> One thing that Lincoln Electric, which is a famous manufacturer of arc welding equipment, did well is instead of laying off 10% of their workforce, they had everybody take a 10% wage cut except for senior management, which took a larger cut. So instead of giving 100% of the pain to 10% of the people, they give 100% of the people 10% of the pain.

Curious if there is research here on how this impacts the company? Seems like it would also increase stress and encourage top performers to seek new opportunities.

He also recommends hiring during a recession:

> He actually hired during the 2000 recession and saw it as an opportunity to gain ground on the competition and gain market share when everybody was cutting jobs and stopped innovating.

I suppose this works when it works, and then fails completely when it doesn’t. In essence, this increases the risk profile on the company which seems problematic too. Would be curious if there are studies that show the outcomes of these strategies.

Perhaps there are no “good” strategies- just those that favor employees or those that favor investors.

When done correctly, layoffs give 100% of the pain to 10% (or whatever) of the people, but you get to select the worst-performing people. Spreading the pain equally is much more liable to cost you your best-performing people.

I do think the one important thing to note is that the reference you quoted is to a manufacturer, where you've probably got more consistent performance across a given type of employee as compared to software developers.

In abstract, if there were a way to rank employees by ROI and contribution perfectly fairly, I might not worry about layoffs personally. However:

1) In my career, I've never seen layoffs which were at all good at selecting the bottom 10%. Who gets dropped is pretty random.

2) I care about other people I work with. A 10% layoff means a few of my friends were hurt.

When I had a 10% paycut because the business needed it, it felt a little unfair, but I didn't leave. That same business raised my salary back up a year or two later. I'm still there, actually, and many people spend entire careers here.

I spend most of my hours working, and above some point, I care about having a humane employer, meaningful work, and a decent work environment much more than I do about salary.

Job stability also allows me to focus on my work over signalling. That works well if I value and enjoy my work (which I do).

This is very true, and I would say definitely the biggest weakness of my point. In a theoretical world in which you can drop the bottom 10% of performers, I think that's clearly the right thing to do, but obviously practice is not the same as theory.

I will say the one other thing about 10% paycuts for these companies that would drive me out is that the companies are still making lots of money. If you're in a business where belt-tightening is plausibly necessary (something that has boom/bust cycles, for example, and hits a particular bad bust one), maybe I can accept a pay cut. If you're cutting my pay but still maintaining a shareholder dividend, I am gone.

Well, I can understand now why everybody gets out immediatly if stocks drop a little bit. Average daily movement of the stock is 4 dollars, and 8 is not unheard of ...

It's different when layoffs are happening across the industry.

When everyone is doing layoffs, seeing your company do layoffs isn't as surprising. It's expected as everyone adjusts to changing market conditions.

But when everyone is doing layoffs and your company cuts your compensation, it's a sign that you might be underpaid relative to what you could get at other companies. So people start looking around for an opportunity just to get back to their old salary.

The other problem with paycuts is that you can only really do it once. In a slowing economy like ours, it's not surprising to have multiple rounds of layoffs as companies cut departments and react to dropping sales.

But having multiple rounds of paycuts would guarantee that your best employees all leave for other companies where they can get back to their old compensation levels.

As a business, it depends on the type of business, but pay cuts tend to be a more effective way to stem bleeding. For example, a consulting firm (so horizontally scalable) with 90% of the employees can only do 90% as much work. Revenues dip. That leads to a cycle where further layoffs are necessary. A pay cut, on the other hand, doesn't have the same dip in output as a layoff.

Now, all that said, many businesses (including some that did layoffs) are vastly overstaffed, to where productivity would be higher with fewer people. But even that can be managed more gracefully.

Would you also stay when you get a pay cut, with the only reason being that the company wants to maintain a net margin above 30%? Because that is somewhat happening right now.

Personally: I wouldn't.

That’s been the one conclusion of every study on Lincoln. You can’t mimic a small part and expect similar performance.

If you have options there’s no good reason to stay.

Meta recruiter just reached out to me this week, so even parts of Facebook are hiring, and my relevant skill set. Of course I don’t care about VR goggles, but you just had large layoffs, why would I work for you? (Plus ok Zuck is ruining your core business, but that aside)

Layoffs hurt inside and outside too.

If a layoff is inevitable, It is common in many set ups for managers to hire people new people whom they would want to let go instead of their top dogs who've been rocking their projects for years.

What companies specifically are you referring to? In the last few months we've seen layoffs from Microsoft, Google, Facebook, and Amazon. These rank among the most profitable tech companies in the world. https://companiesmarketcap.com/tech/most-profitable-tech-com...

I generally work at early-stage startups, and I 100% agree with you - at those, if layoffs start, barring some extraordinary circumstances, it's time to get the hell out because your options are about to be worth bupkis.

When it's FAANG, etc. I don't think that's true. Amazon and Microsoft can lay off swathes of people and still have plausible outcomes in which their stock prices are higher in a year or two (perhaps even more plausible than they were pre-layoff).

Perhaps this could be mitigated by equity-based compensation equal to the amount reduced in salary. It won't make up for the lost cash, especially if the company is in a place where it needs to take such measures, but it would give more meaning to the "in it together" message.

So if you are worried that "top" talent will leave don't. Their departure is not damaging the company as much as the boat remaining unrocked!

And as far as objective metrics, those are a crapshoot too. See: the software interview process, where people memorize useless toy problems into their brain so they look prepared for performative problem solving.

