To extend that, if a CEO bucks a trend like that, and then the company's profits appear to suffer as a result, then stockholders will be unhappy, and the CEO may lose their bonus, or worse.
Just to point out that there are often personal implications for the powers that be, if the stockholders feel that mistakes were made.
I hear arguments like this on HN all the time. This seems similar if not the same as, "CXO has a fiduciary duty to <do something terrible>".
How often do execs actually get punished for _not_ doing something terrible? I never seem to hear about cases where they are held responsible for not following fiduciary duty. I only seem to hear it brought up as a justification for shitty behavior.
I'm not trying to say it doesn't happen. I'm genuinely curious.
But anyway in my case I didn't say it was their duty, I was talking basically about the psychology.
From this angle, it's about whether they think that shareholders will/might think they made a mistake, not about whether they actually made the best judgement for the company.
I have no doubt that at least some CEOs will absolutely choose to do something that they privately believe is not optimal for the company, when they think shareholders will see things differently.
The converse of this is seen when a politician does something out of principle that they know will get them in trouble with voters. We have plenty of evidence that that happens -- and that it's on the rare side.
Execs don't get punished at all because of the collusion between boards of directors and executives. This collusion comes into being because both directors and execs belong to the same class. This is not the case with others (the relationship between execs and middle mgmt, between middle mgmt and worker bees).
Thanks to the dominance of mega index funds and pension funds, there is no way to rein in on boards of directors. Activist investors can control a bit. Remember the fight between Carly Florina and her hand-picked board on one hand and Walter Hewlett on the other hand about HP and Compaq merger.
One study found that being laid off ranked seventh among the most stressful life experiences — above divorce, a sudden and serious impairment of hearing or vision, or the death of a close friend. Experts advise that it takes, on average, two years to recover from the psychological trauma of losing a job.
For healthy employees without pre-existing health conditions, the odds of developing a new health condition rise by 83% in the first 15 to 18 months after a layoff, with the most common conditions being stress-related illnesses, including hypertension, heart disease, and arthritis. The psychological and financial pressure of being laid off can increase the risk of suicide by 1.3 to 3 times. Displaced workers have twice the risk of developing depression, four times the risk of substance abuse, and six times the risk of committing violent acts including partner and child abuse. The stress induced by a layoff can even impair fetal development.
10 years ago I was put at risk of redundancy with the rest of my team. I was ultimately fortunate to keep my job and was told later I was never at risk, they just had to include the whole team for some HR reason. However due to the stress at the time both my mental health and physical health (IBS) hasn't been the same since.
In general sure. In specific they are terrible. En masse they are even worse. Not only did someone lose their job, there are now an additional 199,999 other people competing for the jobs that are still out there.
- Terrible for those who lose their jobs and lifelihood
- Terrible for those who in the process lose their visa/life they know
- Terrible for those remaining as they are anxious to be next
- Terrible for the company as the best people will now look for a job elsewhere (before the axe hits them)
- Terrible for the company as anxiety leads to less effective employees
I’m not saying this IS happening, but there’s a potential tin-foil hat angle here too. There was quite a bit of job hopping and increased wages going on before 2022. A little RIF by everyone has a chilling effect on people looking to leave. People prefer stability when times are tough. And cutting total number of available positions across the industry can have the effect of suppressing wages.
Again, I have no reason to believe this is happening, but it IS a potential motive.
It is not a conspiracy. Many companies do actually lay off a number of senior employees in downturns and rehire less experienced employees at a cheaper rate (taking into factor experience).
> If they lay people off in good times, then that is a serious indication of trouble at the company.
I used to work at Amazon from 2001-2006 and every single year there was a round of layoffs of several percent after the annual 360 degree review nonsense was completed. That was part of the whole "topgrading" nonsense to keep negging all the rest of the remaining employees.
Did they actually have to stop doing that, or is this whole "nobody ever did layoffs in tech up until this year" narrative something invented in the past few months?
Because it is very hard to fire someone underperforming. You need to hire people to get stuff done. To fire people, you either need to build 1 year of paper trail or wait for the next signs of recession.
