Big Tech Overhauls Compensation: Top Performers Rewarded, Underachievers Scrutinized

Big tech companies, including Amazon, Google, Microsoft, and Meta, are reshaping their compensation models to reward high-performing employees while scrutinizing and potentially eliminating underachievers. This shift is driven by a desire to optimize performance and reduce costs amidst a changing economic landscape and the aftermath of a pandemic-era hiring spree. Amazon, for instance, has introduced a new system where long-term top performers can receive up to 110% of their pay band, surpassing the previous 100% cap. However, first-time top performers will see their total compensation reduced to 70% of the pay range, down from 80% in the past. This change aims to create a clearer differentiation between newer and consistently high-performing employees, ensuring that long-term loyalty is rewarded more substantially. Managers at Amazon have been provided with talking points to handle questions about pay cuts, emphasizing that improved performance will generally lead to raises. Google has also adjusted its performance ratings to allow a greater number of employees to achieve top rankings, which come with bigger bonuses and equity packages. This aligns with the company’s strategy to prioritize excellence and ensure that high performers are appropriately incentivized. However, these benefits are often offset by reduced rewards for lower-rated employees, intensifying the pressure to excel. Microsoft has introduced enhanced performance management policies and increased transparency in the rewards process. The company has already laid off 2,000 employees considered underperformers this year, signaling a more stringent approach to workforce quality. Meta’s approach includes an annual "non-regrettable attrition" policy, targeting approximately 5% of its lowest-rated staff for performance-based cuts. Even some high performers are finding themselves on internal block lists, preventing rehiring, which adds an additional layer of concern for current employees. One notable trend is the reduction in salary offers for new hires. Data from Levels.fyi indicates that Amazon’s mid-level software engineer offers have decreased from over $300,000 annually in 2022 to around $270,000 today. Recruiters are now more cautious about granting higher offers, often requiring extra approvals. Similar reductions are observed at Meta and Apple, reflecting a broader industry shift toward more conservative hiring practices. The tightening of compensation and the increased emphasis on performance have led to varied reactions among tech professionals. Some employees at Amazon expressed frustration on an elevator whiteboard, criticizing the lack of raises and stock awards. The Atlanta Fed’s Wage Growth Tracker shows that median pay increases for job switchers dropped to 4.2% in February, a significant decline from 7.3% earlier in 2023. This reflects a weakened job market where tech workers’ bargaining power has diminished. Despite the clear trend, some experts, like Peter Capelli, a management professor at the University of Pennsylvania, argue that these changes might be temporary. Capelli suggests that companies often follow such practices due to industry peer pressure rather than a fundamental belief in their efficacy, noting that these trends tend to cycle through every decade or so. While it remains to be seen if this new approach will become a permanent fixture in the tech industry, it underscores a current push for greater efficiency and performance optimization. Overall, the tech industry is clearly recalibrating its compensation strategies to focus more on high performers and less on headcount. This shift is intended to drive productivity and maintain financial health, but it also introduces new challenges and uncertainties for both current and potential employees. As these companies continue to refine their approaches, the dynamics of the tech job market are likely to evolve, potentially leading to a more competitive and performance-driven environment.