The takeaway is that layoffs are extremely trust destroying for employees NOT laid off, and in the end not clear they're a financial net positive. Both with direct and indirect costs (lack of engagement from employees, etc).
It takes long time for the layoff effects to hit the company.
The main effect is that you lose the trust of the top performers. These will be the in the lookout for new opportunities the day after the layoffs are done. If you cut 10%, expect 10% from the top to flee within a couple of years.
The second effect is related to the fact that companies usually target older people with expensive jobs. In an a big org these are the wizards who have the unwritten cookbooks in their brains. When they leave en masse, a lot of the organizational memory is gone, and expensive operational mistakes of the past are forgotten. These have longer effects that will haunt the company for many years.
The only way you can safely pull off layoffs is if you ensure that anything you do in the company requires the experience of a boot camp. That means that everyone is fungible and you can easily swap them.
And this is what tech did better than any other industry. The average required know-how depth of a tech white collar worker is easily two three levels below when compared to other industries. Pharma and chemicals come to mind from personal experience.
I worked at a bigco that followed this approach. I think the alleged fungibility of programmers is surface-level.
Sure - ~any decent programmer can jump into ~any codebase and do your JIRA tickets. But there's a more holistic ownership you miss out on that's going to be the difference between a system aging gracefully and a system becoming a giant hunk of butchered junk that's been one-small-jira-ticket-ed to death over a decade and now needs a very costly and distracting replacement/rewrite.
I worked at a different company that did the opposite of this. Programmers were expected to stay either 1 year or 10 years, and you'd be compensated according to which bucket you were falling into. They had excellent retention rates, and the dev team was small, <30 engineers. We never rewrote systems. They had owners who had either written them, or been handed off apprenticeship-style over the course of a year or two from the former master to the new master.
Place 1 was a fucking mess of tech debt and had constant incidents that made high value customers mad, execs mad, and oncall engineers mad. One of my coworkers literally went into his first oncall shift, got paged at night three times in two days, and resigned the next morning when he found out that yeah this is just kind of normal and good luck convincing leadership to let us fix it.
Place 2 literally never had tech incidents. The worst oopsies were generally related to (it was a trading shop) other people in the market fucking up and resulting in trade breaks that we had to clean up after hours, or exchanges having problems and sending us garbage data that we had to resolve by calling someone from the exchange to confirm order statuses and so on.
I only left place 2 because I was moving across the country and they didn't do remote (and still don't, even post covid). I was laid off from place 1.
> The main effect is that you lose the trust of the top performers. These will be the in the lookout for new opportunities the day after the layoffs are done. If you cut 10%, expect 10% from the top to flee within a couple of years.
I don't know, but I imagine that there's a pretty substantial difference between an isolated layoff and an industry wide layoff. Maybe it hits differently when you get to see the sausage made.
Where is a top performer at Google going to go? I'm sure there's some companies out there that aren't doing layoffs right now, but most of those probably can't offer FAANG/MANGA salaries.
I think this is the logic that can make a company like Citadel, which fires 10% of their staff per year, work out well. If you have no expectation of job safety, it attracts a certain kind of person, but there's also no love lost if a layoff round is a little bigger than normal.
> The only way you can safely pull off layoffs is if you ensure that anything you do in the company requires the experience of a boot camp. That means that everyone is fungible and you can easily swap them.
Yes, and that's the number one thing successful small business owners learn. The ones who don't learn this aren't successful.
You want as many of your staff as possible to be easily replaced. If you're running a restaurant, do you really want the success of your restaurant to hinge on a single talented chef?
Nope. You make sure that there's a process so that another few chefs can drop in quickly without changing the menu or the quality of the food. All the other kitchen staff don't do "complicated", they follow instructions.
If the business depends on having developers that are in the top 5% (say, one of the criteria to working on the code is understanding Haskell with Monads), the business is at constant risk because the developers are not easily replaceable.
> The second effect is related to the fact that companies usually target older people with expensive jobs. In an a big org these are the wizards who have the unwritten cookbooks in their brains. When they leave en masse, a lot of the organizational memory is gone, and expensive operational mistakes of the past are forgotten. These have longer effects that will haunt the company for many years.
Is this true this round? I have noticed a few things:
* On the hiring front, much more demand for senior, staff, principal devs, less demand on the junior / intern front.
* (Anecdotally) A LOT of junior / new people laid off. It seems in this round companies want a small but elite force, rather than opting for junior people.
Things might be a little different regarding losing trust of top-performers when layoffs happen broadly across a sector.
If every semiconductor manufacturer reduces headcount by N%, there may not be much incentive for an engineer to jump ship. If only one of those companies doesn't lay anyone off, though, the dynamics are completely different.
Top performers are pets. You use layoffs to generate excess opex savings in order to retain them.
You guys are acting like companies are too dumb to think of these very basic concepts. I have personally witnessed discussions that can roughly be described as “ok we need to add an extra three people in order to fund retention for X.”
> The main effect is that you lose the trust of the top performers. These will be the in the lookout for new opportunities the day after the layoffs are done. If you cut 10%, expect 10% from the top to flee within a couple of years.
I've been through one of the tech layoffs that happened during the pandemic, so N=1 and all, but this was exactly what happened.
On the day of the layoffs, few top performers were affected. It was a classic layoff with an HR email and immediate lockout. Managers of affected people learned later. Some people learned they were being laid off after hearing it in mainstream media first.
After 6 months, many best performers (more than 10% in my opinion) have left after struggling with low morale. A lot of company knowledge was lost, portions of the codebase became unmaintainable, projects went from being certainly doable to being in perpetual uncertainty about cancellation. The responsibilities of the the top performers fell on less experienced people, some received promotions but buckled under the pressure in disruptive ways.