These companies are sitting on cash, they are expected to hire and use that cash to grow revenue. The last decade of free money made many companies irresponsible and bloated.
While some economic indicators are bad already, the real issue is core inflation not giving up.
The Fed has already signaled it will keep hiking rates until the economy slows down and inflation is controlled. As an entrepreneur/CFO, would you bet against the Fed?
This might have a measurable effect though, basically 200K+ workers kicked out of the industry, and the fear of a second round for the remaining workers. That is a some serious belt-tightening there. If it feeds into other less progressive industries, it might well help (which I suspect is the whole impetus behind it, at least the coordination suggests so).
The more removed the financial and tech world is from the rest of the economy the more they cloud reality by distorting GDP figures. We may not be in a recession but everyone I know has more difficulty paying for things and a more negative economic outlook than they ever did in '09.
You have to remember that these companies have access to metrics that aren’t public yet. They can monitor sales day to day.
Wait until Q4 results come out. If companies like google have seen a drop in Q4 advertising revenue (unsurprising since it’s often an expense that gets cut first), they may be trimming headcount before the downturn in revenue is even made public.
Growth stage startup CEO here. At the end of last year our board meeting was a pitch from outside investor director to founders recommending a 50-75% layoff, despite several years of runway. The capital class is despondent that the stock market has melted, and the solution is to pull the ladder up and nurse wounds. In my opinion, companies are all responding with their own values informed version of what their financial stakeholders have been urging them increasingly to do.
The financials aren't actually telling these companies to lay people off; the shareholders are. The macroeconomic climate is very different than the microeconomic climate; the microeconomic climate for most of these companies is "slow expansion", not "contract". In fact, many of them are still hiring even as they're laying people off because of that. But the shareholders are very much concerned, and so this is much more of a response to that.
Not really. The shareholders are being forced by the FED. None of the investments they made make sense at this interest rate level, so they want out. However ...
The theory behind the moves of the FED is that they want inflation down. How? By firing people (people will only pay prices they can afford). The FED can't fire much people. So if shareholders want the FED to back down ... they need enough people fired.
And that doesn't really work because we are fundamentally tight on the labor market for 4+ years now. Nobody fired is going to have trouble finding a new job. Maybe not the same, but they won't exactly be unemployed (although given the wages offered unemployment might be the preferable option).
It's not shareholders, it's Jerome Powell.
It's also just not going to last. The Federal government is looking at two options, in ~1.5 years. Cutting spending by 4% (and one year after that, >10%) with LESS income. Or convincing "independent" Jerome Powell to lower interest rates back to 0%.
So we'll have, let's call it 2 years of this. The FED will be as effective as an inflatable dart board, but they only have ONE tool and goddammit, they will make it work!
Yes this is another instance of the financial tail wagging the economic dog.
Our economy has become completely over-financialized, and in this situation the fed have decided that inflation needs to be contained, and are inducing a recession to do it. They can do this quite reliably because of the level of financialization, companies are in debt to the hilt even if they don't need to be (it's because shareholder value), etc.
Another anecdote, a company i used to work for (200+) employees, in high growth mode but not yet profitable got told the same by their investors. “Save cash, layoff staff, raising is going to be more difficult”
So they terminated 40% of their staff despite the growth basically because investors are very pessimistic.
Bull markets and a strong financial situation usually pushes companies to overhire or over estimate the number of employees they do actually need. I have seen clients I worked with and we have advised 75% layoffs multiple of times. This is especially true in the dev teams.
I’m not op, but I say do it all in one shot. I worked at Iomega in the 90’s and it felt like they had a layoff every quarter, which was toxic. The company was on fire, however, so maybe that’s different.
It's interest rates. Capital is becoming more expensive.
If you are a good CFO, you say:
"Hey remember how we want 5 years of cash, well i just looked at selling bonds and getting cash now is expensive." For tech companies the biggest expense is salaries, so saving cash means firing people.
For the smaller companies they aren't getting investments as easily or at all. They will also need to save cash.
True, but valuations are based on future earnings potential. If the market looks down, then there is the idea that there is less revenue coming in the future, and the company has less capability to sustain a workforce.
