Microsoft’s ultimatum for underperforming employees: 16 weeks’ pay or PIP

Following its announcement of major layoffs in May, Microsoft has introduced a payout scheme targeted at underperforming employees, according to a report by Business Insider.Under the new structure, employees identified as low performers will be given the option to voluntarily resign in exchange for 16 weeks of pay. However, they must decide within five days of receiving the offer.

Those who choose not to accept the payout will be placed on a performance improvement plan (PIP), a move that significantly increases their risk of termination. Notably, employees who opt for the PIP route will not be eligible for the payout.

Earlier this month, ET reported that Microsoft’s ongoing job cuts are part of an effort to streamline its organisational structure. Amy Coleman, Microsoft’s chief people officer, described the process as “transparent,” emphasising that the company is attempting to address performance-related concerns with clarity.

Additionally, employees who begin the PIP process but choose to leave mid-way—or are let go afterward—will be barred from rejoining Microsoft for two years. They will also be ineligible for internal transfers during that time.

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According to data from layoff tracking platform Trueup, 234 cuts have already occurred in the tech sector this year, impacting 45,656 employees—an average of 439 people per day.

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By comparison, 2024 saw 1,115 layoffs with 2,38,461 people affected, averaging 653 layoffs daily.While the company continues to expand its AI and cloud footprint, recent financial results highlight both growth and pressure. Microsoft’s Azure unit reported 31 percent revenue growth in the fiscal second quarter—slightly below Visible Alpha’s estimates of 31.8 percent for FY24.

Similarly, revenue for the Intelligent Cloud division, which includes Azure, reached $25.54 billion, missing expectations of $25.76 billion. Despite these shortfalls, Microsoft’s overall revenue rose 12 percent year-over-year (YoY) to $69.6 billion, surpassing the consensus estimate of $68.78 billion, according to data from LSEG.

The layoffs and restructuring efforts reflect Microsoft’s broader ambition to lead in the AI space while managing rising costs and ensuring its workforce aligns with its evolving strategic goals.

Microsoft has yet to issue an official comment on the recent developments.

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