Microsoft’s plan to significantly boost merit-based raises and stock-based compensation for its employees and middle managers shows just how challenging it has become to keep a tech workforce intact given the larger dynamics playing out in the global economy and the job marketplace.

“You’ve got really high inflation, and you’ve got this intense talent war going on concurrently. And so they said, ‘OK, we’ve got to up our game here,’ ” said Doug Sayed, founder and managing principal at Applied HR Strategies Inc., a compensation consulting firm based in Seattle, referring to Microsoft’s plan.

Factors creating a more fluid labor market include the influx of Silicon Valley engineering centers into Seattle over the past decade, and the more recent shift to remote work, giving tech workers many more options than in the past.

“If you’re fighting for talent in software development, AI, and data science, while inflation is roaring, you’re going to have to make a course adjustment, and I think that’s what Microsoft did,” Sayed said.

Those are some of the takeaways from compensation and recruiting experts after Microsoft CEO Satya Nadella announced the compensation changes in an email to employees Monday morning. The changes appear to be more focused on retaining existing employees than on sweetening offers for new recruits.

“This is the most highly competitive labor market we’ve had in our lifetimes, probably,” said Garry Straker, senior compensation consultant at salary.com. “There’s a lot of people who are changing jobs, and in so doing, they’re seeing more rapid wage growth than people who stay in their jobs.”

Whereas companies last year were looking at cost of living salary increases in the 3% to 4% range for 2022, it’s now getting up into the 5% to 7% range in many cases, largely due to inflation, Straker said.

“Microsoft is probably experiencing some of that, and they’re recognizing, ‘You know what, we need to keep the good people we have.’ ” Straker said.

That strong focus on retention is one of the ways that Microsoft’s move differs from Amazon’s decision in February to more than double its maximum base pay for corporate and tech workers to $350,000.

Amazon’s move was about both recruiting and retention, keeping existing employees and making job offers more competitive. Amazon previously capped base pay at $160,000, relying heavily on stock as part of compensation.

Under the plan announced this week, Microsoft will nearly double its global budget for merit-based salary increases, and increase its range for annual stock-based compensation by at least 25% for employees at the senior director level and below.

The changes come as the stock market decline diminishes the value of stock-based compensation. Shares of Amazon are down more than 36% in the past six months. Microsoft shares have declined 22% over the same time period, against a backdrop of a 25% decline in the broader NASDAQ Composite Index.

“Given high inflation, increased competition for talent, and the risk of pay compression, many organizations are reviewing their compensation structures and investing more in compensation strategy, data, and management practices right now,” said Lexi Clarke, Head of People at compensation software and data company Payscale, in an email to GeekWire following Microsoft’s announcement.

“It’s good to see this from the Seattle tech market,” Clarke added. “Seattle and other West Coast tech hubs are usually leaders in wage increases, but have been lagging behind other metro areas in the last few quarters according to Payscale Index.”

In addition, she said, it’s “encouraging to see the increased emphasis on pay transparency. From our research, we know that perception of fair pay has a huge impact on retention. It’s also great to see organizations talking about total rewards, including equity and benefits, but can also include workplace flexibility.”

In his email message to employees, Nadella directly referenced the labor market.

“Time and time again, we see that our talent is in high demand, because of the amazing work you do to empower our customers and partners,” he said.

At the same time, Nadella sought to move the conversation beyond compensation.

“People come to and stay at Microsoft because of our overall deal — our mission, our culture, our values, the meaning they find in the work they do, the people they work with, and their compensation and rewards,” he wrote. “We think holistically about this deal. Our mission and purpose as a company have never been more timely or more important. And our culture underpins everything we do.”

Companies without the financial resources to go up against the likes of Microsoft and Amazon should focus more on culture, work-life balance and other intangibles an attempt to stay competitive, said salary.com’s Straker.

“A knee-jerk reaction may be, in the long-term, a real challenge for organizations,” Straker said, “because once you put it into base pay, it’s there. It stays.”