Two years later, the company is still rebuilding but has obvious competency gaps. There was also difficulty in filling them because HR was disproportionally affected by layoffs. The distrust in management persists and more than a few people are openly talking about leaving. Though the hiring in tech has cooled down which had a chilling effect on people leaving, too.
I am not sure about this (not disagreeing, just not sure). First, 10% of top performers out in 2 years is a normal attrition rate for a 20 year tenure. And I suspect mean time at the company is much lower.
But even more important, I think most top performers understand and accept the risk that their employment may end. For example, the company can fold. It is easier for top engineers to accept that because they likely have better connections and can pretty easily find a good job elsewhere. My 2c.
> The only way you can safely pull off layoffs is if you ensure that anything you do in the company requires the experience of a boot camp. That means that everyone is fungible and you can easily swap them.
This is an interesting way to think of the Leetcode style interview. If you don't require any particular experience and you have built your company's systems in a way that any "competent" developer can join and be effective, layoffs may not be such a big problem.
> The main effect is that you lose the trust of the top performers.
Why? top-performers are most positioned to be aware of incompetence around them and may in fact welcome a housing cleaning. With that said, it's not always easy to identify who's who-- it's possible top-performs are affected or incompetence isn't, which can erode trust.
> If you cut 10%, expect 10% from the top to flee within a couple of years.
If the company was laying off the deadwood and the quiet quitters, the top performers know who they are, and are not concerned about being laid off themselves.
Top performers don't particularly care to work with deadwood and quiet quitters, either.
Another terrible effect is that the people who aren't laid off have to onboard the next wave of new hires. I've seen a lot of poisonous behavior as a result of someone having a chip on their shoulder because a friend was laid off, and that can have disastrous consequences for someone who has less experience and needs support.
> The second effect is related to the fact that companies usually target older people with expensive jobs. In an a big org these are the wizards who have the unwritten cookbooks in their brains. When they leave en masse, a lot of the organizational memory is gone, and expensive operational mistakes of the past are forgotten. These have longer effects that will haunt the company for many years.
This can be a good thing. In my experience these people are generally unambitious people who's claim to fame is that they held a job for a long period of time rather than any innate talent.
And when you have a majority of seniors who's only value is in being a well of knowledge, they're resistant to any change that reduces the value of that knowledge. This can quash innovation and perpetuates the anti-pattern of information hording.
Depends on the environment. In a startup, the top performers often say basically “what took you so long? Glad we can move faster now. And try to hire some more top performers for me to work with.”
My issue with analyses like this is they argue that layoffs are a bad idea and it's just companies shooting themselves in a foot. That's what people want to hear, so it gets a lot of clicks and citations. But, this also means that all the big companies (and that's a lot of them) that just announced layoffs made a obviously bad move. Are they all stupid? I find it hard to believe.
It's more plausible, that yeah, layoffs are trust destroying and life ruining, but they make shareholders rich, so they are a rational choice expected from CEOs.
I find it very easy to believe. A lot of executives appear to have a prime motivation that is "number goes up" which IMHO makes them extremely susceptible to the same levels of groupthink and other cognitive fallacies as one would see on /r/wallstreetbets.
I appreciate that isn't necessarily the case for all executives but given that executive's fallacies are mostly disproved by a slow to react and sometimes illogical economy as opposed to a nearby cold logic machine, it makes cliff-marching much easier for them.
Most of them over hired like crazy during the pandemic bubble. I wouldn’t say they were stupid but collectively most of them made a massive mistake. So yeah it isn’t hard to believe for me. I don’t think the layoffs are a stupid decision but I do think the extreme over hiring as if the bubble was a new normal was. Between 2020-2022 I literally conducted over 200 interviews for my previous employer. It was like we couldn’t hire fast enough and I would always hear that we were way behind from what we wanted to hire.
It depends entirely on what's driving the layoffs, is it:
1. Actual market costs requiring a diminished future projection of cash flow
2. A Market expectation of investors who'll rate your company as less valuable if you dont.
I'd posit right now #2 is more likely than #1 given all the record profits being reported everywhere. When #2 happens, it's definitely going to affect people. When there's no actual problem, just some future expectation of problems, that's going to cost you.
Just a quick reminder regarding those "they", "shareholders" - it is a pet peeve of mind how we tend to forget who are the vast majority of these sharholders "getting rich" by the count of people, not necessarily by the value.
In the USA 401(k)[0] & 403(b)[1] plans are used by vast majority of people as their retirement funds. It is very rare for a small organizations to be able to offer full pension plans. What they do offer are investment plans like 401 & 403.
All those little 401k/403b plans, through the plans and the mutual funds are the "they" "shareholders", "getting rich".
In 2019 21% of US workers participated in pension plans, while 43% in 401K/403b [2]
In that regard, I wonder if it becomes a Wall Street meme--layoffs for the sake of doing layoffs. Companies that performed layoffs made shareholders rich, so therefore if your company isn't doing layoffs in a layoff climate it's assumed that shareholders are better off putting their dollars somewhere else.
Most executives and shareholders I meet are truly clueless in their business and how to be effective. I think this shows more in larger organizations because lower level employees are far removed from important decisions.
It’s fair to disagree, but in my mind it is why you pay top $$$ for great executives. But also unfortunate that an average executive can cause harm to a business due to a large sphere of influence.
Interesting takeaway. One of the big lessons I took away from the prior three years is that there’s an absolute ton of groupthink and trend chasing among tech leadership. Going all in on remote, over hiring 21-22, now layoffs all come to mind.
There are notable exceptions. Apple rejected (thus far) all three of those trends and is weathering this period much better than most of the industry.
