Microsoft rubs up to employees with free towels to try to stop talent drain to Google

Microsoft has unveiled its secret weapon in the intensifying battle against Google: free towels for staff.

The company is introducing a raft of perks aimed at improving morale at its headquarters in Redmond, Washington state, and halting a drain of talent to its upstart search engine rival in California.

Steve Ballmer, Microsoft's chief executive, has also agreed to scrap a controversial bonus scheme, introducing a new system for performance-related pay and raising employee stock awards by 15 per cent.

Less than 10 years after it was formed, Google has usurped Microsoft as the employer of choice for computer science graduates. As Google was expanding its university campus-style "Googleplex" in Palo Alto - where staff perks include three free meals a day in a choice of healthy-eating canteens, and a free laundry service - Microsoft was cutting back.

Its employees assembled for a "town hall meeting" to discuss the new deal reserved their biggest round of applause for the return of free towels to the locker room. Their removal in 2002 had become a symbolic gripe among the dozens of anonymous employee blogs that sprung up to complain about deteriorating morale.

So the towels are back. And there will also be new services, such as dry cleaning and take-away meals designed by the chef Wolfgang Puck.

The bonus scheme was based on a points system where the number of employees who can receive a top score is fixed, forcing managers to give a lower score to a worker even though they might have performed at the same level as a peer. It will be replaced with a "commitment rating" and larger numbers of free Microsoft shares.

Larry Page, Google's co-founder, said last week that staff morale was a key test of their success and their future prospects. "Is Google a place where people want to work? A place for computer scientists fresh out of college and full of excitement? If the answer is ever not 'yes', then we have done something wrong."