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Microsoft Cuts Buildings to Spare Staff

Microsoft does not appear to be considering a major round of layoffs at this point, despite a string of rumors floating around on the blogosphere, some of them openly hoping for them.

Although that expectation could change, right now the company appears to be taking the tactic of reducing its rate of growth in office space instead of laying off workers.

By doing this, the company can spare cutting its team and will likely continue to follow the 20/70/10 rule, otherwise known as "rank and yank," that Jack Welch popularized while he was the chairman of General Electric. The theory goes like this: 20 percent of your people are vital; keep them where they are, 70 percent are doing well enough, and 10 percent are either in the wrong job within the company or should leave the firm entirely.

Or, Microsoft is simply holding the line on new hires.

"I don't think a massive layoff is in the cards. I could be proven wrong but it's not what the company has done historically," said Rob Helm, analyst with Directions on Microsoft. "They've always done targeted cuts and used rank and yank to keep turnover steady."

The company has 94,000 employees, half of which are in the Redmond and surrounding areas, the other half scattered around the world. The company owns 72 sites and leases another 53 facilities in the Seattle area, but the Seattle Post-Intelligencer reports that Microsoft plans to let a number of leases lapse and postpone construction of new buildings.

Microsoft (NASDAQ: MSFT) will let five leases expire in the Seattle area this year and four more next year. Construction work under way will be completed, but projects not yet begun won't go until 2012. This could allow Microsoft to say $82 million in this fiscal year, which ends June 30, and $525 million next fiscal year.

Microsoft's second quarter earnings are due on Thursday, January 22, and the company is expected to make the announcement on the conference call with financial analysts. For now, a company spokesperson issued this statement:

"Like any well-managed business, we routinely check our assumptions and planning needs against our assessment of the economic environment. As part of this process, which we undertake quarterly, we look at many scenarios and options. I can confirm that as some leases expire, we will not renew them. It was our plan all along to move the people in many of those buildings to the new construction that is nearing completion on campus and in Bellevue, and to our Westlake/Terry facility in Seattle. In light of the economic situation, we will also delay some planned construction on the north part of our campus."

Helm said that while employees are being spared now, except maybe the bottom 10 percent, slowing construction is an indicator of where the company is going. "Buildings reflect their plan over the next few years not to hire as much and maybe accelerate the rate at which they let people go. So think the buildings are a leading edge of a strategy which is to slow head count," he said.