Part of the problem is that it’s very difficult to quantify the higher order effects of layoffs. It’s easy for an exec to understand “if we fire a bunch of people then our labor costs will go down”. It’s much harder to anticipate the effects of “if we fire a bunch of people then those who remain will be demoralized, will lose trust in us, may leave on their own, may be too distracted to work effectively for awhile, etc.” That means the risk assessment is a comparison between a sure thing and a bunch of possibilities—and there’s a long history of companies surviving after layoffs. It seems perfectly rational.
I have a couple observations from going through layoffs at a growth stage startup. If you have to do layoffs then you shouldn’t worry too much about protecting top performers—a noticeable percentage of them (10-20% maybe) will leave on their own _after_ the layoffs. You have broken trust with these folks, and they almost surely have other options. The people who stay either deeply and firmly believe in the company (good!) or for some reason feel like they don’t have other options (less good). Secondly, layoffs don’t end with the pink slips—your company is choosing to go down a long, slow path of rebuilding until almost anyone who remembers the layoffs is gone anyway. It will be harder to recruit top talent at standard market rates for awhile because folks will want to price in a risk premium to hedge against continued future instability, so replacing the fired folks may actually be more expensive in the long run.
The companies are doing it for a short term stock price bump. They are always incentivized to think short term because of the way our distorted markets work.
These companies laying off people are doing so because they made a mistake to begin with (over hiring). So, yeah, if you make one mistake, you can make another.
And no: not all tech companies have over hired during the pandemic and they are not firing people these days. No one talks about them because that doesn't sell.
> The takeaway is that layoffs are extremely trust destroying for employees NOT laid off, and in the end not clear they're a financial net positive.
Well... for whom though? When megacorp CEOs laid people off the stocks soared - massively enriching the C-suites executing the layoffs and the investors demanding the layoffs.
The error in your thinking is that the financials of the company and its continued success matters - when the people in charge are optimizing for THEIR OWN financials.
I've got already a message of a former colleague working on Gitlab. He wants to leave. He thinks thats better to negotiate a salary while in a job, than when you are desperate running against the clock. We are going to take him back.
If your plane is gonna crash without dumping some excess weight, killing everyone on board, what do you do? You throw a ton of stuff out of the plane in an effort to continue on. This is what layoffs are. It’s a survival mode tactic. The cost of lower morale is smaller than the cost of complete failure.
I would imagine there are two occurrences at play, some employees affected by both some by one, but 1. You're wondering when you'll be next 2. People you have been working with are just gone now.
> and in the end not clear they're a financial net positive
This feels like another instance of Deming's (paraphrased) "People will destroy the enterprise to align to their incentives."
The people who make these decisions may be incented on the _short term_ cost savings. It's a fractally smaller version of the entire org aligning to shareholder expectations at the expense of company growth.
Productivity takes a hit for a week. And then starts up anew with new direction and new energy.
Sometimes layoffs are erratic and cause employees to question management's logic.
Most times, every employee is put on alert to not get complacent in their job and always be on the lookout for a better position. (this might be a net positive, POV)
What are the different kinds of layoffs? 7% sounds like one person from every-other-pizza-team but in practice isn’t it more like “we laid off the self driving garbage truck team (70 of 1000 employees) in order to focus on our core infrastructure and future as a builder of large language models”?
I think it's a brinksmanship game. The company that does the least amount of layoffs and survives will be in the better condition coming out of the recession.
At this point it's beginning to look like tech companies are doing this because it's the trendy thing to do, along with inserting a few words about AI in their websites and pitch decks.
"What explains why so many companies are laying large numbers of their workforce off? The answer is simple: copycat behavior, according to Jeffrey Pfeffer, a professor at the Stanford Graduate School of Business."
A few weeks ago I was opining that companies were laying off staff because "that's what everybody else was doing." I'm glad to see to few folks concur.
Copycat behaviour is not uncommon, I think, and is swayed by market sentiment. If the (equities) market ( mean in a general sense) feels bullish, then Microsoft, Google, etc. start piling on employees. Because hey, we're tech companies, we have to justify our market ratings by pursuing (or at least looking like we are pursuing) growth, so that's what they do.
Then, when things sour, the mood becomes one of conservatism. Then it looks good to shed employees. This is all despite the fact that it may have little to do with the actual state of the companies.
Microsoft in particular is hardly a heavily cyclical company, so there is little need to behave like one. Not really. They could adopt a more even approach to hiring. If they tried.
Companies bleat on about how difficult and expensive it is to hire staff. And yet, here we are.
We are a SaaS tool and we've has to justify our value to customers as everyone is looking to cut expenses. We also did cut our own spending on SaaS tools. So I think that this is sort of percolating through the industry. There is a real contraction in SaaS spending.
I would be very willing to believe this if it wasn't for the fact that so many tech companies have fundamentals that just don't make sense.
We've just gotten so used to the idea that "tech companies don't need to make profit" that we don't even question it any more. I still hear people shocked when a companies revenue goes up but their stock price drops while completely ignoring the reality that costs also went up.
The truth is all companies need to have profit and many of these tech companies have never showed that they're even capable of turning a profit.
What's happening is that investors are going to boards and telling them you need to make serious progress towards profitability. If sales are growing slowly or even declining there is no other option but to do layoffs.
IMHO this is still just the beginning, there's a lot of feedback in the tech ecosystem that are going to start playing out as more and more companies start scrambling to show profitability.
It's less that it's the trendy thing to do, but more that the bar has been lowered.
If this is an option you're considering, then it's a much easier message to sell if everyone is doing it. Otherwise you look like the bad performer and it'll hurt morale and stock price even more.
I don't know how this has gone over everyone's heads here, because what's happening is extremely obvious.
