In cases like that, the layoffs really do seem likely to be damaging to the companies. If circumstances change for a company and they can no longer effectively use all their employees, the most obvious solution is to get rid of employees, but it then makes it far more difficult to recover when positive opportunities present themselves. I think companies trick themselves into believing that since hiring and firing employees is relatively quick, it's a good tool to adapt to changing circumstances in either direction. But that ignores the time it takes for a new employee to become fully productive and the increased difficulty/cost in hiring new employees if your company has a reputation as an unreliable employer. It also ignores the potential boost to productivity that can come from employee loyalty and job satisfaction and security.
But the ones being discussed in the article are the consistent ones. The ones you do while you’re ahead to make your balance sheet look better. Those come with a temporary balance sheet boost and all of the negative effects of any layoffs.
This feels like a "no true scotsman" argument. The headline of the article is literally "Why layoffs don’t work", not "why consistent layoffs don't work". The only mention of "consistent" layoffs were when referencing Jack Welch's management style, but that was more of an attempt to argue that layoffs are bad by citing the worst possible example, than trying to introduce nuance between the types of layoffs. The studies cited also did not distinguish between the type of layoffs.
I believe we took different things from the piece and I imagine you'd disagree with my better headline. I understood the piece to be telling a story starting with Welch and Dunlap of how layoffs as a way to improve numbers actually damage those same numbers in the long term.
That has to be matched with a strategy of intentional overhiring though, and the damage is being done there. That is the insight that should be drawn from the research - intentionally doing something silly (in this case, overhiring) is a classic form of waste and economically destructive. Layoff or no layoff, the problem is the management team has set up a situation where they believe a big chunk of their workforce is unproductive.
This does raising the question of why boards and shareholders tolerate these clowns. To me the obvious answer being that the major central banks have a history of printing money and handing it out to asset owners, so hiring competent managers for said assets is a lot of trouble for limited gains - even weak managers are enough to drink from the money hose. But who knows, maybe the analysts think that a small amount of sillyness averts a greater problem.
No, doesn't have to. Looking at the article, sometimes they had hired the right number of people, but (new?) management decided to let people go because that looked better short term (saved money, higher profits), but was bad long term.
I worked at GE when Jack Welch was there. First of all we never had a systematic firing of the bottom 10%. That is a myth. We ranked everyone each year and clearly identified the bottom 10% but they were not always fired. The manager did have to have a development plan for these individuals.
More importantly, GE did have consistent layoffs. I assert this was a good thing. I vividly remember asking an EVP at GE Capital when I first joined GE why we did this. It seemed inhumane. Wasn’t it better to try and fix the so-called ‘C’ players? His response fundamentally changed my view on hiring, leadership, and firing. He told me two things. 1) Hiring people is always a gamble. The best interview/onboarding processes will not produce 100% success. There will people that do not have the skills that are needed. There will also be people for whom GE is simply not a good cultural fit. 2) In good times, when a GE business unit is doing well, they always over hire. People working 50 hours a week want to work 40, process problems that have built up need to be addressed (similar to tech debt), etc. Over time this leads to bloat and inefficiency.
For these reasons, consistent layoffs make sense for the company. They also make sense for the employee. By not waiting for an economic downturn and then making dramatic cuts, the exiting employees would have an easier time finding the next job as odds are the economy would doing well. Particularly in the case where the person was not a good fit for the GE culture, they learned this and could find a better fitting role elsewhere. And GE was great on the resume back in those days (sadly not so today). If we waited for the downturn, then the exiting employees would be looking for a new job in a bad economy with everyone else who had just been laid off. Not a good situation.
Finally, an additional point I learned later by observing when and where we made headcount reductions. GE made many bets on new markets, new products, etc. We had to if we were to grow by 10% each year (GE Capital’s rigorous requirement for business and strategic plans). The successful GE leaders understood is was easier to grow revenue to achieve 10% net income growth than to cut expenses. Unfortunately, not all new business ventures worked out. In those cases, we had to make a decision to shut them down (all new ventures had off-ramps). As a result, some people were repurposed, but others had to be let go. I posit that is consistent with the tech approach of “fail early, fail often.” In industries with significant people required to try a new approach, the consequence of failing will be layoffs.
What percentage of people on PIPs didn't leave the company within a year or two?
This is what I call the TV effect. People are trained from an early age, by consuming media, to only construct what is "real" by what is announced. And it's not just economics, but all sorts of aspects of life.
I worked at a firm that for 2-3 years straight would report great Q1,Q2,Q3 numbers.. tell employees it's looking like a good year. And then Q4 report a total wipeout loss that negated the quarterly earnings and swung the company to flat or a loss. Whoops, sorry, no raises, cutting bonuses.. and need to do some layoffs.