I wonder how many of those tech companies that you're alluding to have evergreen provisions baked into their capital structure, and what that means from a cost of equity perspective at the prevailing risk-free rate.
FAANGs are also big enough that they'll have actual econometricians working under the CFO who are producing gloomy reports about the over leveraged sectors of the economy are likely to set off detonations due to higher interest rates.
And this also gives these companies (and others) a reason to skip promotions and pay hikes for everyone else. This is just an excuse to exploit labor to increase profits when demand is falling.
Imagine you have a money printing machine. And the more people you have to turn the cranks on that money printing machine, the more money you'll make.
Then imagine the Federal Reserve comes along and says, "How would you like a bunch of almost free money?"
The logical thing to do would be to get a bunch of that almost free money and then hire people to crank the heck out of that money printing machine. So that's what they did.
And then the Federal Reserve says, "Party's Over!" and stops giving out the almost-free money. You lay off the bottom performing x% of your entire workforce.
It's rather memetic in a way, everyone thinks everyone else knows best when it happens. Then the mimeses becomes a self fulfilling prophecy and private liquidity starts to tighten up even further than the tightening because of interest rates.
I'm guessing the decision makers here are sometimes aware of the irrationality of the snowball effect, but bet on it being irrational not to copy it before the market reality hits them and they have to make even deeper cuts in future.
Betting you're not the smartest guy in the room is not routinely wrong--especially if the action of all other other "smartest guys in the room" affects the outcome.
Yep. It's the Rene Girard Peter Thiel mimetic desire. The first outside investor in Facebook. Stanford professor. Critic of the critics of Western Culture. Jesus Christ is the one true role model. These layoffs are the apocalypse. The laid off employees are now Gods. Zero to One by Blake Masters. National Conservatism. One cut on this I always have is, these things are always over-determined.
Many tech companies made the same assumptions in the last two years (e.g. online transactions/ecommerce will stay at COVID levels). Those assumptions turned out to not be true, so they are course correcting to match the current economic climate.
a. With cheap money, placing and chasing risky bets was risk almost-free.
Although, this has been the case for past 4years, 2021/2022 was where it eclipsed new highs.
b. Wag-wars: In 2020, 2021, 2022, in SV, I have seen people getting insane offers. Sometimes accompanied by multiple expansion of stock (TSLA, NVDA). This eventually meant that if you don't pay top-dollar, someone else will and you will have to keep hiring belt burning. [presume that prospective employer finds you worthy enough]
I also find hard to believe that decision makers believed that pace of growth/expansion in 2020, 2021 was sustainable. There were signs that it isn't and cheap money kept flowing. Some would also criticize the stimulus checks but in my view, it helped folks who needed it the most but it also went on to chase risky or unproductive things like NFT etc.
Yeah Microsoft is an interesting case, since they aren’t as impacted by ecommerce spending. As far as I know, they haven’t launched a completely new service/offering that would require that many people.
That might be a case of them cutting the costs to prop up the stock price so they can make acquisitions? Time will tell
The size of these layoffs are minimal in comparison with the hires they have done during the pandemic. I see this as normalization more than anything else.
english not me main language but it not mean me stupid. i was at two big tech company for over past 10 year.
this a massive GRIFT..saw armies of new hires. Now people on HN and LinkedIn say, "So hard to recruit this level talent. Will need to re-hire them." Oh really? Let me tell you.
i saw:
- original founders, execs, and they proteges leave, to be replaced by "Professional Managers"
- professional managers have no vision or direction.
- professional manager cares nothing for customer, product, or value.
- professional manager driven by prestige of being at big tech and ego
- only goal is to increase HC, fight territory battles, and grow empire.
- main incentive was PROMOTION.
- how to achieve promotion? Managers: empire building. IC: invent complexity, build solution to problem that not real. launch it, get promoted, go to next team. great, now we need to spend even more $$ to support some piece of shit services because critical stuff taking dependency on it. manager, Sr. Mmnager collude across organization to show big impact and get unnecessary thing entranced deep in tech stack. But hey, now we write document in promotion portfolio so sr. manager can become director.. sr. engineer become staff level..
- 20% of company provide value that pays the other 80% salary.
