Microsoft Cuts Total Pay for Silicon Valley Workers

Under the new pay system, which will take effect in August, San Francisco and Silicon Valley workers will receive a 15 percent differential or bonus, on top of their regular salaries, instead of the current 25 percent premium.

While the changes will amount to a pay cut for these workers, Microsoft stressed that the differential was never presented as a permanent salary increase.

The company, which also pays its New York City employees a 15 percent differential, first offered workers in Silicon Valley a similar 15 percent premium in February of 2000. But as soaring Internet stock prices and the promise of lucrative stock options lured many of its talented workers away to start-up companies, it decided in November of that year to raise the geographic differential to 25 percent.

Although this additional money helps workers pay for homes in one of the most expensive housing markets in the country, Microsoft says its real purpose was to help the company retain its talent.

After a year of recession, housing prices here have fallen only moderately but the job market had changed dramatically in Microsoft's favor. A company spokeswoman says voluntary attrition among Microsoft employees in the San Francisco Bay Area has fallen from close to 30 percent when the geographic differentials were put into place, to less than 10 percent today.

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