Microsoft shares up 16% in 1 month ahead of job cuts

Microsoft shares have climbed nearly 16% over the past month as the tech giant announced plans to reduce its workforce by 3%, impacting over 6,000 employees globally.

The layoffs, the second-largest in Microsoft’s history, are part of a broader effort to streamline operations and adopt a flatter management structure aimed at increasing operational efficiency, as reported by CNBC.

The company confirmed that the layoffs will affect multiple departments and geographical locations, with a significant portion of the impacted employees expected to be from middle management roles, according to a report by Business Insider.

The restructuring effort is aligned with Microsoft's intention to create a more streamlined hierarchy, with the objective of reducing the "PM ratio" – the proportion of managers to engineers across teams. This move is expected to enable Microsoft to focus more on core engineering and artificial intelligence initiatives while minimising managerial overhead.

According to a statement released by Microsoft to CNBC, the company seeks to implement organisational changes necessary to best position the company for success in a dynamic marketplace.

Microsoft emphasised that the restructuring is part of a broader industry trend observed across major tech firms, including Amazon and Meta, where similar layoffs targeting middle management roles have been executed in recent months.

The layoffs come after CEO Satya Nadella previously hinted at the possibility of restructuring during the company's quarterly earnings report in April, where he indicated that sales execution changes could be implemented following lower-than-expected growth in non-AI Azure cloud revenue.

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In addition to the layoffs, Microsoft has introduced a new performance management framework designed to address underperforming employees more aggressively, Business Insider reported.

Internal documents viewed by the publication reveal that the company has implemented a two-year rehire ban for employees terminated due to performance-related issues. Moreover, Microsoft has adopted a "good attrition" metric aimed at identifying and tracking underperforming staff.

This approach mirrors Amazon’s "unregretted attrition" policy, signalling a more assertive stance on performance management across the organisation.

Under the new system, employees facing performance challenges will be given two options: enter a performance improvement plan (PIP) with specified timelines and objectives for improvement, or accept a "Global Voluntary Separation Agreement," which includes 16 weeks of severance pay, Business Insider noted.

Those opting for the PIP will have only five days to decide and will forfeit the severance package if they choose the improvement plan and fail to meet the set targets.

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Additionally, reports by Business Insider indicate that affected employees will remain on the payroll for 60 days post-termination and will be eligible for certain bonuses and rewards. Microsoft’s restructuring initiative also includes efforts to centralise certain business functions and reduce redundancies across overlapping divisions.

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