- Many people work on stupid thing that have no meaning for customer.
let me pick a random big tech co:
you tell me what huge improvement in amazon shopping, how alexa better, how kindle better, how fire (junk) any better? What big innovation even from aws in past 7 year? oh let me tell you – lets steal some open source project, give no credit or contribution back to main project, and sell as managed service and eat our customer in data transport cost alone.
this grift went on long time enable by cheap borrow policy. and in silicon valley, it at level of Ponzi scheme. I invest in company x,y,z, and c. i force c to use shitty SaaS products from x,y,z or some other company my friend invest in. it literally same dollar moving from x to y to z to c.
Yes like CALPERS and Norway sovereign wealth fund that have to provide retirements to millions of average people. And index funds that tens of millions invest for their 401k. A falling stock market isn’t good for the average person
The theory by a certain Jack Welch being that the bottom 10% are "non-producers". Since they don't produce, they can simply be fired without affecting the output of the company.
And since some startups had legit trouble and laid off people because they really couldn't survive otherwise (but then typically laid off >10% or had multiple rounds of layoffs), the others can now do it without taking a reputation hit (again, in theory).
VCs seem to be pushing this heavily.
Personally, not a fan. Yes, it's legally not as easy to fire someone for low performance like it is to fire 10% because "the economy!!1", but it's also not impossible. No need to use scorched earth tactics...
Let’s see 5.5 million workers in tech and 200k get laid off that makes less than 4% of jobs lost. Considering securities took a way bigger haircut, I don’t see what the concern is about.
Losing your job is a binary event, you have the job or you don’t. It’s not much of a comfort to someone who has been laid off that stocks are doing worse.
But the number of H1B visas is NOT decreasing and the big tech companies that own the advertising platforms continue to whine about talent shortage.
It’s a farce to reduce their costs by flooding the market with cheap labor.
A lot of different explanations here and they're probably all true as it is a combination:
1. Interests going up means less economic activity (at least how our current financial system is setup)
2. Everyone else does it, so you can trim down without stigma.
3. We are hitting an economic recession and the companies remember how bad times can go so they want to prepare.
A more cynical thing is, as we are hitting this economic troubles ahead, things will most likely get cheaper.
If Google have more money they can buy more of their competitors and ensure to bigger marketshare for cheaper.
Interest rates going up means higher interest rates on debt service. As commercial loans hit their maturity dates and those interest rates hike up the entities which have been barely skating by on low short term rates will be pushed into liquidation. Those failures will spill over into risk of contagion in the financial markets as we find out who has been underwriting bad loans this time.
And yes "crisis brings opportunity" and its likely going to be a very good buying time for those with cash on hand near the bottom. Those who have burned up their cash will not get a seat when the music stops.
The most famous tech companies are constantly trying to outdo each other so when one is forced to do cuts, the others try to have a bigger cut. Midsize companies see this and realize that, while they can't play at the same scale, they can look cool too by following suit. Small companies look at this and realize it's an opportunity to finally get the staff that wasn't available before. And while the process is disruptive to lives and productivity, those small companies grow just a bit more competitive with their bigger brethren.
So it's some grand conspiracy that companies are doing mass layoffs as their stock prices drop, but not when they do mass hiring as their stock prices artificially inflated?
Chance to reset salaries within the company without losing out much on the market (doing layoffs in a similar time frame with others will pretty much leave you with options when you all start hiring again)
Showing the whip to their remaining work force, as the power dynamic becoming even slightly more equal is unthinkable.
I suspect that it's an attempt to spread panic and get the "good employees" to accept a salary / benefits reduction in fear of going jobless. VCs demand more profit so a new way to reduce salaries must be found.
This layoff in my opinion will create one of the biggest startup revolutions (similar to 2008) in history. This number is just huge and we will see the effect in 2024 IMO.
I think more than "dead weight", Musk was trying to get rid of what he deemed a culture problem. Using the dead weight as an excuse he did multiple rounds of purges, with "useful" (productive+culture matching) engineers also getting purged in the process as an acceptible loss, only perhaps seeing that as a bit too far later on (recall there were engineers being asked to come back on an individual basis). The purging wasn't a surprise from my perspective of , in the past, seeing CEOs agressively weed out employees who only slightly disagree with them, let alone the "actively plotting"(?) Twitter employees who, you may recall, Musk was pouring over internal conversation logs to find, it seems.