If you're a big FAANG-like company, you've seen workers make big gains in wages over the past year, and turnover rates have been increasing significantly during the great resignation. This isn't enough to sink you, but you don't like it, because it does eat into your margins a little. Of course you're still making massive profits, but workers getting any measure of power scares you. Imagine if this trend continues? Workers are only getting harder to find!
So what do you do? You can't walk up to all your CEO friends and say "Hey how can we go about paying everyone less? What if we all agree to lay off our expensive people at the same time? That way, we'll have a massive pool of workers to hire from that are all looking for jobs, and since they'll all be scared from having been laid off they'll happily take pay cuts. Additionally, it'll scare the hell out of the rest of the employees to see all their friends get blown up with no warning right in front of them. They'll want desperately to keep the jobs they have and won't leave!"
You can't say that because coordinated wage suppression is highly illegal (remember Apple and Google?). But wink/nod based wage suppression? Totally fine! If everyone just happens to fire their expensive workers at the same time but leaves no record of getting anyone to agree to it, it's perfectly allowed. This is not "copycat" behavior. This is all the CEOs recognizing what the game is and cashing in on it.
And better yet, there's nothing the tech workers can do about it! There are no real tech worker unions to speak of, and these companies know their workers have a highly libertarian bent who believe in the meritocracy myth, so there's no real risk of unionization no matter how bad things get. It's a pure win for them, with no real downsides, and the general consensus is that if they're smart they'll do this every so often to bring workers to heel. And given the pervasive attitudes about labor that I see among tech workers I don't see any reason to think that's wrong.
Indeed. I remain shocked at how many people who work in this industry are still making excuses for the companies that are performing these completely unnecessary layoffs. (They'll never be laid off of course, of course – only the other people who are old and bad at their jobs.)
These companies overhired and now they are realizing that the positive cash flow to justify all of these new employees isn't existing. None of these layoffs are focused on laying off their most expensive people. The severance packages have been very good meaning that the laid off employees have a long time to find another well paying job.
I don't really see it. Gitlab isn't a Google-style megacorporation; its CEO is co-founder, and it still has a reputation for having fairly horizontal management.
The idea that its execs just decided to lay off a bunch of people for no reason just to wage some plausibly deniable class warfare doesn't really make sense to me.
In my view they see a few benefits. If the "market climate" is layoffs, then they can be much less competitive with offers to any candidates they do want to hire. It's an opportunity to let go a contingent of lower-performing workers, and lastly, it's a way for the CFO to send a message to all the managers that they aren't getting the incremental headcount they are always asking for to inflate their team sizes.
I don't necessarily think this is a good thing, but I think dismissing it as copy-cat behavior is not digging deeper than the surface layer.
Instead of the group of managers making the case they are doing a good job because their team has grown over time, there is a shift in power to the managers saying they have saved the company x number of doll-hairs because they cut xyz budget and team.
It's a coordinated attack on the companies, and anybody that is going to hold shares long term. Focused specifically on the ones that will buy shares after one or two announcements of larger than usual profits but will hold for more than a couple of months.
The people doing this do not lose time thinking about workers.
(About Gitlab specifically, they are not profitable, so a layoff is a normal survival strategy if their cash is running low.)
It's not purely about the recession. If it was, they would halt hiring, keep talent, trim executive bonuses, and be precise about where dead weight exists. Not 5%+ layoffs of major teams and roles.
You see other industries, they're laying people off sure, but we're not talking 5%+. They're doing the above, being more precise about their spending. Like Blackrock, huge losses, and still "only" let go of 500/16000, ~3%.
You will not see tech companies balloon to the same number of employees ever again, if anything they will continue to shrink astronomically. No matter what happens to the economy, as these decisions are not because of the recession or the pandemic, both of those reasons are amplifiers not sources.
Good on them for offering proper severance. At my company, we got 2wks and nothing else. Not even a thoughtful letter from the CEO. Nothing. (And this was a sizable tech company in the middle of an IPO).
Burning bridges who might have been references for subsequent employment is almost never a good idea.
There is always a time and place, of course. But generally speaking, you don't speak ill of your (former) employer or even talk about it publically lest there be ramifications beyond your imaginations.
As a former GitLab employee from an expensive region, I’m a little concerned Sid didn’t layout the layoff process more transparently. Were high earners more likely to be laid off while lower CoL areas were kept? This was always a distant fear in working for a very global team where I knew teammates from other countries did the same job as me for much less.
The answer is yes, in all cases, he doesn't need to state in explicitly. So what? Layoffs are being done to save costs or to signal doing so to shareholders. It is not a "let's be meritocratic and only cut the lowest performers" exercise. The overarching question is, with our insistence on remote working etc, how will we ever justify hiring from high CoL areas again?
I don’t get this - did every single company hire hundreds of people for no good reason? A global event forcing folks to temporarily use more online services is, well, temporary. I just don’t get the mindset that triggered all these companies to mismanage their teams so badly.
It's quite simple: If you don't follow the herd, you risk being blamed if you fail. But if you follow the herd and do what everyone else is doing, even if the herd runs off of a cliff, nobody points any fingers.
You'd think somewhere, in at least one of these larger tech companies, there would be a leader boldly proclaiming "this is our time to increase our investments and beat our competitors!" But it turns out there is even less diversity of thought in tech leadership than there is racial and gender diversity.
That said, Gitlab may be making a very prudent decision given their circumstance. I don’t know enough to conclude one way or the other. But considering what they are doing so closely mirrors what nearly everyone else is doing, skepticism is warranted.
It makes me sad. These are actual human beings losing their jobs. I guess they don't include “human cost” or “how much pain we inflicted” as a column in financial reports.
20-22 there was basically infinite cash sloshing around the system. If your competitors takes advantage of that, hire like crazy to build out and innovate, what do you do?
Not saying it’s good management of a company, but that’s the mechanism driving this.