This is also different too, in that, there was almost deflation at thst time.

Now, there has been great inflation!

So a 10% cut hurt less then, where as now, all workers should be pushing for a 10%, almost yearly pay increase.

Even if inflation is less than 10%, you have a year of extra experience.

Right now, I'd say most workers are 25% behind on 3 years of raises.

So in a sense, everyone already has had a 10% pay cut this year.

edit:

You know, just a thought, all of these companies were caught colluding to suppress wages in the past.

Whether tracking, or any form of behaviour punished by the courts, it never stops.

So if you are looking at inflation, at high increases coming at 25% over three years due to that inflation, why not all lay off people together, even if profits don't require it?

Why not put fear into people during contract renegotiation, during hiring? Why not, over return to office orders?

That's a possibility, but there's also a good chance that very good performers who value stability will stay, particularly with senior management taking larger cuts. Will you keep that 1-in-1000-and-knows-it person? Perhaps not. Do you want to? Perhaps not (see the whole "fire the indispensable person" philosophy).

If you still get rid of bad performers but keep good to excellent ones because of good management, even if you lose the occasional rockstar your overall team quality will still rise.

The only reason we have options and RSUs at the minute is because you’ll get absolutely fucked by the tax man if you got shares - not a chance you’d be able to pay that tax if you didn’t already have assets and your salary was smaller than your compensation in terms of company ownership.

Nobody outside of your immediate team, manager and may be at best a few people apart from them know you are the top performer. It's not like sports or movie industry that people know who you are. Where you go next, you have to work from the beginning to prove you are a top performer. And that take 2+ years too. Overall rage quitting for these reasons is a bad move.

>>When done correctly, layoffs give 100% of the pain to 10% (or whatever) of the people, but you get to select the worst-performing people.

In nearly all companies the rating system is fixed. And largely depends on political lobbying at the management levels. There is literally no way to know who are the real top performers.

In fact in many companies, money comes from top projects/products, not top performers. This is why often the companies let go people on the lines of which businesses they want to be running or shutting down, not which people they want to keep and let go.

Have you been in a layoff? Not having a job anymore is not the only form of punishment.

I maintain it’s not even the most painful. Being a survivor can suck mightily.

Anecdotally I'm not necessarily seeing this. Amazon's cuts were concentrated in groups. Some parts of Amazon, like AWS were essentially untouched, except for recruiters. In a comment a few days ago I pointed out that the headlines could have said "Amazon pulls back on Alexa efforts", "Amazon reduces its bet on retail" rather than just the number of people...though that would have hurt the stock price, while cutting people often raises it :-(. And AWS appears to still be hiring at some rate (source: couple of friends who mentioned interviewing candidates in the past couple of weeks). I am sure, of course, that if Amazon did cut half of the Alexa team, where they had a choice they chose the lower performing one.

The same is true of Microsoft's cuts, AFAICT. Slaughter in the hololens team, for example.

Google's cuts seemed to include some people I have worked with in the past and who are IMHO good. Notably they are long termers, though, so perhaps google was considering people who were more expensive. My gf mentioned to me that someone she knew was laid off, and they had just been promoted.

Performance based layoffs have to be well documented and take lots of time, so they just happen continuously but in small numbers. At least, that is how it seems to me.

If you, specifically, were given a 40% paycut, or maybe limited to just your team, that's a different story.

Myth #1: Most people believe they're "above average". In your post you talk about cutting the "bottom 10%". You feel comfortable with that because you likely believe you're not one of th ebottom 10%. It's yet another example of how true the Steinbeck quote [1] is about Americans being "temporarily embarrassed millionaires".

Myth #2: These layoffs are targeting "low performers". This is a myth for two reasons. First, it implies the myth of meritocracy. There are so many ways that meritocracy is a lie. The second way is that the company won't be targeting the bottom 10%. They will basically pick names from a spreadsheet, save anyone leaders vouch for, possibly skew layoffs towards projects getting killed at the same time and look at the demographics of the layoff group to make sure it can't be perceived as discriminating against a particular class such that the company might open itself up to litigation for discrimination.

These layoffs really are the worst kind of virtue signaling.

[1]: https://www.goodreads.com/quotes/328134-john-steinbeck-once-...

Meritocracy fails to live up to its promise because high performing parents always help their kids by artificially boosting their competence with e.g. test prep services. So tests tend to measure preparedness for the test, rather than a more abstract measure of merit. There are a lot of other interesting points made which I am not doing justice.

However, I am not quite sure what you meant in the context of the workplace. Do you mean just that in practice and even in principle it’s impossible to accurately measure merit in a company? Because that’s pretty clear to me.

Organizations at scale end up either full of shit because they don't know what they aren't able to measure or full of shit because they are mostly measuring who is esteemed by whom. I have personally never worked for an outfit that wasn't basically full of shit. The well performing did so more as a function of having a functional culture of people who were capable enough and honestly cared about doing good work not because they were great at measuring worth.

It is the idea that if you work really hard you will be rewarded. It is the basis for most people thinking they're above average. It is why so many people believe they'll be Elon Musk one day so they die on the hill opposing any effort to tax the 10 richest people in America slightly ore because, hey, that will be them some day.

But what this really does is just allows someone to be exploited.