And to expound on the main topic, I think what we're seeing is a confluence of the above: using downturn, etc. as an excuse to shed perhaps individuals or groups that are in opposition to the culture the board thinks is useful, drowned out by a total also comprised of some amount of acceptible loss in employees the company wouldn't mind keeping.
Watch as some individuals from all of the above are individually asked to rejoin with a pay bump.
Are you an engineer? How often have you worked on something that would be noticeable immediately if you left?
I’ve never in my career worked for an extended period on something that was just maintenance. Software systems are extremely stable so long as no one is adding features or increasing usage. I have made (as part of a very small engineering team) a company close to a billion dollar profit on one project, but in the whole 5 years we built that thing, no one in the world would have noticed if we got fired. Because it was R&D.
Engineers are R&D investments. If you decide “no more R&D”, then that’s fine, that’s a strategic business decision. But it doesn’t mean the people previously doing R&D were doing nothing.
I definitely agree on big tech company bloat, but do not agree with those percentages (or at least on average).
I also don't think he properly sorted engineers between slackers and non-slackers due to reasons like the speed at which cutting occurred and the rehiring into firing to fix whatever random issues.
Industry wide layoffs are a nice cover to cut inefficient workers, although I don't know how well they can be sussed out in large companies. My own company with only a few hundred employees cut some people and I can say that, of the ones I was familiar with, they were mostly slackers or low performers.
> My own company with only a few hundred employees cut some people and I can say that, of the ones I was familiar with, they were mostly slackers or low performers.
That's a good question - if you mean across the industry as a whole then I would say maybe because I don't have insight into every company. I also mentioned that I think it is harder to determine the low performers in larger companies that have 1000x more workers. I do know that some companies have focused on laying off certain departments or teams, though the criteria is a mystery to me (not profitable on paper?).
I would also like to amend my current qualifiers to include underutilized employees, too; eg a company over-hires and ends up not having enough work for everyone, which seems to be another common narrative for these layoffs. These people can appear as low performers even though it is the fault of the company for hiring them.
Twitter isn't running well now, though. It's extremely error prone, recently protected tweets were showing on other folks timelines, the service was down in Australia for an extended period of time recently, auth services busted, APIs for third parties failed (and subsequently messaged to be no longer supported, unclear if this is because they can no longer maintain it or an actual decision was made to stop). One of Elon's largest proponents, popular twitter user catturd, is complaining incessantly about how the algorithm for feeds is worse now than ever before.
At this moment central banks worldwide are increasing interest rates to slow down economies and fight inflation caused by money printing during COVID (different countries might be in different parts of their tightening cycles tho).
As a company, if you believe there will be less economic activity in the future, you must cut costs to ensure survival.
Of course one could bet central banks will fail, but historically this sort of bet has held nothing but pain and suffering.
Love him or hate him (I'm more the latter at this point) Elon showed you could trim 70% of the workforce from Twitter and it's still up and running. So with that logic, that being on the extreme side, trimming some smaller % is a no brainer to the boards of most companies now.
If the rumors are to be believed, revenue has cratered. At the very least, the quality of ads has steeply declined - from A tier brands to B and C tier ones.
Perhaps eviscerating the sales and content moderation teams was not a genius 11-d chess move?
Give it another year. Rumor mill is that many are silently seeking new jobs. The site is in a slow decline right now, several journalists talking about the weird consistency bugs they are encountering.
I suspect that with some time the people who are left there will burn out from the maintenance load due to the 70% cuts. Elon should have been more empathetic when cutting people, to not burn the good will of everyone who was left imo.
Twitter still runs due to fear in others of losing their job in these tough times. If the market was as great as before, no Twitter employee would agree to work 10+ hours or weekends, or sleep in office.
There's no stigma for them doing it if everyone else is.
If they lay people off in good times, then that is a serious indication of trouble at the company.
If they lay people off in bad times then that is an indication of wisdom and prudence.
I've seen it in multiple recessions.