Behavior like this reminds us that the numbers are not real real in a scientific sense, but only in a relativistic accounting sense.
Also would do incredible things like mandate firm wide sending all consultants home for rest of year in early/mid December to save 3-4% lol. Did this at least twice in 5 years.
One year there was a fairly large failed projects with a dozen senior devs and they had nothing to do but also weren't fired because "we don't have budget for severance". This was in July. Guys started showing up to work in sandals and baseball caps.
This was all at a bank with over 100k employees.
I'm not sure how you got the impression that OP implied it's the worker's fault. If during the 2021-2022 boom, some startup hired a bunch of junior programmers for $200k/yr, I think describing those people as "people who couldn't add enough value to justify keeping them employed" is a fair assessment of the situation. It doesn't imply that it's the junior programmer's fault, any more than it's not my "fault" if I'm asked to play a musical instrument with no prior experience, it sounding terrible, and people asking me to stop.
That depends upon the employer. Layoffs occur for a plurality of reasons and the persons selected for termination are selected by various different criteria that may include quotas or random selection.
> I've seen enough 10x engineers get laid off...
2) That is sensible for the company. They have no idea how to use a 10x engineer, as can be detected by the fact that they're having layoffs. They don't know how to create value in the market and they're being forced into a position where they have to squeeze what they can out of what assets they have.
It isn't economically rational for them to employ 10x engineers in that sort of environment. The global and local optimum is to let those engineers go so they can do something valuable somewhere and keep some more 1x style engineers on the cheap.
If a company is having layoffs, that is the invisible hand of the market writing on the wall "THIS MANAGEMENT TEAM DOESN"T KNOW HOW TO MAKE MONEY AT THE MOMENT, STOP GIVING THEM IMPORTANT RESOURCES". That includes 10x engineers.
I know it's ridiculous to expect them to blame themselves but the fact that we just accept this lack of accountability from executives/management in the corporate world is insane to me.
Okay, now explain why every company is encountering these issues where they're frequently laying off people and are unable to create value. The frequency of layoffs is diametrically opposed to your thesis because otherwise companies would behave in a way to reduce layoffs. Such as hiring fewer employees and encouraging longer term retention.
> If a company is having layoffs, that is the invisible hand of the market writing on the wall "THIS MANAGEMENT TEAM DOESN"T KNOW HOW TO MAKE MONEY AT THE MOMENT, STOP GIVING THEM IMPORTANT RESOURCES". That includes 10x engineers.
This is basically the Just World fallacy but applied to the free market. If something occurs then it's justified as a perfectly rational action of the invisible free hand of the market. In reality layoffs are rarely conducted by the people most equipped to do them, but via a mandate from heaven that you must cut your team for the sake of Number even if you're one of the most efficient teams in the company.
Creating value is hard.
Edit: Please reply with concrete evidence of widespread accountability of executives
> THIS MANAGEMENT TEAM DOESN"T KNOW HOW TO MAKE MONEY AT THE MOMENT
from
> THIS WHOLE INDUSTRY IS FAKE
or, worse,
> YOUR SOCIETY HAS REACHED THE INFLECTION POINT OF A YEARS-, DECADES-, OR PERHAPS CENTURIES-LONG PONZI SCHEME. SO LONG AND THANKS FOR ALL THE FISH
Note that here I'm talking about firing good performers because you have "too many" of them. Firing bad performers because the estimated cost of training them is not justified, I can understand.
The only explanation I found satisfying is that investors heuristically care about profit per capita(ppc) as well as total profit, and employees who don't produce _enough_ profit reduce ppc and thus investment to point the opportunity cost of firing them aligns. You'll make investors happy, which will raise valuation, more than what you are losing from the lost profit. But this is not "rational" in a full information economic sense. It's essentially the company virtue signaling that they are capable to fire if they had to, even at the cost of actual dollars.
The research is probably misleading. The damage was done to companies when the over-hired people who couldn't add enough value to justify keeping them employed. The layoffs are just when the damage is recognised.
It is like borrowing a huge amount of money, using 90% of it it to buy prawns and leaving them out to rot for a few days. The damage is now done, the borrowed money is lost. It won't be recognised for a while though. There is even enough left over to pay an interest payment or two to string everything along. But the damage is done.
A lot of people treat economics as though damage didn't happen unless someone acknowledges it. That isn't how it works. Not acknowledging that something is value-destructive just means more value is destroyed by the time people are forced by market forces to confront the truth.