Companies hire in a frenzy based off future growth, esp. in tech, not exactly always current needs. How many times have you heard a recruiter or someone say in a company all-hands that we're going to grow our engineering team 300% by EOY, or TRIPLE our headcount.
Laid off GitLabber here, the funny thing about this is the promotion season just ended. A LOT of people got promoted, so their employee cost is probably a wash after these promotions. Make of that what you will.
My company is doing the same thing. Layoffs haven't happened yet (but anyone who isn't in denial knows they're coming), but we probably had a record number of promotions.
The reason for this is that you want to butter up the employees you're going to keep before layoffs. Getting promoted after you saw coworkers you respect get laid off makes you feel gross, and companies do need to do something to increase morale.
The funny part is many people at my co. believe promotions are evidence that we couldn't possibly get layoffs.
Same at my company. I see that many people got a BS promotion because their bosses are good at politics. Meanwhile about 7% were laid off and our bonuses were taken away
What’s annoying is these companies maintain a “Careers” page with a bunch of job openings. “Oh look we’re the ones who are still hiring. Psych! We’ve been working on firing thousands!” At least GitHub shut down their careers page weeks before they announced their cut.
They removed about 60% of listings back in January (without notifying candidates, mind you), and seem to have removed another chunk today.
An optimist might assume that the remaining listings are legitimate, although it's possible that some recruiters are yet to come online and remove further listings today.
You're missing the point - the point is to send a message, to employees and to the investors. That they're SERIOUS COMPANY that does the right thing. Follows the market. Listens to economy. That won't hear complaints from the entitled lazy overpampered engineering workers. That they need to get back to the factory and be like all other quiet labor. That HARD DECISIONS can be made without regret when bankers ask for them.
Exactly- Facebook laid off 7% of their staff and then followed it up with a $40 billion stock buy back. That's over $3,600,000 per laid off employee. The economy isn't the issue here, the companies know that since layoffs in mass are happening they can get away with it without taking the same reputational hit as if they did this on their own.
Attrition tends to happen with the most qualified individuals leaving for other companies.
Attrition is not targeted or evenly distributed (depending on the goals). This can result in what would later be perceived as being lopsided compared to the layoff cut. For example (and purely made up), if part of the layoff was to cut back on marketing of the self hosted instances, then you would be looking to lay off marketing, and developer evangelists. However, if attrition doesn't hit those roles (because who's going to be leaving in this economy), you can have it take much longer to scale back that headcount. Saying to the developer evangelist "ok, we don't have something for you to do, we're going to switch you back to an entry level developer position with this other set of roles and responsibilities with a corresponding pay cut" isn't something that can be done easily.
I think there are several reasons to do it this way:
- Effective number will be higher because some employees will be disgruntled because of the layoff event and will leave on their own. It's usually estimated that the effective number is twice as high
- By doing a layoff you can quickly get rid of people who are overpaid. The attrition would take much longer. And with the regular performance review process you can only get rid of under-performers
- With a layoff you can get rid of entire teams, wouldn't happen normally
- Finally, and probably most importantly, shareholders expect a layoff, especially if other companies had already done it. Cargo cult CEO thinking. You could see the stock price rising for some of the previous companies announcing layoffs
Can attest to this. I worked at an open source consultancy for a while. During a tough period, and having made some bad bets (trying to get into the enterprise Java world), they did some downsizing - or actually, it was more like warning that there would be downsizing. A lot of people quit, not even waiting to get a severance package. Including many people they definitively weren't happy to lose.
- Why is this beneficial? The disgruntled will be the high performers. In no shape or form is this beneficial for culture.
- Assuming you mean average performers who are paid well, ie. well tenured? Considering these types harness significant domain knowledge it would be a strategic mistake to let them go in any meaningful number. The focus on smaller cuts tends to be low performers or recent hires.
- The only time this is beneficial is when there is indeed 1) a financial dire straights situation or 2) a significant change of course (ala Google) and blood letting has to be rapid, otherwise you're letting go of top performers in the process. It would be much cheaper to reassign to other teams given the cost to source/acquire and onboard top talent.
- Bingo. This is the primary reason almost always.
As someone who was recently laid off at one of these % cuts at another company, these cuts target specific groups, for instance people who have higher salaries. Well paid people won't just quit.
I’ve seen this happen over the years and I’m always curious why there isn’t a discussion beforehand that offers the “overearners” a chance to stay at a reduced salary. I’ve asked people who were in those positions, and they’ve often indicated that they would have stayed at a lower salary, at least for a while.
It's just the first cut (for all companies). You can't do 50% right away as you don't know what will happen, so you need to do in steps. If they were just 7% over hired then they could just do attrition + a bit tougher perf reviews, or close a few teams over the course of a year but there is high chance for all companies they are not 10% or 7% or 15% over hired but 50%
The fun thing is that their R&D cost is dwarfed by expenses on Sales&Marketing and General&Administrative. So, if I understand their financial statements for 2022FY correctly, a 7% cut on R&D could lower their total expenses by 2% at best https://ir.gitlab.com/news-releases/news-release-details/git...
Even cutting their R&D 100% would not make GitLab profitable, if other expenses are kept the same, so economics is clearly not the reason for layoffs.
From a cost basis, this could possibly be true. But, with that type of attrition, you would probably see a greater percentage of high-performers go because they have good options. Then, you not only have lower producing staff, but it also becomes more difficult to hire top level talent back, because they want to work with other folks like themselves.
Isn't that attrition going to happen anyway? And with mass layoffs, wouldn't top talent, with plenty of options, be wary of a company who is likely to layoff 7% of its staff to please stockholder share pricing? I don't know the answer to top talent retention, but it seems easier and less expensive to turn your existing staff into "top talent" under the tutelage of the existing top talent and implement a hiring freeze with no huge news cycle.
