When you join Microsoft, you hear stories about people who’ve been there for 20 years, who grew up with the company, who never had to worry about sudden changes (maybe except for 2008). The performance management system had its quirks, but there was an understanding that if you did solid work, you’d have a place.

But something shifted. Maybe it was the market, maybe it was the pressure to stay competitive with companies that move faster and pay more. The implicit agreement that made lower compensation feel acceptable started to crack.

For decades, Microsoft operated under an unspoken agreement with its employees—what I call “the pact.” The deal was simple: We’ll pay you 20-50% below market rate, but in exchange, you get stability, reasonable work-life balance, and most importantly, no layoffs. This wasn’t written in any employee handbook, but everyone understood it. It was the Microsoft way.

For many strong performing engineers, this was an attractive trade-off. You might not get rich as quickly as your friends at startups, but you could plan your life around stability. You could get a mortgage, start a family, and sleep well knowing your job wasn’t going anywhere.

According to layoffs.fyi, Microsoft has laid off around 30,000 people in the last two years. To put this in context: that’s roughly 13% of Microsoft’s workforce, and while the entire tech industry saw significant layoffs (Meta, Google, Amazon all made major cuts), Microsoft’s situation stands out because of their historical commitment to employment stability. Many people are confused about this departure from Microsoft’s traditional approach. As a former employee, I want to share my perspective on why this shift was almost expected. While economic factors certainly contributed, Microsoft’s performance management challenges made layoffs a more attractive option than addressing individual performance issues systematically.

Microsoft’s performance management has always been atrocious on both sides of the ruthlessness/leniency scale. In the Ballmer era, the forced stack ranking of employees. Essentially a system where managers had to grade their teams on a curve, with a predetermined percentage forced into “underperforming” categories regardless of actual performance, caused people to live in this fear environment. Even if you had a team of stellar performers, someone had to be labeled as bottom 10%. This led to internal competition, backstabbing, and people gaming the system by avoiding high-performing teams or sabotaging colleagues.

This caused great attrition and unfavorable business outcomes for Microsoft. The system was so universally hated that when Satya Nadella became CEO in 2014, eliminating stack ranking was one of his first major moves. The opposite became true: it seems managers had to fight HR to get someone on their team out.

I personally saw the bad side of this. I had a co-worker who had no productive outcomes for a year, and it took a year of continued documentation to get him fired. This also caused a downstream effect on team morale, as he was still getting rewards and a salary similar to other people.

Great performance = mediocre pay?

Sadly, one of the tradeoffs you have to understand is that at the same level, over the same year, the difference in pay between someone at the highest level of performance versus someone who passably does their job does not create enough differentiation for most levels lower than principal, barring random exceptional one-off stock grants (which also don’t help retention, due to their randomness). This causes the system to not be a meritocracy, with “passing by” being the default.

Limitations and Context

I’ll acknowledge upfront that Microsoft is a massive, diverse company with thousands of managers and teams. My experiences reflect specific orgs, specific timeframes (2016-2022), and specific leadership chains. Your mileage may vary dramatically depending on your team, your manager, and your timing. I recognize that some teams and managers at Microsoft do provide strong performance differentiation, meaningful career growth, and excellent employee experiences.

However, these patterns were consistent enough across my tenure, conversations with colleagues from different orgs, and observations of broader company trends that I believe they represent systemic issues rather than isolated incidents. The goal isn’t to dismiss positive experiences but to highlight structural challenges that affect enough employees to warrant discussion.

At will employment

For me, coming from outside the US where employment contracts offer significantly more protection, at-will employment was a jarring concept. In most countries, terminating an employee requires cause, documentation, and often significant severance payments. Employment contracts typically specify notice periods — sometimes months — giving both parties time to plan transitions.

At-will employment means your employer can terminate you for any reason (or no reason) at any time, as long as it’s not discriminatory. No advance notice required. No severance guaranteed. One day you’re planning your next sprint, the next day you’re cleaning out your desk.

This reality requires a completely different approach to financial and mental planning. You can’t just budget for your monthly expenses, you need to maintain an emergency fund that can cover 6+ months of unemployment. You can’t get too comfortable or assume job security based on performance alone. You need to constantly network, keep your resume updated, and maintain relationships outside your current company.

The Layoff Paradox: Why It’s “Easier” Than Firing

Here’s where at-will employment creates a perverse incentive structure that helps explain Microsoft’s recent layoff approach. While you can fire someone for any reason, firing individual employees for performance still carries significant legal risk and administrative burden.

