Layoffs are bad for business

An aerial view of Facebook/Meta’s Menlo Park campus
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But layoffs that last months are worse, as Mark Zuckerberg may soon find out.

When Meta, formerly Facebook, laid off 11,000 workers in November, it was in the shadow of Elon Musk’s brutal and chaotic firing spree at Twitter. By comparison, the way Meta CEO Mark Zuckerberg conducted layoffs — saying he took responsibility for growing the company too fast, showing what other cuts the company made first, and offering generous severance — seemed humane.

But this week, Zuckerberg announced plans to lay off another 10,000 workers and will do so in a piecemeal fashion over the next few months. People who work in recruitment will be immediately impacted, those in tech will find out in April, while business workers will learn their fate in late May. Additionally, Zuckerberg had been hinting at these layoffs for weeks, further extending the air of unease at the company.

It’s a bad way to do layoffs, which experts say should be minimal, compassionate, and clearly communicated. Doing so little by little will leave workers on edge and drive away people Meta wants to keep, and there’s also a good chance it will hurt the company from growing in the future.

“We just extended the window for people worrying about layoffs till the end of May now. How is that supposed to be efficient?” a Meta employee, who asked to remain anonymous so as not to jeopardize their employment, told Vox.

In his post, Zuckerberg said, “I recognize that sharing plans for restructuring and layoffs months in advance creates a challenging period. But last fall, we heard feedback that you wanted more transparency sooner into any restructuring plans, so that’s what I’m trying to provide here.”

This is all happening as tech workers have seen a reversal in their employment prospects. Tech companies that conducted unprecedented hiring earlier in the pandemic are now — some for the first time ever — cutting staff as ad dollars plummet amid a potential recession and as users are doing things besides hanging out online. This has meant a whipsaw in perceived power among tech workers who are used to great perks and big salaries, but who are now worrying about having a job at all.

Layoffs in general are a bad way to run a business. In addition to making people more likely to leave the company voluntarily, layoffs ruin morale for those left behind and lower their productivity. This effect is worse if those layoffs happen slowly and without clarity from management, as is the case with Meta’s latest round. If companies need to conduct layoffs, they should let everyone know up front and offer retention bonuses for those who stay through their layoff date, according to Robin Erickson, vice president of human capital at Conference Board, which studies how companies behave in crisis.

Additionally, research shows that layoffs don’t actually save companies much money. Savings on salaries are mediated by severance expenses, not to mention the lost productivity and knowledge those workers take with them.

“What happens in the short term is the company bean counters say, ‘Well, if you get rid of this many people, you will save that much,’” said Erickson. “In the long run, layoffs do hurt companies. Period.”

So why are Meta and other tech companies continuing to lay off employees?

One reason is that companies like Meta are chasing short-term stock gains. Investors have been calling for Meta to tighten its belt, and in this case, announcing layoffs paid off. The company’s stock jumped 7 percent on the latest layoff news, closing at its highest point in more than eight months.

“They like cost-cutting because the effects are clear and immediate, and employees are expensive, so cutting them cuts a lot of costs,” said Peter Cappelli, a professor of management and director of the Center for Human Resources at University of Pennsylvania’s Wharton School. “They also can’t see the drawbacks to cutting people, at least immediately — what happens to the work those people did, what are the knock-on effects on teams, turnover of others, etc.”

In Zuckerberg’s announcement about the most recent layoffs, gone are the apologies for causing the mess in the first place. Instead, there are details about his Wall Street-friendly “year of efficiency” plan, which includes eliminating many jobs in middle management and operating with fewer people generally. He used the word “lean” or “leaner” eight times.

To be fair, Meta had doubled its employee base since 2020 to the point where some of its own employees found the company to be overly bureaucratic. Like other giant tech companies, Meta was looking for ways to return to its scrappier roots when it first considered letting some employees go. But the drawn-out layoff cycle that it’s undertaken now could end up being an overcorrection that hurts the company in the long run.

Another reason for so many tech layoffs? Seemingly everyone is doing it — Amazon, Alphabet, Microsoft, Salesforce. Stanford Business School professor Jeffrey Pfeffer has called the string of tech layoffs mostly “social contagion.”

“If you look for reasons for why companies do layoffs, the reason is that everybody else is doing it,” Pfeffer told Stanford News in December. “Layoffs are the result of imitative behavior and are not particularly evidence-based.”

There’s also a more quotidian reason for layoffs: accounting magic.

Wharton’s Cappelli argues that accounting rules compel companies to treat employees as current expenses that can be cut rather than assets, which hold value. This causes companies to use layoffs as a means to make their balance sheets look better, even if it doesn’t help the company in the long run. He notes that many companies often end up trading in full-time, salaried employees for comparably expensive contract workers, just because it makes their numbers look better to Wall Street.

“Some of the important financial accounting measures are reported on a per-employee basis, so as soon as we cut that denominator, measures like revenue per employee improve,” he explained. Those measures, of course, don’t capture things like loss of institutional memory and decreased morale and productivity caused by layoffs.

None of this seems like particularly holistic thinking that will really lead to Zuckerberg’s professed desire in his layoff post of “Building a Better Technology Company.” It feels instead like a short-term fix that won’t necessarily get at the company’s underlying problems.

As economic uncertainty lingers in Silicon Valley, there’s a good chance that layoffs will continue to take place across the tech industry. They’re an obvious way to try and save money and show investors that they’re correcting their course, but they also run the risk of sabotaging these companies in the future.

Shirin Ghaffary contributed reporting to this story.

Update, 1 pm ET: This story has been updated to include additional commentary from Mark Zuckerberg’s layoff announcement.

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