Our banking corporation did that some... 7? years ago. Instead of random firing rounds happening locally and globally few times per year, where even locally best people were sometimes let go ie due to current under-allocation, and everybody would be nervous for months afterwards... just nothing.
Helped morale tremendously. Don't treat your employees like numbers, it will bite you back eventually, in all aspects including finances. Even most cold-hearted sociopaths on the top should grok that.
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The takeaway is that layoffs are extremely trust destroying for employees NOT laid off, and in the end not clear they're a financial net positive. Both with direct and indirect costs (lack of engagement from employees, etc).
The main effect is that you lose the trust of the top performers. These will be the in the lookout for new opportunities the day after the layoffs are done. If you cut 10%, expect 10% from the top to flee within a couple of years.
The second effect is related to the fact that companies usually target older people with expensive jobs. In an a big org these are the wizards who have the unwritten cookbooks in their brains. When they leave en masse, a lot of the organizational memory is gone, and expensive operational mistakes of the past are forgotten. These have longer effects that will haunt the company for many years.
The only way you can safely pull off layoffs is if you ensure that anything you do in the company requires the experience of a boot camp. That means that everyone is fungible and you can easily swap them.
And this is what tech did better than any other industry. The average required know-how depth of a tech white collar worker is easily two three levels below when compared to other industries. Pharma and chemicals come to mind from personal experience.
Sure - ~any decent programmer can jump into ~any codebase and do your JIRA tickets. But there's a more holistic ownership you miss out on that's going to be the difference between a system aging gracefully and a system becoming a giant hunk of butchered junk that's been one-small-jira-ticket-ed to death over a decade and now needs a very costly and distracting replacement/rewrite.
I worked at a different company that did the opposite of this. Programmers were expected to stay either 1 year or 10 years, and you'd be compensated according to which bucket you were falling into. They had excellent retention rates, and the dev team was small, <30 engineers. We never rewrote systems. They had owners who had either written them, or been handed off apprenticeship-style over the course of a year or two from the former master to the new master.
Place 1 was a fucking mess of tech debt and had constant incidents that made high value customers mad, execs mad, and oncall engineers mad. One of my coworkers literally went into his first oncall shift, got paged at night three times in two days, and resigned the next morning when he found out that yeah this is just kind of normal and good luck convincing leadership to let us fix it.
Place 2 literally never had tech incidents. The worst oopsies were generally related to (it was a trading shop) other people in the market fucking up and resulting in trade breaks that we had to clean up after hours, or exchanges having problems and sending us garbage data that we had to resolve by calling someone from the exchange to confirm order statuses and so on.
I only left place 2 because I was moving across the country and they didn't do remote (and still don't, even post covid). I was laid off from place 1.
I don't know, but I imagine that there's a pretty substantial difference between an isolated layoff and an industry wide layoff. Maybe it hits differently when you get to see the sausage made.
Where is a top performer at Google going to go? I'm sure there's some companies out there that aren't doing layoffs right now, but most of those probably can't offer FAANG/MANGA salaries.
Yes, and that's the number one thing successful small business owners learn. The ones who don't learn this aren't successful.
You want as many of your staff as possible to be easily replaced. If you're running a restaurant, do you really want the success of your restaurant to hinge on a single talented chef?
Nope. You make sure that there's a process so that another few chefs can drop in quickly without changing the menu or the quality of the food. All the other kitchen staff don't do "complicated", they follow instructions.
If the business depends on having developers that are in the top 5% (say, one of the criteria to working on the code is understanding Haskell with Monads), the business is at constant risk because the developers are not easily replaceable.
Is this true this round? I have noticed a few things:
* On the hiring front, much more demand for senior, staff, principal devs, less demand on the junior / intern front.
* (Anecdotally) A LOT of junior / new people laid off. It seems in this round companies want a small but elite force, rather than opting for junior people.
If every semiconductor manufacturer reduces headcount by N%, there may not be much incentive for an engineer to jump ship. If only one of those companies doesn't lay anyone off, though, the dynamics are completely different.
You guys are acting like companies are too dumb to think of these very basic concepts. I have personally witnessed discussions that can roughly be described as “ok we need to add an extra three people in order to fund retention for X.”
I've been through one of the tech layoffs that happened during the pandemic, so N=1 and all, but this was exactly what happened.
On the day of the layoffs, few top performers were affected. It was a classic layoff with an HR email and immediate lockout. Managers of affected people learned later. Some people learned they were being laid off after hearing it in mainstream media first.
After 6 months, many best performers (more than 10% in my opinion) have left after struggling with low morale. A lot of company knowledge was lost, portions of the codebase became unmaintainable, projects went from being certainly doable to being in perpetual uncertainty about cancellation. The responsibilities of the the top performers fell on less experienced people, some received promotions but buckled under the pressure in disruptive ways.
Two years later, the company is still rebuilding but has obvious competency gaps. There was also difficulty in filling them because HR was disproportionally affected by layoffs. The distrust in management persists and more than a few people are openly talking about leaving. Though the hiring in tech has cooled down which had a chilling effect on people leaving, too.
But even more important, I think most top performers understand and accept the risk that their employment may end. For example, the company can fold. It is easier for top engineers to accept that because they likely have better connections and can pretty easily find a good job elsewhere. My 2c.
This is an interesting way to think of the Leetcode style interview. If you don't require any particular experience and you have built your company's systems in a way that any "competent" developer can join and be effective, layoffs may not be such a big problem.
Why? top-performers are most positioned to be aware of incompetence around them and may in fact welcome a housing cleaning. With that said, it's not always easy to identify who's who-- it's possible top-performs are affected or incompetence isn't, which can erode trust.
If the company was laying off the deadwood and the quiet quitters, the top performers know who they are, and are not concerned about being laid off themselves.