To fire someone for performance, managers must document everything meticulously. Every missed deadline, every subpar deliverable, every coaching conversation needs to be recorded. HR requires a paper trail that can withstand legal scrutiny. This process can take months or even years, during which the underperforming employee continues to collect their salary and potentially drag down team morale.

The legal risk is real. Even in at-will states, wrongful termination lawsuits can be expensive and time-consuming. Companies worry about discrimination claims, especially if the fired employee belongs to a protected class. Better to have an ironclad documentation trail than face a costly legal battle.

Layoffs, paradoxically, are “cleaner.” When you eliminate entire roles or teams, you sidestep the performance documentation requirements. You’re not firing someone for being bad at their job, you’re eliminating the job itself. The legal risk is minimal, and you can even look compassionate by offering severance packages and transition support. Employees can even claim unemployment and keep their income for months!

For VPs and executives, layoffs solve multiple problems at once: they can eliminate underperformers without the messy documentation process, reduce headcount to hit financial targets, and maintain the narrative that they’re making “tough but strategic decisions” rather than admitting they failed to manage performance effectively.

The bitter irony? Getting laid off is often better for the employee than being fired. Layoffs typically come with severance, extended healthcare, and the ability to say you were “affected by restructuring” rather than “terminated for cause.” You get more time to find your next job, and your professional reputation remains intact.

This creates a system where companies find it easier to fire good employees in bulk than to fire bad employees individually. The legal protections meant to prevent arbitrary termination end up enabling exactly that, just at scale.

For visa workers, the math is even more stark. When fired for performance, H-1B and other visa holders typically have just 60 days to find new employment or leave the country. But when laid off, they get severance time plus the 60-day grace period, often giving them 3-6 months to secure new sponsorship. For someone whose legal status depends on employment, layoffs are significantly more humane than performance-based termination.

The AI efficiency narrative provides the perfect cover for these layoffs. Companies can frame headcount reduction as “leveraging AI to increase productivity” or “optimizing for the future of work.” It sounds forward-thinking and strategic rather than admitting they failed to manage performance or simply want to cut costs. Whether AI actually replaces the laid-off workers’ productivity is rarely measured or proven, but the narrative sells well to investors and the media.

The pact is broken

The pact is fundamentally broken. Instead, a new pact has been formed:

1. Be afraid, because we’ll randomly fire any % of you.
2. We’ll pay you less than market.
3. You’ll have amazing benefits.

Understanding the Trade-offs

Rather than prescribing what people should do, I think it’s worth understanding the game theory at play. If exceptional performance only nets a negliglible level of improvement while layoff risk remains constant, rational actors might consider:

1. Focus energy strategically. When reward differentiation is minimal, investing extra energy in building external networks and transferable skills may provide better long-term returns than purely internal recognition.

2. Maintain financial cushions. Regardless of performance level, keep emergency funds for unexpected transitions.

3. Keep options open. Whether this means networking, skill development, or periodic market checks depends on your personal risk tolerance and career goals.

The optimal approach depends on your individual circumstances, risk tolerance, and what you value in a career.

Would I work for Microsoft today?

The Microsoft I joined no longer exists today.. The implicit contract that made lower compensation tolerable — stability and job security — has been broken. What remains is a company that pays below market rate while offering the same job insecurity as anywhere else.

For current and prospective Microsoft employees, understanding this new reality is crucial. The company still offers excellent benefits, interesting technical challenges, and the prestige of working at a tech giant. But the days of trading pay for security are over.

Would I return to Microsoft knowing what I know now? Maybe. But it would be with a completely different mindset than my first time around. I’d go in understanding that it’s a traditional job with traditional job insecurity, not the stable career haven I once believed it to be. I’d negotiate harder on compensation, knowing there’s no stability premium to justify below-market pay. And I’d never again make the mistake of believing that good performance alone guarantees job security.

The Microsoft of today can still be a great place to work, if you go in with realistic expectations and plan accordingly.

A Note on Perspective

I want to be clear about something: I’m not bitter about my time at Microsoft. I learned enormously, worked on products used by millions, built lasting relationships, and gained experience that directly contributed to my current success. Microsoft gave me opportunities I’m genuinely grateful for, and I have tremendous respect and admiration for many of the people I worked with there.

This analysis isn’t about personal grievances. It’s about a structural shift that affects how people should think about employment decisions. The same way you’d analyze any investment or major life choice, understanding the changing risk/reward profile at Microsoft (or any company) is just rational decision-making.

Many people thrive at Microsoft today and will continue to do so. The goal isn’t to discourage anyone from working there, but to help people make informed decisions based on the current reality rather than outdated assumptions about job security.