Microsoft Implements Controversial Performance Review System Amid Recent Layoffs
Anonymous whistleblower reveals drastic changes to Microsoft's employee evaluation process as tech giant tightens performance management.
In a significant development that has sent shockwaves through the tech industry, an anonymous Microsoft employee has revealed controversial changes to the company's performance review system for 2025 to CTOL.digital. The whistleblower disclosed that many large orgs in Microsoft have implemented a more stringent performance rating structure that effectively eliminates mid-range performance categories, forcing employees into either high-performing or underperforming classifications.
According to this internal source, Microsoft has fundamentally altered its performance rating system by restricting the use of both "120%" ratings (previously meaning "exceeded expectations") and "80%" ratings (previously indicating "below expectations"). Under the new system, the standard "100%" rating has been downgraded from "consistently meets and sometimes exceeds expectations" to merely "significant impact," creating a narrower pathway for employees to meet satisfactory performance standards.
Most alarmingly, the whistleblower revealed that every large team must now have members rated at "60%"—a classification that automatically triggers a Performance Improvement Plan , often a precursor to termination. This change comes just days after Microsoft announced one of its largest workforce reductions in recent history, laying off approximately 6,000 employees (about 3% of its global workforce) on May 13, 2025.
The timing of these performance review changes raises questions about Microsoft's workforce management strategy, particularly as the company reported strong Q1 2025 financial results with net income of $25.8 billion (an 18% year-on-year increase) and total revenue up 13% to $70.1 billion.
Performance Rating Policy Table
| Rating (%) | Previous Meaning | New Meaning / Policy | Impact on Team Distribution |
|---|---|---|---|
| 140 | Exceptional Impact | Exceptional Impact (very rare) | Triggers multiple 60% ratings on the same team, leading to PIPs |
| 120 | Exceeded Expectations | Almost Not Allowed | Removed to prevent rating inflation |
| 100 | Consistently Meets + Occasionally Exceeds | Significant Impact (now default) | Standard mid-range rating |
| 80 | Below Expectations | Restricted / Rare Use | Use minimized and monitored closely |
| 60 | Low Performance | Performance Improvement Plan (PIP) | Mandatory for underperformers; at least one per large team |
Key Takeaways
- Microsoft has nearly banned both "120%" (exceeded expectations) and restricted "80%" (below expectations) performance ratings
- The standard "100%" rating has been downgraded in meaning from "consistently meets expectations" to "significant impact"
- Every large team must now include employees rated at "60%," automatically placing them on Performance Improvement Plans
- These changes follow Microsoft's recent layoff of approximately 6,000 employees (3% of its workforce)
- The whistleblower suggests this represents a return to "forced distribution" or stack ranking policies
- Performance reviews typically occur between May and September, with ratings finalized in July-August
Deep Analysis
Microsoft's apparent return to forced distribution in its performance evaluation system signals a significant shift in corporate culture under continued pressure to maintain growth and profitability in an increasingly competitive tech landscape.
The elimination of the "120%" rating category suggests a strategic move to control compensation costs and limit promotion opportunities. By restricting recognition of overperformance, Microsoft can potentially contain salary increases, bonuses, and stock grants that typically accompany higher performance ratings.
Similarly, the restriction of "80%" ratings creates a harsh binary between acceptable performance and performance that puts one's job at risk . This elimination of nuance in performance assessment could create a more stressful work environment where employees feel they're either completely safe or in imminent danger of losing their jobs.
Industry experts note that such aggressive performance management approaches typically correlate with:
- Increased employee stress and reduced morale
- Higher voluntary turnover rates as employees seek environments with more balanced evaluation systems
- Reduced collaboration as team members are forced to compete against each other
- Potential legal and regulatory scrutiny regarding fair employment practices
The timing of these changes—following closely after significant layoffs that disproportionately affected software engineering roles—raises questions about Microsoft's workforce strategy in relation to its AI initiatives. CEO Satya Nadella recently revealed that AI now writes up to 30% of code in some Microsoft projects, and a Microsoft VP had reportedly urged teams to increase AI-generated code from 20-30% to 50% shortly before engineers were let go.
This performance review system overhaul may represent an additional mechanism to further reduce headcount beyond the recent layoffs, particularly by using PIPs as a pathway to termination for employees who survive the initial cuts but are subsequently rated at 60%.
Did You Know?
- Microsoft's performance ratings (60%, 80%, 100%, 120%, 140%) refer to individual performance impact relative to expectations, not the percentage of staff in each category
- The recent May 2025 layoffs marked Microsoft's second-largest job reduction in company history
- Despite these workforce reductions, Microsoft's stock price reached $449.26 after the layoffs—the highest price of the year
- Microsoft's layoffs are part of a broader tech industry trend, with over 61,220 tech employees laid off across 130 companies so far in 2025
- The Faster CPython project team at Microsoft was largely dismantled during the recent layoffs, with team members receiving notices while en route to a Python conference
- Performance ratings at Microsoft are typically finalized during "calibration sessions" between July and August, where managers meet to assign ratings across teams
- AI initiatives appear to be reshaping Microsoft's workforce needs, with the company aiming to automate routine coding tasks previously performed by human engineers
- The whistle blower also mentioned there will be another HUGE wave of layoff at Microsoft in June to August.
This significant shift in Microsoft's performance management approach could potentially reshape the company's culture and workforce composition in the coming years, as employees adapt to a system that appears designed to identify and remove perceived underperformers while limiting recognition and rewards for top contributors.