Top performers don't particularly care to work with deadwood and quiet quitters, either.
This can be a good thing. In my experience these people are generally unambitious people who's claim to fame is that they held a job for a long period of time rather than any innate talent.
And when you have a majority of seniors who's only value is in being a well of knowledge, they're resistant to any change that reduces the value of that knowledge. This can quash innovation and perpetuates the anti-pattern of information hording.
It's more plausible, that yeah, layoffs are trust destroying and life ruining, but they make shareholders rich, so they are a rational choice expected from CEOs.
I find it very easy to believe. A lot of executives appear to have a prime motivation that is "number goes up" which IMHO makes them extremely susceptible to the same levels of groupthink and other cognitive fallacies as one would see on /r/wallstreetbets.
I appreciate that isn't necessarily the case for all executives but given that executive's fallacies are mostly disproved by a slow to react and sometimes illogical economy as opposed to a nearby cold logic machine, it makes cliff-marching much easier for them.
1. Actual market costs requiring a diminished future projection of cash flow
2. A Market expectation of investors who'll rate your company as less valuable if you dont.
I'd posit right now #2 is more likely than #1 given all the record profits being reported everywhere. When #2 happens, it's definitely going to affect people. When there's no actual problem, just some future expectation of problems, that's going to cost you.
In the USA 401(k)[0] & 403(b)[1] plans are used by vast majority of people as their retirement funds. It is very rare for a small organizations to be able to offer full pension plans. What they do offer are investment plans like 401 & 403.
All those little 401k/403b plans, through the plans and the mutual funds are the "they" "shareholders", "getting rich".
In 2019 21% of US workers participated in pension plans, while 43% in 401K/403b [2]
[0]: https://en.wikipedia.org/wiki/401(k)
[1]: https://en.wikipedia.org/wiki/403(b)
[2]: https://www.pensionrights.org/resources/information-center/
In that regard, I wonder if it becomes a Wall Street meme--layoffs for the sake of doing layoffs. Companies that performed layoffs made shareholders rich, so therefore if your company isn't doing layoffs in a layoff climate it's assumed that shareholders are better off putting their dollars somewhere else.
It’s fair to disagree, but in my mind it is why you pay top $$$ for great executives. But also unfortunate that an average executive can cause harm to a business due to a large sphere of influence.
There are notable exceptions. Apple rejected (thus far) all three of those trends and is weathering this period much better than most of the industry.
I have a couple observations from going through layoffs at a growth stage startup. If you have to do layoffs then you shouldn’t worry too much about protecting top performers—a noticeable percentage of them (10-20% maybe) will leave on their own _after_ the layoffs. You have broken trust with these folks, and they almost surely have other options. The people who stay either deeply and firmly believe in the company (good!) or for some reason feel like they don’t have other options (less good). Secondly, layoffs don’t end with the pink slips—your company is choosing to go down a long, slow path of rebuilding until almost anyone who remembers the layoffs is gone anyway. It will be harder to recruit top talent at standard market rates for awhile because folks will want to price in a risk premium to hedge against continued future instability, so replacing the fired folks may actually be more expensive in the long run.
And no: not all tech companies have over hired during the pandemic and they are not firing people these days. No one talks about them because that doesn't sell.
do you realize that for most software engineers at the hi-tech companies, the majority of their compensation is in the form of equity?
and at startups, reduced headcount cost gives more runway for the company and hence employment.
Well... for whom though? When megacorp CEOs laid people off the stocks soared - massively enriching the C-suites executing the layoffs and the investors demanding the layoffs.
The error in your thinking is that the financials of the company and its continued success matters - when the people in charge are optimizing for THEIR OWN financials.
https://matduggan.com/us-layoffs-are-unspeakably-cruel/
This feels like another instance of Deming's (paraphrased) "People will destroy the enterprise to align to their incentives."
The people who make these decisions may be incented on the _short term_ cost savings. It's a fractally smaller version of the entire org aligning to shareholder expectations at the expense of company growth.
Sometimes layoffs are erratic and cause employees to question management's logic.
Most times, every employee is put on alert to not get complacent in their job and always be on the lookout for a better position. (this might be a net positive, POV)
What could possibly be more clear than
"we were spending $X and now we're spending $(X - c)"
> Both with direct and indirect costs
Employees themselves are direct costs that are removed with layoffs.
https://news.stanford.edu/2022/12/05/explains-recent-tech-la...
Copycat behaviour is not uncommon, I think, and is swayed by market sentiment. If the (equities) market ( mean in a general sense) feels bullish, then Microsoft, Google, etc. start piling on employees. Because hey, we're tech companies, we have to justify our market ratings by pursuing (or at least looking like we are pursuing) growth, so that's what they do.
Then, when things sour, the mood becomes one of conservatism. Then it looks good to shed employees. This is all despite the fact that it may have little to do with the actual state of the companies.
Microsoft in particular is hardly a heavily cyclical company, so there is little need to behave like one. Not really. They could adopt a more even approach to hiring. If they tried.
Companies bleat on about how difficult and expensive it is to hire staff. And yet, here we are.
We've just gotten so used to the idea that "tech companies don't need to make profit" that we don't even question it any more. I still hear people shocked when a companies revenue goes up but their stock price drops while completely ignoring the reality that costs also went up.
The truth is all companies need to have profit and many of these tech companies have never showed that they're even capable of turning a profit.
What's happening is that investors are going to boards and telling them you need to make serious progress towards profitability. If sales are growing slowly or even declining there is no other option but to do layoffs.
IMHO this is still just the beginning, there's a lot of feedback in the tech ecosystem that are going to start playing out as more and more companies start scrambling to show profitability.
