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Many companies of MSFT's size get around a lot of the hiring thickets pretty easily: by simply contracting the folks they need, then letting those contracts expire to vent off any excess headcount when the budgets crunch down. I wouldn't be surprised if MSFT (or any big corp for that matter) has been doing this the whole time. It lets them avoid headlines with the word "layoff" in them, and appear more stable than they actually are staffing-wise.
This also gives them the advantage of not having to pay benefits, stock options, etc.
To be sure, there are strict rules regarding how they do this (e.g. individual contracts not lasting longer than 18 months w/o the contractor taking a 6 month break). But for a lot of functions, it makes perfect (albeit perverted) sense to do it this way.
/P
Few contractors are contracted on an individual basis - most go through agencies (and in many cases, those agencies are the only way you're going to get into the slot). This means that the agency swipes a large chunk of the take (e.g. a contractor budgeted for $120/hr will only see $75/hr on average). Contractors more often than not get no benefits (medical, dental, stocks, etc). Given all of this, it stands to logic that a company who is dying for more fuill-time employees would opt for the temp-to-hire/contract-to-hire route instead of mere term contracts.
It's still a slippery enough term that it can mean either, or both. So, if a company is saying that it is hiring, but only takes on new contractors while letting go of those whose contracts have expired (even in larger numbers), they would be technically correct -- even if the total headcount is shrinking.
see what I mean?
BTW: This isn't a MSFT-only thing. Intel and IBM are notorious for similar things.
- by mbenedict November 19, 2008 3:48 PM PST
- I've made a career of being a "contractor" for very large enterprises. Normally large companies don't hire contractors to fill specific job openings, or to avoid paying benefits, or to appear "more stable" than they are.
- Like this Reply to this comment
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(6 Comments)Instead, contractors are associated with capital projects. "Project" in this meaning is a specific work package that has a definite beginning, a definite end, a strong business case, an approved budget, and an executive internal sponsor.
A project at Microsoft could be (for example) to revamp their internal sales structure to make the sales team more competitive during difficult times. Such a project could involve changes in the way sales incentives are allocated, changes to the team reporting hierarchy, changes to the accounting process, as well as supporting IT (software/hardware) changes. If the new sales structure could generate an additional $50MM in profits then they'd be more than happy to spend $20MM.
It doesn't make sense for companies to hire a ton of new employees for a project, since the project has a definite end. So enterprises will create a "project team" mostly from large consulting firms, plus some internal resources and other key personnel. These consulting firms then staff the project with their own employees and/or outside contractors. Some of the consulting firms have specialized knowledge (be it finance, CRM, security, project management, etc.) Others firms are simply body shops / staffing companies. There might be on-site or near-shore or off-shore components as well.
So contractors (and consulting firms) make most of their money of capital budgets for various projects. When the project is finished, the work is "transferred" back to the company, and the contractors "go away".
Of course: 1) enterprises often already have relationships with key individual contractors and tend to involve the same "trusted" people in various projects. 2) Sometimes there are exceptions, such as hiring a contractor to "backfill" for someone on maternity leave, or to temporarily add capacity, etc., but these aren't the bulk of contract work for large enterprises.
Just to give an idea, my last two projects had a budget of over $200 million each. Needless to say there were a lot of happy (but overworked) contractors working on those these projects, over the period of a several years. Top contractors easily take in double or triple what the average employee makes.
The downside is on a declining economy, new projects are not going to get approved unless they offer a huge cost saving (such as dramatically reducing the need for full time employees.) Existing projects might get severely curtailed just to the bare essentials. So when the projects get canceled, contractors are often the first people out of the door.
This might give the wrong impression that enterprises use contractors as a way to reduce staffing without having to pay benefits, etc. But really it's just a function of the underlying projects being curtailed or canceled altogether.