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They Gotta Go

Things are happening in Redmond.


REDMOND (BusinessWeek) -- Microsoft are in trouble. Far worse trouble than the pundits imagined. Employees are getting fed up and seeking careers elsewhere, and those that remain are highly critical of their management - in particular Bill Gates and Steve Ballmer.

BusinessWeek's cover story this week is all about Microsoft. The industry watchdogs notice more and more how key players are going off to Apple and Google, how Microsoft missed opportunities left and right, how their stock is in trouble, and so forth.

This coupled with the year old 'Mini-Microsoft' blog paints a picture of the Redmond giant from within that few outsiders have been privy to up to now.

While key players move on to other corporations, those left behind are increasingly disappointed in the way management cut them out of benefits and stuff more money into their own pockets.

Microsoft stock has been at a standstill for three years, and employees with options stand to lose money if they cash in - all the while they claim the higher ups in Redmond have been engaging in 'insider trading' like the term was going out of business.

The Ballmer

A lot of the blame is placed on current CEO Steve Ballmer. Microsoft have always been a 'come from behind company', and in the past they always succeeded in coming from behind but since 2000 when Ballmer took over they've been slipping.

Stock price has dropped 40% during the Ballmer years and growth in revenue has dropped from an average of 36% to just over 8% for the year ending 30 June - the first time Microsoft have had 'single digit growth'.

Insiders are also troubled by the slow rate of product development - now the responsibility of Bill Gates himself. Gates introduced something he calls 'integrated innovation' which diverts an immense amount of time into meetings to make sure products are in sync and as a result leaves too little time for their actual development.

Futons

It's not a closely guarded secret that all employees are expected to have futons in their offices and sleep over during crucial deadline periods. There's no rule against not working 25 hours a day, but in the past one might find oneself overlooked for promotion or even set out to pasture if one didn't.

Today things are different. 'At this point there's a traffic jam at 9 o'clock in the morning and 5 o'clock at night', says an ex-employee.

Cutting Back

With revenues slowing, Ballmer decided to cut corners at the bottom level - to the tune of $2.6 billion in operating expenses. He did this by, amongst other things, slicing health benefits - not exactly a popular move.

The company used to have a towel service for workers who used locker rooms after bike rides or workouts; this was cut as well. Employees were furious.

Salaries have always been sub-par at Microsoft, but the carrot was always the stock options. Today that carrot is worthless. Between the IPO in 1986 and 2001 the stock climbed 61,000% [sic], but now they're trading at exactly where they were seven years ago.

Microsoft have doubled their payroll in those seven years, adding over 30,000 new employees, meaning more than half the employees have received no benefit from their options - they're back working for a sub-par paycheck and little else.

While the old timers have treasure chests of options, the newcomers have nothing, and a new pay scheme which goes into effect this year will make the gap even wider.

According to the new scheme, the 120 vice presidents can receive $1 million in salary per year if they meet incentive goals; general managers can get between $350,000 and $550,000 - and the rest of staff continue as before.

Bells and Whistle Blowers

Microsoft use a 'bell curve' rating system to see who qualifies for perks. Employees are rated per group so that the number of overachievers is matched by the number at the bottom. No matter how successful the group, if someone gets a high score, someone else has to be given a low one.

And Microsoft are not getting the new talent like before. At a recent MIT meet, students lined up six deep to talk to Google recruiters, while all told only two approached the Microsoft booth. At Carnegie Mellon the message is the same, with most students eager to sign with Google or Yahoo.

And then, as if things weren't bad enough already, a clever employee manages to get online anonymously and start spilling the beans.

'Mini-Microsoft' has been online for over a year. Mini's a he, and BusinessWeek have met him.

Mini's a Microsoft employee. He keeps his identity a secret for two reasons. If Gates and Ballmer were ever to find him out, he'd be fired on the spot. Moreover he doesn't want his observations and opinions easily dismissed.

And it seems to work. Mini's blog, minimsft.blogspot.com, is frequently largely by other Microsoft employees who are also there anonymously. And while there are those who choose to defend the current corporate leadership, most voices are highly critical, even calling for the resignation of Bill Gates.

As they say themselves, they're a new generation, they weren't mixed up in the DOJ and other scandals, they resent management giving away billions in settlements because of the way they've behaved, they resent the motivational videos and the Ballmer mass mailings, and they resent being talked to about ethics by the very people who became notorious throughout the industry.

They're disappointed in the missed opportunities and in the way more and more perks are given to higher ups while they're left with nothing. They're tired of their 14 - 25 hour working days and their stock options being worth less than when they joined the company.

They have Ballmer's overblown rhetoric coming out of their ears. They avoid meetings and delete motivational mail. They're cynical.

But they're also optimistic. They feel the company can survive but that it's at present in hopeless shape. They'd like to be able to turn it around. They feel it can be turned around if both Gates and Ballmer are gone.

Which might be difficult: even though Gates and Ballmer together own only 12% of Microsoft stock, they have the full backing of the board.

Said one board member of Ballmer: 'he is one of the best leaders I've observed over the last four years I've been on this board, and the board stands in full support of him and his efforts.'

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