Ex-Microsoft HR VP reveals why most executives don't take pay cuts to prevent massive layoffs

Since you asked:

No.
Now anybody losing their job is a BAD thing, but looking at the layoffs alone without context or solely within the context of stock price/capitalization completely misses the reality of a very complex situation.

1- Microsoft has no direct control over stock price which determined by investors looking at their past, present, and projected future performance.

2- Microsoft, like most large multinationals are not a monolithic oeration but rather a federation of distinct units, each operating autonomously and responsible for its own profit/loss/growth balance. Exceptions are made from time to time for strategic reasons (AI investment, buying a "distressed property" like ABK cheap, etc), but as a rule profits from one unit are not used to prop up another. Not only is it bad business to use a thriving unit to prop up a failing one, regulators and stockholders frown upon that and tend to sue. That kind of drama is not good business either.

3- Microsoft has a 50 year track record on how they manage priorities, staff levels, and staff *performance*. For example it used to be something of a joke that "if MS is reorganizing, it must be January." The annual reorgs were a way MS *routinely* let go the bottom 5% of performers. Usually along with cancelled projects or changes in product line focus. This has been toned down under Nadella but under that "gentle glove" of the "kinder gentler" CEO necessity and corporate culture still prevails. MS is (according to the glassdoor website) one of the highest paying tech companies (on average) but with that salary come performance expectations at all levels. From the lowest level temp to Nadella everybody is expected to "sing for their supper". Nobody cracks whips but everybody is weighed and measured. MS has survived 50 years by those rules, which include keeping enough cash on hand to operate for a full year with zero income. That might be inconcievable today but in 1980 it was not just pssible but even likely. (There are several MS corporate histories around. Look one up.)

4- To the current matter, gaming, only the uninformed coukd have been unaware that layoffs at ABK were coming right about now. And not just Kotick and the execs tainted by the drama of '21-22. Mergers *always* result in layoffs. The weasel word term is "made redundant" as the new units are integrated into the ways of the acquiring company. Look closely at the reports of who exactly has been cut and it isn't hard to see why for many, if not most. Customer support? MS long ago outsourced that, ABK did it inhouse. Which way was going to prevail? You have to go unit by unit to judge the whys but these cuts are rarely done without some driving logic other than just cutting costs as is often presented in the media.

5- The recent quarterly financials from MS offer some guidance as to why and why now: Gaming is now the third largest revenue stream at MS thanks to that $70B investment. And it is now expected to perform as effectively as the rest of the company. No more "underdog" excuses. With the new status and structure changes were and remain inevitable. No more Redfalls. No more Odyssey(?) projects running 6 years and producing nothing usable. No more HR drama and Dept of Labor lawsuits. Spencer's charm offensive in October was about showing the plusses of working within the MS structures. January showed the constraints. Chief among them, accountability.

6- I called ABK a distressed property earlier. Here's why: in summer 2021 ABK stock hit 100+ on the strength of a $9B year. Before MS announced their deal, the stock was down a third with more to come among the drama, declining revenues, and the prospect of talent leaving. MS on paper paid a premium based on where ABK was in Dec 2021 but a discount based on where it was in the summer and, more importantly, where it shoud be based on its IP, staff size, and the performance of KING (notice they seem to be untouched). ABK should be doing better than just $7B a years, despite $4B from King. ZENIMAX and even MGS have also had some misfires and underperformers in recent times so its not just Activision and Blizzard that need to figure things out. Better management practices are a must.

7- It is all to easy that gaming and, indeed, all of entertainent relies of good times and disposable income. We are *not* in good times. Global gaming is not likely to remain a $350B a year business so belt tightening is a must and that is what is happening. And it's not just Embracer and Sony that are under the gun, they're just the ones that misjudged the market. EA and Ubisoft have also made cuts, SEGA too. By current standards MS is actually being proactive and conservative in minimzing developer cuts. They're not waiting for a crisis to hit and they are not cutting staff to simply cut costs, which is a simplistic view.

And that is, cold though it seems, a sign of *good* corporate management. Which is the reason for the stock going up: doing what is necessary though it mightblook bad.

The visuals *are* bad, that a growing prosperous company should be cutting staff as investors look for their roll to continue, but gaming is *not* on a roll. Not at MS and not elsewhere. (Palworld windfall aside.) And that is what needs to be judged: MS gaming, not enterprise, not AI, not health care or any of the other businesses. Just gaming.

Management is well compensated indeed but that compensation is based on how they run *their* units: avoid disfunctions, rogue projects, HR drama, public spectacle (did STARFIELD really need defending publicly?), and above all maximize the value of the assets they are entrusted with. That is what their pay is based on.

Only time will tell how well they perform in the ongoing times of global turmoil.

Rumpystiltskin said:

What is a company? Is it a mechanism to employ people or is it to make money? If it is the former then yes they should take the cut and save as many jobs as possible. If it is the latter then they should not. A good CEO is very very very very hard to find. Microsoft have a great one and letting him go because you cut his pay would be a money losing disaster.

Now if it is about saving face and looking good, then the whole working for $1 would be a good way to do it. Prevent some layoffs, CEO looks like a saint and still gets paid (stock options). That would probably be the way to go.

Steve Jobs did that.
On paper and in the press.
In reality, he made hundreds of millions a year. Just not in "salary".
It's a common sleight of hand in companies that care morevabout perception than transparency.

Rumpystiltskin said:

Is there anything to be said for hire and fire fast? With a proper explanation of "this program is experimental/ on probation/ whatever" and that way people who are out of work get some employment with a chance to be in on the ground floor of the next big thing?

I feel like I didn't explain that well but hopefully you get my meaning.

Well, yes, but not much benefit for the employees, more for the employer. The company who hires quickly and fires quickly can rapidly scale up and down staffing and costs to react to changing strategies and market conditions. It's fast and nimble, but comes with the significant cost of people never feeling safe for their job and always on the lookout for an alternative. Time that would be spent helping the employer instead goes to looking for other work.

For the people hired quickly, yes there's a benefit that they got a job and that can be lubrication on their resume for the next one, so that's clearly a positive. But getting fired quickly? I don't think there's much advantage to them on that side of things. The only positive I can see on that is (and maybe this is the same thing you're getting at): if a company keeps them on a dead-end project just to avoid a layoff, they probably won't get much in the way of a raise (b/c the project isn't generating much profit) and they won't get any respect from the company. In that case, releasing them could result in their ending up in something that better aligns their skills with market needs. And in turn if they are therefore in a roll that contributes more value, they will be better appreciated, earn bigger raises, etc. But they could achieve the same thing by quitting, so I don't think that's really an advantage, except to people who perhaps lack the self-confidence to quit, but that seems a twisted justification for layoffs :-).

On net, I think companies should try not to do layoffs if they can be avoided. Yes, fire the people who aren't contributing, but don't do mass layoffs. Instead, reallocate people to other areas where their skills can contribute more value.

Rumpystiltskin said:

Is there anything to be said for hire and fire fast? With a proper explanation of "this program is experimental/ on probation/ whatever" and that way people who are out of work get some employment with a chance to be in on the ground floor of the next big thing?

I feel like I didn't explain that well but hopefully you get my meaning.

Several europeans countries suffer very low hiring because firing is very hard. So companies are very careful who and when they hire them because they'll be stuck with them indefinitely. Another result is they are reluctant to expand into risky ventures that might bloom into new product lines or implode, leaving them with excess staff they can't easily shed.

The key is having the flexibility and foresight to know when to growcand when to, reluctantly shrink before its forced on you.