starting to buy now, so prices are going up."