Main image of article Why is Microsoft Freezing Salary Increases?

Tech professionals are used to receiving annual raises, especially if they’re high performers. So it must have come as a shock to Microsoft employees when CEO Satya Nadella sent an email announcing an end to salary increases for the year.

Nadella blamed the decision on the current market: “This year the economic conditions are very different across many dimensions, including customer demand, the labor market, and the investments required for the next cycle of innovation. Given this, we will fund our compensation commensurate with the overall market.” (Hat tip to Business Insider for printing the email in its entirety.)

Certain hourly employees will receive salary increases, but full-time salaried employees are out of luck. Microsoft will maintain its bonus and stock award budget, Nadella added, “however, we will not overfund to the extent we did last year, bringing it closer to our historical averages.” Employees who deliver exceptional performance may receive rewards, but “managers will need to differentiate pay for performance within their allocated budgets.”

Almost exactly a year ago, Bloomberg reported that Microsoft was radically boosting its budget for salary increases and stock compensation. At the time, Microsoft was locked in a fierce competition for talent with Amazon, Apple, and other tech-industry giants; a few months before, in a similar effort to boost its workforce’s happiness and retention, Amazon has raised its maximum base salary to $350,000 while handing out massive amounts of stock.

Flush with cash from boosted e-commerce and cloud sales during the pandemic, the tech giants felt they had ample budget to spend freely on talent. But with growing fears of an economic slowdown, those giants began to slash jobs at the end of 2022, including Microsoft, which laid off more than 10,000 employees. Now Microsoft has halted pay raises, while new data suggests that median compensation at many tech companies actually dropped last year. Will other companies follow Microsoft’s lead and freeze salary increases?