This permeated every aspect of life and starts from a very young age. It's going to better schools (even from a pre-K level), having access to tutors to better your results on standardized testing, getting access to lucrative internships and jobs (eg nepo babies), having social connections, getting into good colleges and so on. And it compounds.

Many fields require you to take jobs that pay nothing or minimum wage (eg a production assistant on a movie set). Having the means to do this gives you an enormous advantage for someone for whom this simply isn't an option.

For example, there's a lot of disagreement about affirmative action in college admissions. This is really the wrong conversation to be having. The right one is about how ~36% of each new undergraduate class at Harvard are legacy admissions and the legacy admission rate is 20% or higher.

It goes beyond wealth and privilege however. So much of the working world isn't about doing the best work or working the hardest. Instead much of it comes down to being liked and that encompasses a lot of things, not the least of which is coming from a similar background.

It seems to me that de facto meritocracy largely does not exist because it can be gamed. This leads to insulting post-hoc justifications for hoarding wealth despite the fact that merit often has nothing to do with it. That ethos is absolutely propaganda.

Harvard would be more honest if they just auctioned seats to the highest bidder. At least that would have transparency and efficiency that their current process lacks.

I haven’t given up on the idea of meritocracy though. It’s certainly better than hereditary rule. The only solution I can see is to fix the measures of merit so that they’re harder to game.

Top earners at software companies should be heavily de-valued. Being so specialized as to be useless if that specialization ceased to be validated by economy policy of shoveling cheap money at tech companies to titillate the public is not so special. It’s intentional attempt at agency control.

Terrible idea imo, there is almost no company that can't cut 5% of their staff without negatively impacting the company as a whole if done more or less right, you cut the people who are lower performers - or average performers who, thru no fault of their own, are not currently assigned to something that matters anymore to the company.

Cutting the pay of the best/better performers, and/or the pay of people that are actively contributing to high value projects, so the less qualified or less needed people can stay employed seems like a huge disincentive to keeping your top performers.

If my manager came to me with that proposal I would give my notice on the spot.

There's a third route: cut hours.

Everybody gets every other Friday off, and with that 10% reduction in hours, they get a 10% reduction in pay.

It doesn't solve everything, but reduces the feeling of unfairness because your per-hour rate stays the same. (Provided you cancel less-important projects, etc. so that people actually have less work, not just nominally.)

I think this approach is more common in cyclical industries like manufacturing. If you're probably going to need those people again, you want to keep them around. But if the goal is to reduce the company size, you could try combining it with attrition.

Profit per employee is still high. Revenue per employee hired might be lower after the hiring spree, but the total revenue is still higher. Pay that back w/o culling the herd.

The other option is forming a coop like Igalia or moving to a democratically run organization. I say this not not to stoke a needless discussion, but corporations are fascist cabals. Employees are tools that are on the out-group and nothing more.

All the investors have in this is money—and the investors who have enough money in it to actually influence decisions have so absurdly much anyway that the amount they would stand to lose based on this strategy or that one is very unlikely to materially affect their lifestyle.

The employees have their whole livelihoods invested in the company, so any decision that is made without regard for their interests and needs is necessarily a heartless and inhumane one.

We should be making decisions based on how they affect humans, not based on how they affect money.

That in addition to a hiring freeze might get the company close to the mark in a year's time.

An annual pay freeze then can be re-evaluated again next year.

This is the fourth bout of "layoffitis" I've lived through in the tech industry, and I think this professor is really nailing it.

> Seems like it would also increase stress and encourage top performers to seek new opportunities.

You don't have to cut pay for key performers. You can offer retention incentives to key people. You can cut bad leaders and promote people (and give them a raise). Every time I've had to preside over layoffs (three times, all working for a big corporation), I got to ID my key people and offer them raises to stay on after the layoffs. The high performers that were laid off? They weren't the people that were the right ones to get the company through the hard times and the recovery. Often they were people that were great at their core job, but did not take on anything extra - and when everyone will have to take on extra, hearing "not in my job description" is, well, a big problem for the remaining team.

> hired during the 2000 recession

Ok, I'll let you in on a secret. When you see companies do layoffs, they are cutting costs, and big salaries are easy targets for cuts. The secret is that layoffs aren't permanent headcount cuts. Almost every time, the highest cost, non-essential people are cut, and then shortly after, people are promoted and the hiring starts anew, at a lower starting wage than before (I suspect in this economy, there's enough wage pressure that this will not work). I remember when I was in my 20s and 30s hearing older employees getting laid off who had 30 years of cost-of-living raises and made 2.5x what I did for the same job lament how it was ageism. Now that I'm 50, I see this as a sad truth: if you don't make yourself worth 2.5x someone 20 years younger, you aren't going to get paid 2.5x more forever.

> I suppose this works when it works, and then fails completely when it doesn’t.

You have to have an empathetic, "yes" to the question, "will customers continue to buy from US (over the competition) during a recession." If there's no way to grow, no way to win market share, then you really do have to batten down the hatches.

> this increases the risk profile on the company

This is especially true if you have to raise money to hire during a recession.

> Why would you fire the one with experience? I've seen so many of these coming form MS and Google's layoffs.

Good question. If performance is equal, and management is keeping the more expensive person, that may be a very serious management issue or even worse, discrimination.

There's your trouble -- even if a company would go the "pay cut" route now, there is no chance in a million where the leadership at the top would ever agree to losing a single dime. If anything, it would be performative, with other payment options making up the difference.

