Mandatory Paid Time Off: Microsoft’s Idea for Your Company’s Benefits Program

Fred WhittleseyConscious Compensation: The Impact Compensation Blog

Last year, Microsoft’s then-new CEO Satya Nadella made an early misstep when he said that female employees should not ask for a pay increase but should “trust the system” and that would result in “good karma” – for which he apologized a few hours later in an email to all Microsoft employees.

Contrast that with today’s announcement that Microsoft will require most of its US suppliers to provide their employees with 15 days of paid time off (vacation and/or sick days). This time it was the company’s General Counsel making the communication in a written Microsoft blog – perhaps a more controllable medium that the CEO’s real-time interview remarks.

One other data point to consider before I connect the dots: Microsoft has long used a large number of non-employee independent contractors to get work done, keeping those workers off of its fixed payroll and benefits cost structure, increasing its staffing flexibility, and likely contributing to profitability.  Interestingly, another of Mr. Nadella’s early moves was to announce that these “contingent workers” would be subject to a new policy preventing them from accessing Microsoft’s buildings and networks for a period of 6 months after every 18-month period working for the company. Microsoft’s COO said the purpose of this move was to “reduce our reliance on contingent staff augmentation.” This was labeled by some critics as a “shadow layoff” – essentially a layoff of workers in the shadows.

To clarify, many of the independent contractors are employed by a company that contracts to Microsoft, i.e. a “supplier” –  confusing, I know.

Microsoft acknowledges that this mandate could increase suppliers’ costs and Microsoft says it will “work with them” and “address these issues” – which does not mean that Microsoft will absorb the new layer of costs incurred by the suppliers. Cynical me, I doubt that they will.

We don’t know where Microsoft got the idea to require suppliers to provide paid time off.  The City of Seattle has had a mandatory sick time policy since 2012. It’s likely that some Microsoft suppliers are already subject to this policy by virtue of their location.  (Microsoft’s main campus is outside of Seattle, in Redmond.)

Now, contrast this with Microsoft’s approach:  You, our supplier, must increase your cost structure to provide your employees with this benefit and we’ll “work with you” to “implement these changes.”  Wow, thanks Microsoft!

Don’t get me wrong, I’m a big supporter of companies that consider all of their stakeholders and the value relationship with those stakeholders. But I prefer when market forces compel innovations rather than government mandate.  I’m not sure that Microsoft’s bullying of suppliers is any better than a government mandate. We expect government to do a little bullying here and there, telling me how to run my company.  But I really don’t want my customer telling me how to run my company, outside of legal, ethical, and moral considerations. (Disclosure:  Microsoft is not a client of my firm, and never has been.) (Disclosure:  Our technology is 100% Apple.)

Conscious companies don’t want to do business with suppliers, customers, partners, or employees that don’t share their values.  Those are free market choices.  But to impose those values through single policy position is altogether different.  What if I’m a supplier that pays double the market salary to my employees to make up for my lack of a paid time off policy?  What if I, like many companies, have an “unlimited” paid time off policy and doesn’t even track “work” versus “absent” days?  What if instead of paid time off my company gives employees twice as much value in company stock than Microsoft gives to its employees?

I don’t expect the City of Seattle to address these nuances. But Microsoft is sophisticated enough to understand the vast range of total compensation strategies in the market.  If a supplier is providing an inadequate total pay program wouldn’t it, over time, result in poorer quality employees and work performance, poorer quality work and service to Microsoft, and be self-correcting?  There’s my free market optimism.

Market theory aside, it seems to me that a supplier policy like this could create some really bad karma.