If this is an option you're considering, then it's a much easier message to sell if everyone is doing it. Otherwise you look like the bad performer and it'll hurt morale and stock price even more.
If you're a big FAANG-like company, you've seen workers make big gains in wages over the past year, and turnover rates have been increasing significantly during the great resignation. This isn't enough to sink you, but you don't like it, because it does eat into your margins a little. Of course you're still making massive profits, but workers getting any measure of power scares you. Imagine if this trend continues? Workers are only getting harder to find!
So what do you do? You can't walk up to all your CEO friends and say "Hey how can we go about paying everyone less? What if we all agree to lay off our expensive people at the same time? That way, we'll have a massive pool of workers to hire from that are all looking for jobs, and since they'll all be scared from having been laid off they'll happily take pay cuts. Additionally, it'll scare the hell out of the rest of the employees to see all their friends get blown up with no warning right in front of them. They'll want desperately to keep the jobs they have and won't leave!"
You can't say that because coordinated wage suppression is highly illegal (remember Apple and Google?). But wink/nod based wage suppression? Totally fine! If everyone just happens to fire their expensive workers at the same time but leaves no record of getting anyone to agree to it, it's perfectly allowed. This is not "copycat" behavior. This is all the CEOs recognizing what the game is and cashing in on it.
And better yet, there's nothing the tech workers can do about it! There are no real tech worker unions to speak of, and these companies know their workers have a highly libertarian bent who believe in the meritocracy myth, so there's no real risk of unionization no matter how bad things get. It's a pure win for them, with no real downsides, and the general consensus is that if they're smart they'll do this every so often to bring workers to heel. And given the pervasive attitudes about labor that I see among tech workers I don't see any reason to think that's wrong.
The idea that its execs just decided to lay off a bunch of people for no reason just to wage some plausibly deniable class warfare doesn't really make sense to me.
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The people doing this do not lose time thinking about workers.
(About Gitlab specifically, they are not profitable, so a layoff is a normal survival strategy if their cash is running low.)
No, they are doing this because we are in a recession and businesses are always the first to know and labor is the last to know.
You see other industries, they're laying people off sure, but we're not talking 5%+. They're doing the above, being more precise about their spending. Like Blackrock, huge losses, and still "only" let go of 500/16000, ~3%.
You will not see tech companies balloon to the same number of employees ever again, if anything they will continue to shrink astronomically. No matter what happens to the economy, as these decisions are not because of the recession or the pandemic, both of those reasons are amplifiers not sources.
No, we are not in a recession
There is always a time and place, of course. But generally speaking, you don't speak ill of your (former) employer or even talk about it publically lest there be ramifications beyond your imaginations.
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Why not do some extra homework and really cut the lowest performers, while we are here anyway?
You'd think somewhere, in at least one of these larger tech companies, there would be a leader boldly proclaiming "this is our time to increase our investments and beat our competitors!" But it turns out there is even less diversity of thought in tech leadership than there is racial and gender diversity.
That said, Gitlab may be making a very prudent decision given their circumstance. I don’t know enough to conclude one way or the other. But considering what they are doing so closely mirrors what nearly everyone else is doing, skepticism is warranted.
Not saying it’s good management of a company, but that’s the mechanism driving this.
The reason for this is that you want to butter up the employees you're going to keep before layoffs. Getting promoted after you saw coworkers you respect get laid off makes you feel gross, and companies do need to do something to increase morale.
The funny part is many people at my co. believe promotions are evidence that we couldn't possibly get layoffs.
Really sorry to hear about the shitty situation you're going through, all the best in finding the next opportunity.
An optimist might assume that the remaining listings are legitimate, although it's possible that some recruiters are yet to come online and remove further listings today.
Attrition is not targeted or evenly distributed (depending on the goals). This can result in what would later be perceived as being lopsided compared to the layoff cut. For example (and purely made up), if part of the layoff was to cut back on marketing of the self hosted instances, then you would be looking to lay off marketing, and developer evangelists. However, if attrition doesn't hit those roles (because who's going to be leaving in this economy), you can have it take much longer to scale back that headcount. Saying to the developer evangelist "ok, we don't have something for you to do, we're going to switch you back to an entry level developer position with this other set of roles and responsibilities with a corresponding pay cut" isn't something that can be done easily.
- Effective number will be higher because some employees will be disgruntled because of the layoff event and will leave on their own. It's usually estimated that the effective number is twice as high
- By doing a layoff you can quickly get rid of people who are overpaid. The attrition would take much longer. And with the regular performance review process you can only get rid of under-performers
- With a layoff you can get rid of entire teams, wouldn't happen normally
- Finally, and probably most importantly, shareholders expect a layoff, especially if other companies had already done it. Cargo cult CEO thinking. You could see the stock price rising for some of the previous companies announcing layoffs
- everyone is doing it so it's that much easier to buck responsibility for the decision
- Why is this beneficial? The disgruntled will be the high performers. In no shape or form is this beneficial for culture.
- Assuming you mean average performers who are paid well, ie. well tenured? Considering these types harness significant domain knowledge it would be a strategic mistake to let them go in any meaningful number. The focus on smaller cuts tends to be low performers or recent hires.
- The only time this is beneficial is when there is indeed 1) a financial dire straights situation or 2) a significant change of course (ala Google) and blood letting has to be rapid, otherwise you're letting go of top performers in the process. It would be much cheaper to reassign to other teams given the cost to source/acquire and onboard top talent.
- Bingo. This is the primary reason almost always.
Also, if the intention was to "instill fear". Why give good severance? Why not give nothing?
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There's not too much detail in that press release.
Thanks for sharing the link to the report!
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Helped morale tremendously. Don't treat your employees like numbers, it will bite you back eventually, in all aspects including finances. Even most cold-hearted sociopaths on the top should grok that.