Apple chief executive Tim Cook has voluntarily taken a 40 percent pay cut for 2023, an unusual move that comes “in response to shareholder feedback,” according to the company's annual proxy statement. The decision puts Cook's target compensation at $49 million, down from $84 million in 2022.

It's also possible to optimize costs on the benefits themselves to avoid needing to do that, at times.

Top performer here. I would welcome a corporation that treated my coworkers properly.

Don't project your antisocial attitudes onto the rest of us.

I remember reading something like this in Simon Sinek’s “Leaders Eat Last”[1]. Might’ve been anecdotal examples instead of research, though. I don’t necessarily recommend you read the whole book, but it may be a starting point for references.

My answer to the next quote is partially informed by memories of the book.

> Seems like it would also increase stress and encourage top performers to seek new opportunities.

In the case you cited, everyone got a proportional cut but senior management’s was higher. That signals to workers the company is prioritising them over short-term profits, increasing trust and making workers more invested in getting through the slump with the company as opposed to running away. If they’re successful and wages go back up, a powerful precedent of trust will have been set. Which might not even be necessary, as a company which goes this route probably has given other signals over the years.

Maybe that doesn’t matter to top performers who only care about money, but fortunately I don’t think those are as prevalent as HN may make us think.

[1]: https://www.goodreads.com/book/show/16144853-leaders-eat-las...

It kept things afloat, and it definitely favored the workers (myself included at the time) than anyone else.

It's easy to get ambitious and hire a bunch of people for growth targets that aren't viable without ZIRP.

It's less so when you hire people to build orders you've largely already sold...

Why should you keep hiring if you already over hired?

The problem (to me) is...

senior management is almost universally involved in making these types of decisions, basically in a vacuum with no outside input (aka, no democracy/voting)

how often do a collective group of senior managers decide to give themselves paycuts? almost never?...

everybody thinks they work hard, overcame a ton of adversity, and deserve "theirs"

reminds me of the goodfellas scene where billy batts is drunk at the bar talking to jimmy

CONWAY: It's changed, now. You've been away for six years, everything is different.

BATTS: I did my time, Jimmy. I did my fuckin' time, I come home, and I want what I wanna get. I got fuckin' mouths to feed. You understand?

CONWAY: (acquiescing) You're gonna get it. You're gonna get it.

And RSU’s are a huge portion of comp in tech companies, it’s easy to cut RSU’s. Setting aside the very top performers, the middle 80% are not going to have an easy time finding a job in this environment. And may be less likely to leave when so many other companies are cutting but they happen to be at one of the few that didn’t cut but simply scaled back bonuses.

If you attempt to socialize losses and cut pay, your best employees leave for other opportunities while your worst performers stick around.

That’s a recipe for disaster in a competitive market.

When done surgically, laying off non-productive employees can improve the morale of the top performing employees, because it shows that management is aware and appreciates them.

I agree that large tech companies invest in stupid/frivolous projects during bull markets and over-hire/acquire. They also tend to neglect their core products, focusing on extracting money from those with an established network effect instead of improving the services.

HR measuring employee productivity and surgically laying off non-productive empmployes, boosting the morale of top performers. /s

* not sure why is this communist spirit, the difference in levels and salaries still remains, but presumably you're not as mad because the cut is by design not targeted at you

* discerning who is a performer and who is not cannot be done instantly, especially if the managers themselves are getting cut (and kept out of these conversations), so even the layoffs end up being random and blind, like the cut. Just read all those linkedin posts from people with 10+ years and recent promos getting booted currently

* if you are really concerned about top performers, double down on bonuses, say next time you're going to get 2x the usual bonus, which will give the company some time to measure performance at a normal pace

"60% of the time, it works every time"

not sure why you think this is categorically true.

Companies with a stronger balance sheet coming out of the recession will be better positioned for the long term.

Seems that companies that gained their valuations through growth weren't sustainable in the long run.

And at a macro level, economic policy has largely deferred recessions since the 2008 housing bubble pop. That's not sustainable either. At some point a correction is going to happen.

The "social contagion" is companies betting that a correction is coming. Some made that bet early, and some are just now hopping on the train.

It's about survival for many companies. I bet we'll see fire sales, and acquisitions ramping up for the financially stronger companies.

You might have a few people who double down and say if this isn’t working we have to try something radically different. But Cassandra is often in the first round of layoffs. Nobody wants to listen to people second guess them so you’re out first. After that, no more ideological fights get won from that point forward. The entire team is in free fall, just trying to do enough to look good and hoping the market corrects before the wheels come off.

Personally if my employer was acquired by him or his companies I'd shart shopping for a new job immediately.

Arguing that Google had a good 2022 is only tangentially relevant to Google’s prospect for the upcoming decade.

What you think of as "profit" -- e.g. just some random, arbitrary, completely free bonus that Google should be grateful to have at all -- is actually the cost of capital for Google. It is a payment to equity, and the amount of the payment is determined by the interest rate as well as the time path of expected future earnings, adjustment for risk, and other factors. The presence of these other confounding factors often confuse people and make them think profits are arbitrary. They are not. Just because something is complex doesn't mean it is random.

Now when the interest rate increases, that required payment goes up, because investors always have a choice of buying a share of google or buying a bond, and if the bond pays 7%, then buying a share of google should also give you 7%. Now, that 7% could be taken as future growth, as a number of things, but it still needs to be competitive with the bond, which is itself set by government policy in setting interest rates for the economy in such a way as to limit inflation. So we see that companies paying employees a lot of money without actually generating profits is related to inflation. Stop and think about it.

