Under pressure, Microsoft fights to keep its workers

Top technology talent no longer automatically heads to Microsoft. The company now contends with the gleam of Google and other competitors, as well as internal employment issues.

But Microsoft showed Thursday it won't let practices that have stirred employee discontent get in the way of recruiting and keeping the best minds in computing.

In a town-hall-style meeting with employees, executives outlined broad changes to those practices, from ending an unpopular numerical rating system that forced managers to "grade on a curve" to instituting new perks that could make working there more attractive.

"Maintaining and strengthening the employee experience is one of the highest priorities for [Chief Executive] Steve [Ballmer], the leadership team and me," Lisa Brummel, Microsoft's senior vice president of human resources, wrote in an e-mail to employees after the meeting.

The move comes amid a major expansion of Microsoft's Redmond campus and local real-estate holdings in the next three years.

The company is adding room for 12,000 workers, both to ease overcrowding in its existing buildings and to accommodate new employees. In the next year alone, the company expects to have added space for 6,000 employees.

Even as Microsoft makes more room, it's trying to fend off raids from Internet search rival Google. The Mountain View, Calif.-based company has successfully recruited executive talent such as Kai-Fu Lee, a vice president who led Microsoft's Internet search efforts.

Microsoft is sweetening the pot for its 63,500 global employees — nearly half of whom work in Washington — with a 15 percent increase in its budget for employee stock awards. It's also adding a host of services such as dry cleaning, grocery delivery and to-go meals from Wolfgang Puck at its Redmond campus.

In one of the more symbolic changes, Microsoft is restoring free towel service in its locker rooms. That drew loud applause from workers listening to Brummel's presentation in a cafeteria on the campus.

The world's largest software company took away the perquisite nearly two years ago as part of cost cuts that did not go over well with employees.

Microsoft also laid out new efforts to help workers plan their careers and develop management talent, but the changes likely to have the biggest impact involve evaluation and compensation practices.

"Clearly, Microsoft is recognizing that they need to respond to the growing frustration that rank-and-file employees were having around the pay-for-performance compensation system at the company," said Marcus Courtney, president of the Washington Alliance of Technology, a union that has tried to organize Microsoft employees.

The existing system doles out bonuses and promotions based largely on a controversial numerical rating scale. The number of employees who can receive a top score is fixed, sometimes forcing managers to give a lower score to a worker even though he or she might have performed at the same level as a peer.

Microsoft is replacing the numerical scale, which ranged from 2.5 to 5, with what it calls a "Commitment Rating," to evaluate whether employees missed, met or exceeded their goals. The rating would be a factor in deciding bonuses.

A separate three-tiered ranking will reflect a worker's long-term potential and be a "primary driver" of stock awards. Microsoft's planned increase in stock awards will be "focused on providing meaningful stock awards to our top talent," according to the memo.

This ranking will still have a forced distribution or curve, with 20 percent of employees in a peer group classified as "outstanding," 70 percent as "strong" and 10 percent as "limited."

Courtney said he expects Microsoft employees to closely watch their paychecks to determine if the new system "lives up to their expectations in terms of what they actually see at the end of the year."

Microsoft has consistently ranked as a top workplace, and its salaries are generally considered competitive. Courtney said its health-care package is "gold-plated."

Fortune magazine recently ranked Microsoft as the best company to work for in Washington. The survey put it 42nd overall. Internet company Yahoo! was 73rd; Google did not make Fortune's top 100.

But Google does offer free meals and provides conveniences on campus such as the ones Microsoft announced for Redmond. Google's stock has climbed while Microsoft's has languished, another important consideration for tech employees who are often compensated with shares.

In her e-mail, Brummel said she has spent the past year gathering feedback from employees in Redmond and worldwide.

But there has been another, very public venue in which complaints have been aired. Several online journals, or blogs, posted by Microsoft employees have played host to vigorous debates on compensation and review.

"These blogs in many ways are acting like a virtual union hall," Courtney said. "The company is looking at that and responding with new policies based on the feedback."

Mini-Microsoft is one of the most widely followed blogs.

"I'd love our review and compensation system to be so straightforward and fair that it just fades into the background of everyday worklife," the author, whose identity is kept secret, wrote Thursday before the company laid out its plans. "There is risk. If the changes are as big as rumored in my building's hallways, there is great potential for a stunned backlash. You know, folks like to talk about change, but don't like change when it happens."

The blogger urged employees — "if we accept that the change is right" — to get behind it and to "ensure it's as good as it can be."

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com