What I've experienced at companies on a death spiral is that there are a few people everyone can agree are useless, and beyond that you start picking people based on your poor understanding of how the sausage is actually made.

Once someone really useful has been let go, you have the sudden realization that your situation isn't that different than theirs. If management can misunderstand Tim's value, they sure as hell can misunderstand yours. At which point everyone's productivity is compromised by existential dread, and the wheels just start coming off faster.