Recently, the government has not been doing a very good job of this and has set the rates -- the payments -- too low, causing inflation to be too high. It's now trying to correct, raise the rates, and so the required cost of capital -- the required profits of companies like Google -- have to increase.

Now suppose Google doesn't do that, e.g. it says "these profits are enough and you should be glad to have them". What investors do is say "well, I'd rather buy the bond" and so they sell their google shares and buy bonds, and in this way the value of Google falls up until the profit rate (profits divided by market price) is compatible with the bond. Well, so what? If Google shares sell for a dollar, who cares, since all that matters is that there be no layoffs, right? Well, when the market share falls below the liquidation value of the company, investors buy up the outstanding shares and liquidate the company. But long before that, there are lot of mechanisms -- e.g. stock options, voting on the corporate board -- that are designed to encourage decision makers to be aligned with the interests of shareholders so that you generally do not see companies trading for less than their scrap value for very long. And this does not need to happen to the whole company, most will scrap unprofitable divisions and projects and not stick their heads in the sand and wait for the whole company to be scrapped. What's an example of a company that has a ton of unprofitable projects? Hmm, one such name comes to mind.

So now we see why, when interest rates go up, businesses struggle to increase their profit margins -- and those that do not go out of business. It is no different for the farmer that needs to earn a higher return on his crop when interest rates rise, so the business needs to earn higher margins when interest rates rise as well. The higher interest rates cause a reduction in investment, which generates a reduction in spending and they incentivize more savings (deferral of spending), and in this way they reduce inflation, which everyone is complaining about as it hurts workers' standard of living.

I see some other comments have mentioned this shareholder myopia.

https://news.ycombinator.com/item?id=34481450

https://www.dividend.com/stocks/communications/media/interne...

It's a pure growth stock right? I thought any initial investors exit during the IPO.

It does not have take one specific form or another. Despite the fact that Google doesn't pay dividends, it's not a charity. Investors purchase shares of Google in order to get a return, and they have a choice between buying Google or a mortgage bond or ATT, etc.

Now for growth companies like Google, they are effectively "paying" investors with promises of stock price appreciation and high future dividends. This is why they are more sensitive to stock price declines than income investments like a cable company. It's a two edged sword - they are faster to hire and faster to fire and are more responsive to their share price.

At some point, the growth companies discover they need to start paying dividends or doing regular share buybacks in order to stabilize their price, when their growth story is no longer believed by the market.

This narrative that the market forced them to do layoffs feels flimsy when they have so much money, doesn't it? They had other options.

The options they have is to abandon positioning themselves as a growth stock and say "we are now an income stock". You are right, this is a valid choice.

But think a little about what this would mean for Google. This is a company that has one cash cow -- Search. Pretty much everything else is losing money. But only a small share of Google employees are actually needed to run search. So if they tell the market "We are no longer a growth stock", then why are they spending all this money on money losing projects? The rationale up until now was that these are moonshots where some of them would turn into the next big search. That's what a growth company does, but not what an income generating company does.

So my guess is that Google does not want to transition to being an income earning company because that would require laying off a lot more people. You can lay off 80% of Google's staff and just keep search, and then turn those profits over to investors. Google does not do that because it is still promising growth.

But I agree that at some point, the market isn't going to accept the growth story for Google, and this type of transition will happen. Google has also been sucking up a lot of first class talent and putting them to work on money losing projects without a lot to show for it. Those top developers really belong elsewhere, from an economic efficiency point of view -- they should be working on things that really are legit growth opportunities.

Google? Microsoft? Amazon?

Those companies are in no danger of dying.

Could have written this in 2001 or 2008 and it wasn't true then, and it probably isn't true now.

Which executive wants to add more headcount expenses to their P&L responsibilities, without a compensating increase in revenue? There's a lot of internal politics that are likely insurmountable for most companies. Especially big companies that are inflexible and are hard to course correct.

> Layoffs often do not cut costs, as there are many instances of laid-off employees being hired back as contractors, with companies paying the contracting firm. Layoffs often do not increase stock prices, in part because layoffs can signal that a company is having difficulty. Layoffs do not increase productivity. Layoffs do not solve what is often the underlying problem, which is often an ineffective strategy, a loss of market share, or too little revenue. Layoffs are basically a bad decision.

First of all, if your strongest argument that layoffs do not cut costs is that sometimes companies hire them back as contractors, then I don't think you have a leg to stand on, because that's not really a layoff! In this case, "layoffs" is just a smokescreen to reclassify workers.

Pointing out that layoffs don't solve ineffective strategy, loss of marketshare or too little revenue is a facile argument at best. Yes, trivially, getting rid of people does not solve your business strategy problems. But at the same time, there may be no solution. The world may simply be moving on from what your company has to offer. Bringing in the MBAs to try and force the issue can have a lot of ugly outcomes that go well beyond layoffs.

At the end of the day, businesses ebb and flow, and they can only support a certain size of headcount based on the economic environment in which they operate. It would be nice if leadership had the clairvoyance to always avoid overhiring and give ironclad promises on perpetual employment, but such is not the world we live in. Coming with an absolutist position that layoffs are universally bad, backed by a bunch of flimsy strawman arguments, is not very helpful for people that actually have to make these decisions. Seems more like pandering to a generation that has never known a bear market.

