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

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?

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.

After 1-2 years in any big tech company your equity surpasses your salary.

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 ...

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

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.

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

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...

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.

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.

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.

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

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.

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?

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.

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.

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.

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.

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.

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.

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

* 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

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.

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.

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.

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

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.

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.

I don't think this is the case. Cutting costs is hard in tech companies because the biggest cost is usually people. If cuts are intelligent and needed, it's good for the remaining employees, customers and investors. If cuts are for the sake of "everyone is doing it" then, it's extra.

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.

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.

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.

not sure why you think this is categorically true.