I really wish for a less supine tech press. I've not seen any of these titans of industry being held accountable for the apparent major mistakes of overhiring. And I'm not even talking actual consequences here; these people will surely get bonuses for this. I'd just like to see some hard questions being asked and answered.

Workers are getting blamed by many for (claimed) low productivity. But why isn't that seen as a managerial failure? Isn't it better to have the same number of people and use them much better than a smaller number of people that are just as poorly used?

Of course! But that is much easier said than done. If it was as simple as just telling managers find a use that will make money, everyone would do that instead.

A great example here is the NUMMI plant. In brief, Totota was kicking the collective asses of US carmakers. The techniques were not a trade secret; indeed, Toyota was happy to teach anybody. As part of that, they did a joint venture with GM called NUMMI, so they could show how they implemented core principles like "respect for people" and "continuous improvement". And it worked! Using the same building and most of the same people, it went from being one of the worst GM plants to one of the best.

Did GM learn anything? Hell no. Because GM executives valued other things more than productivity and quality and worker happiness.

For the curious, this American Life did a great radio story about it: https://www.thisamericanlife.org/561/nummi-2015

This GM/automotive documentary was also interesting: "American Factory"

https://www.imdb.com/title/tt9351980/

(Don't be put off by the dramatized trailer)

Really? I feel most optimize for their short term bonuses. Which makes them take too great risks since they won't owe the shareholders anything if they fail. Like all these overhiring sprees.

If there is a chance that predicted quarterly metrics are impacted, this type bloodletting acts as a hedge. The whole "we understand we're not where we said we'd be at and as a result we're cutting costs".

The issue of course is this is short-sighted thinking.

We’re far too controlled by the short term anxiety of investors. Financiers need to learn more about how the physical world works and not just fetishize abstract math conveniently labeled in politically correct tradition.

The burden should be on finance to prove its value and not be allowed to leverage recent history when the market could only go up as the post-WW2 world was a crater. Other countries have caught up and don’t have to play by the US’s old rules. Why should the next generation within the US? People who lucked into winning have an extraordinary burden of proof their success wasn’t just being born in a time-place.

None of the software CEOs are charting a net new course for tech manufacture; they’re just managing data center footprint that host vapid content.

The older crowd is aging away and the younger crowd that grew up with a Gameboy in their face, not WSJ, can start making their own content with ML (like I am).

The emotional temple that is social media is not interesting to the next generation as they know how to Docker pull Twitter and the like into existence. It’s a solved problem from an engineering perspective. We’re bored serving politically correct capitalist memes.

Intellectual output or technical debt?

The research has shown that these layoffs are performative, meant to boost profits and/or share price right before bonus season and any "savings", which largely aren't real because of layoff costs, lost value from those employees and the acquisition costs of new employees in the next hiring wave, just go to dividends and/or share buybacks anyway.

If CEOs really were taking "full responsibility", Zuckerberg (as one example) would be facing some pretty hard questions about spending tens of billions on the metaverse (which no one wants and has no path to recoup that "investment"), which is many multiples of any supposed savings from Meta's layoffs.

  > I love this point: "The tech industry layoffs are basically an instance of social contagion, in which companies imitate what others are doing."

Meanwhile, everyone of these companies laying people off is worth considerably less than a year ago and what was supposed to be a quick ending to the conflict in Ukraine has turned into a precursor for a larger sale war that may last for years, no doubt having a significant impact on economic growth.

It was never about the workers. Layoffs are because companies think the workers cost more than they make. Everything else is just bickering over why they think this.

It is hard to time. We make it hard to time. Most likely yeah, all these layoffs are causing the problems, and following what the FED instructs them indirectly to do.

I keep hearing this repeated as canon but is this quantified somehow? Did we really see a spike long enough for hiring sprees? And did it last until ... when? A few months ago?

It seems intuitive but I'd really love to see numbers.

https://www.vox.com/platform/amp/recode/2023/1/19/23562702/a...

> The traditional way to think about ecommerce penetration is to look at share of total retail sales, and then deduct things like car repair, gasoline and restaurants - to get to ‘addressable retail’. On that basis, US ecommerce was at 16% penetration at the end of 2019 and increased to 20% or so in 2020, adding 12-18 months of growth in a year.

[1]: https://www.ben-evans.com/benedictevans/2021/5/29/boxes-truc...

COVID has mostly moved from pandemic to endemic (like the flu).

This doesn't seem like a good strategy for tech. Cutting everyone's salary will dislodge your top performers who can get a better position even in poor market conditions.

Will it? Are your top performers only there because of the pay? And how do you even determine who your top performers are? I see this sort of logic frequently and I don't even know how to measure it, much less believe it.

In an ideal work environment, probably less so than other employees. But I think anyone who has their salary reduced is going to reevaluate their position, and those with more valuable skills are more likely to leave. The question is, what is more likely to cause a serious reevaluation, salary reductions or layoffs?

I think for most tech companies, a single round of layoffs is preferable, as the people who you want to remain are more likely to feel they aren't and won't be affected and not reevaluate their position. The reductions approach could work for smaller or startup companies with a flatter structure, where employees are more invested in the company's goals and successes, either through culture or shares.

Either way you'll probably be thinking about interviewing, with a bit less urgency if you get to keep your job.

And if they stay, their morale and motivation may drop 10-20%

And people who quit don’t get severance, so it’s a win-win for the company. Or at least, they seem to think it is.

This is such a weird attitude to me. If it goes up you expect the gains, if it goes down the company is letting you down.

Stock is supposed to involve some risk. It's not cash, and you will only be disappointed if you build your lifestyle around it being a certain price.

BigTech specifically has lured people with the promise of stock appreciation on top of already great base. When stock prices collapsed last year many companies offered “top ups”. The implicit agreement was that stocks only had upside.

Some solutions to this include furlough rather that straight cuts. Those do reduce some infrastructure costs. I can’t reduce service staff and contract work at all if everyone is working 40 hours a week still. We use the same toilet paper, water, electricity, other consumables and depreciating equipment. A saw blade cuts X feet of metal. But I can trim if everyone is working 37 hours.

In case of Google they already "overpaid" by more than that percentage wise. Sundar can just say take your unhappiness and shove it up the place. What you gonna do? Quit when every other FAANG is laying off in hope to find something better? I do not think Sundar would give a flying fuck about this kind of unhappiness.

So top performers will get moving quickly.

Granted, there are a set of people who are very good at job-hopping while executing a performance of being a top performer. But maybe a company will do just fine those people hop away. Maybe it would do better.

The handwringing and psuedo-calculus of cuts does further damage to any interesting work.

Can't do interesting work when instead you have to fill in for a job previously covered by a junior engineer.

It'd take a hell of a company culture to fight these trends.

And obviously, not laying off people has a much smaller impact on staffing and the work one is doing, so I'd like that part better as well.

You need the sort of work I do when you’re trying to get more done with less. Do I prefer using these skills to prevent over hiring in the first place? Of course I do. I’ll even take it for winding down a cash cow so we can start new product lines.

The “goodness” of most people who conflate new with better is a matter of prospects. This kid is going to be amazing someday. In a downturn you need amazing now, not some day.

But above the curve, everything else matters a lot, especially having a good boss / project leader and a project that makes sense / is actually used by people.

Advice to reduce the wages of all individuals is disconnected from reality and likely originates from someone who is insulated from the practical implications of such a decision, such as those in an academic setting.

I generally agree. Copycat layoffs are the result of “we have to do something” thinking, with little thought put into whether or not what’s being done is actually beneficial. Politicians are subject to these types of actions, as well.

If you do the same thing everyone else did and it doesn’t work, you don’t get blamed. You, like everyone else, was a victim of “circumstances”. But if you do something different and it doesn’t work, it’s your ass.

That said, these circumstances could provide cover for companies who need to shed poor performers or performers who’s cost-benefit is no longer positive to the company. But that requires more planning and forethought than I think any of the major players are applying.

Look at Meta as one of the worst offenders. Meta's layoffs will save what? $5 billion a year? Assuming those employees were actually producing some value, the true savings will be less (since you also have to factor in severance costs).

Now consider that Meta has spent $36 billion [1] building the Metaverse with basically nothing to show for it.

Now Meta has fully internalized the idea that it cannot exist without a monopoly of some kind. FB (and even IG) are dwindling. The Metaverse is the answer to that. That's literally all it is. But there's no business strategy here, no value proposition to consumers (on the contrary, this is something consumers clearly do not want) and no product-market fit. Yet the intention here is to spend over $100B on this unproven effort. For what return on investment?

My point is that Meta could've achieved multiples of the "savings" from layoffs by simply scaling back or, better yet, scrapping entirely the Metaverse. Focus on the core business and acquisitions.

So many of these layoffs are purely virte signaling for "investor confidence" and nothing more. A less charitable interpretation is that it's aimed and making the remaining staff work harder and for less money, fearing future layoffs.

Meta in particular is rudderless and layoffs are a bandaid on that.

[1]: https://www.businessinsider.com/meta-lost-30-billion-on-meta...

To be fair, Microsoft's executives partied with Sting[1] right before announcing their layoffs. They probably would have rather had Lady Gaga perform for them, but had to take some responsibility so they settled for Sting. It's hard times for everyone.

1: https://www.marketwatch.com/story/microsoft-hosted-sting-con...

Ideally, you would carefully evaluate everything and trim the fat. But that's probably not possible and if it were it'd play out over a year or two which is worse than ripping off the band-aid. So you make the cuts and expect/hope that people will get reallocated to the most important things and productivity will go up.

Anecdotally, the productivity went up during covid because the boundaries of WLB were shattered. But after 2 years, I think a lot of people are feeling burnt out. The companies may feel like they are just trimming the fat, but fat has an essential function in the body.

With less people, no doubt, the people who are left will initially work harder, but they will soon succumb to burn out and have a loss of productivity. Working harder after already working hard for two years can do that to you. The company’s best performers at low productivity will do more harm to the companies than having their low/average performers have low productivity.

For companies like MAANG that are already hugely successful and have hit a wall so to speak, they don't need low level productivity before they need top level strategy and vision. Apple is a good example of their management priorities being clear - they seem to know what works and where to go next quarter and their middle management also seems capable enough to turn that into products/features and make their Engineers' lives simpler so they can be productive delivering on it.

For every 10k+ layoff assuming that it's the lackey low level guys the aren't productive that needed to be laid off is not only inaccurate (lots of greatly productive Googlers have been let go for example) but also unfairly cuts a whole lot of slack for the greater financial burden on the company folks up top that are in charge of strategy and vision. After all they are also the same people that hired the people who are laid of - directly or indirectly.

Google's problem for example is NOT that they are unable to sell more ads because their programmers are not productive - it's that they lack the vision to take the company from ad based to diversified and profitable in other areas which they have badly failed to do while still hiring ton of people and then laying them off. That's not productivity problem - it's a strategy/vision and bad hiring practices problem. Even if it meant that somehow you could hack the productivity metric to show it was reduced in some light - it doesn't mean jack when you are productive doing things that don't help your revenues.

There's no clear way to measure employee productivity in a white collar job. So claiming "productivity is down" with no objective evidence, is just groupthink.

Because rules derived over the last decades or whatever don't necessarily apply to an unprecedented situation

Because pretty much all the CEOs and employees say that productivity is in the toilet

Because I don't see 20% or whatever more useful products/features coming out of any of these companies

Personally, I think the situation is an entirely precedented change in growth expectations that comes around a tightening of monetary policy and a possible recession. But assuming that you're right, on what basis are you claiming that the standard playbook will get new and better results this time?

Your claim is that this is driven by the pandemic. I think that's pretty suspect. China excepted, pandemic restrictions ended quite a while ago. I think this is much better explained by the usual shifts in the overall economic cycle, especially the Fed's recent increases in interest rates as they seek to quench inflation, plus the matching stock downturn. An easy check on this: Google's announcement of layoffs doesn't even mention the pandemic. Another one is that layoffs are happening across the industry, not just in companies that were especially boosted by the pandemic.

But even if it were purely driven by pandemic growth and then the retreat of growth, changes in growth expectations are not unprecedented. Unless you have numbers that show different, I expect the changes in growth rates are not unusual at all compared with other major economic phenomena.

"pretty much everyone says" is not an actual defense.

I've been on both sides of several layoff cycles. I've rarely seen any correlation with worker capabilities. I have, however, seen incompetent management cause employees to stall out and flounder.

When developers are needed for growth initiatives that can drive a stock multiple off more than just current earnings, the cycle will begin again.

They are also in trouble.

Where was this “expert” in contagion when copycat hiring was taking place?

Does macroeconomics have any impact on labor? What is the “dual mandate” of the fed?

If you buy this nonesense you signal your views have no intellectual merit, and you’re best to simply ignore.

I know the sample size of 2 is not scientific, but it was enough for me to not have any illusions about the nature of things.

At that level, trusting people you don't know is even more risky.

If they wanted to actually be tough, they could ride it out and take slowdowns as a time to really improve internally. As an example, take Toyota, which rose from the decimation of post-war Japan to the world's largest car company by sticking to a no-layoffs policy and using slack times to invest in people, process, and plant.

Pretty much just that. This is how big companies decide most things, not only layoffs.

Asking because I would expect executives to sell "by the 10s of millions" pretty much every year. Especially since they cannot really sell on a whim (in the US), as executives are legally required to file their stock purchase/sell plans with SEC far ahead of time.

(The use of a 10b5-1 is also not technically a legal requirement, but is a workaround to allow planned sales even if you become aware of material, non-public information between the time of entering into the plan and the time of the trade.)

Or speeding up good news so his scheduled sale rides the high.

Look ma, no inside information.

[1]: https://www.supplychaindive.com/news/amazon-earnings-logisti...

Tech definitely bloated a bit over the pandemic because of the uncertainty. Pandemic is over, recession is upon us, this is more a normalization in my opinion.

Everyone had been believing that there will be a huge surge in economic activity post-covid, aka starting from 2022. Therefore over hired in the pandemic to catch the market.

We know that didn't happen. Rather Ukraine war has dampened it further. Now they are hurrying to correct it. They were dragging feet initially, but Musk's successful Twitter layoff triggered another avalanche.

If they knew the future, then why did they overhire in the first place?

You hired 7 dog walkers (one for every day of the week) to walk your dog Stinky during lunch.

A year down the road you realized you don't need someone to walk Stinky every day, you want to do it yourself sometime. You can say you overhired.

So you decide to keep 4 of the dog walkers and let 3 of them go. That's a 43% layoff, you heartless capitalist.

Who do you cut? Well Bob is the Sunday guy and you definitely don't need a dog walker for Sunday, so Bob's on the list (role elimination). Alice makes $25 per walk while everyone else makes $20, she's gotta go (overpaid/cost reduction) and Carol, you actually think she's not that good with Stinky. You had to have her when you thought you needed 7 people, but she ain't one of the top 4 (performance based)

So now you got 3 dog walkers instead of seven, you pay them on average less, their performance is on average better and they are focused on days you really need them. Yeah you don't have the same coverage but turns out you are fine without it. Stinky is happier too. You may even use your saved money ($65 per week) to hire someone you need more, like a cleaning lady.

Obviously you can fuck up layoffs but if done well you and Stinky can come out ahead.

Also seed rounds were oversubscribed with no diligence, product, and money raised on little more than names and vague ideas. Series A was possible pre-revenue. Series B on 100 to 250x revenue. The whole thing was unsustainable.

Finally a huge number of tech employees were “barnacles” or those somehow making 6 figure salaries while providing little or negative value. Now that the music has stopped those people are being cut. I’m talking about agile / scrum people, DEI, ethicists, bloated HR, and all manner of not-revenue generating employees. Push has come to shove and they are jettisoned first.

Do you have a link to a chart or research that shows this?