You’re fired: is there a better way to make lay-offs?

This is an audio transcript of the Working It podcast episode: ‘You’re fired: is there a better way to make lay-offs?’

Worker 1
It’s very difficult at the moment. It’s the first time in a long time I’ve actually had to go out and try to find clients. So yeah, it’s a very new experience for me because I joined the tech industry when there was a lot of money flying around, I would say. A lot of companies hiring, over-hiring, that sort of thing. But hopefully I can find some work soon.

Worker 2
A company I’m working for now had big plans to hire hundreds of developers and now there’s a hiring freeze and there’s just been nothing. No update since.

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Isabel Berwick
Hello and welcome to Working It from the Financial Times with me, Isabel Berwick. The voices we’ve just heard were those of workers in the tech sector here in London who’ve been laid off or are finding it hard to get new jobs. From Wall Street giants to Big Tech, the scale of recent job losses has been brutal. 18,000 to Amazon, some 10,000 at Google, not to mention Twitter, where staffing has been cut to the bone. And the collapse of Silicon Valley Bank has brought fears about many more problems to come in the banking and tech sectors. So, in this episode, we’re gonna ask whether there’s any good way for business leaders to fire hundreds or even thousands of people in one go, and what’s the best way for bosses to decide who should leave? But let’s start with how not to do it. Brooke Masters is our US financial editor. She’s based in New York and has been reporting on the latest rounds of job cuts across many sectors. I spoke to her about Goldman Sachs’s decision to lay-off 3,000 workers at the start of this year.

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Brooke Masters
They didn’t announce it, but it leaked. And so then there was massive speculation until they confirmed how big it was gonna be. And so little dribs and drabs of information came out. The CEO, David Solomon, has said that he wishes he had moved more quickly to just start laying people off early on. His competitor at Morgan Stanley did exactly that. They had a smaller lay-off. They had about eighteen hundred people versus 3,000 at Goldman. But still, Morgan Stanley just did it. It was done, dusted in a week or two. And for Goldman, the process dragged on for months.

Isabel Berwick
Yeah, So that’s how not to do it. And in terms of who they choose to lay off, I’ve seen a couple of things, like whole units are cut or they slice off the people with the worst performance reviews. Those are the main ways that companies choose who to cut or are there any other ways?

Brooke Masters
The lazy way is last in, first out. You just get rid of the people who just got hired because of course they have no allies. People don’t really know them. That’s devastating for things like diversity because the youngest hires tend to be the most diverse. In terms of whole units, if you know that certain units are not profitable and you’re just not gonna be in that business anymore now that money is more expensive and things are tough, that makes a lot of sense because again, that’s not personal and people don’t end up angry. The performance-related ones are complicated. If you have a good performance review system and you’ve been giving people guidance all along — who’s doing well, who’s doing badly — then taking the worst 5 per cent performers probably is a reasonable way of doing it. If you’ve really never done any scorekeeping and suddenly you have to pick the five worst, you know, 5 per cent worst performers, that’s dangerous because you don’t really know what exactly you’re rating. It’s very easy to keep the people who, you know, blow their own horn and or be really, really dramatic and lose the people who actually make the place run.

Isabel Berwick
And that also allows for a lot of personal biases, I’d imagine.

Brooke Masters
Yeah, I think so. The company would say, of course, we’re really careful about that. But there’s an amazing number of pregnant women who get laid off in that sort of situation. And then lawsuits, of course, inevitably ensue.

Isabel Berwick
Indeed. And you wrote a bit about what Amazon did. I think we’ve just referred to experimental departments being cut. How did that work out for Amazon in terms of the way they did it? Because that was also quite messy, wasn’t it?

Brooke Masters
I think with Amazon, it was not a terrible way to do it because they had both the experimental departments which were moonshots and it makes sense to get rid of the ones that aren’t working if you have to cut something. They also had a lot of people in their delivery service. It was just too big because they had overestimated how much of the pandemic demand for online shopping was gonna continue. I think with the experimental departments it was messy, partly because people didn’t understand why their product was getting cut and other things weren’t.

Isabel Berwick
There’s an element here of there’s no good way to do this sometimes. Is that what you discovered?

Brooke Masters
For sure. Nobody wants to lose their job, particularly going into a potential recession. It is bad news. There is no good way to say to people like, your pay cheque is stopping. But you can do it in ways that make people feel it’s not personal, that make people feel it’s fair, and also importantly for the company, make everyone who is left feel like you have a plan and this is a temporary downturn. We are gonna get out of it. If you convey the sense that you’re kind of like throwing spaghetti at the wall, that is gonna make your competent workers, the ones you want to keep, the very best people start thinking, I gotta get out of here.

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Isabel Berwick
We’ll come back to Brooke later to hear more on whether there are any lessons that other companies can learn on how to do lay-offs as humanely as possible.

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As we heard at the start of this episode, tech workers in London are also facing job losses and hiring freezes. I spoke to Andy Milton, founder of the London Tech Network, a group with hundreds of members which holds regular meetups around the city. Those voices we heard were members of his network. And I asked Andy if there’s a typical kind of worker in terms of age or stage who’s being targeted for redundancy.

Andy Milton
So the bigger tech companies, the big ones that are in the news a lot, they’re, I think laying off in various different roles. But for start-ups, it’s much more likely I feel that people who are more recently in are being laid off. So if that company’s raised loads of investment not that long ago, done a lot of hiring, and then suddenly they realise, oh, actually our revenue predictions are quite off and we’re gonna really struggle to raise another round of investment. That means that they just have to start slashing costs and VCs are saying, Look, you have to reduce your burn rate, you’re spending so much per month, people are often a big expense to start looking at, see.

Isabel Berwick
Oh, that old phrase, ‘Lifo’ — last in, first out. It’s back.

Andy Milton
Yeah. I think there’s some of that going on, yeah. So people who are, for example, just out of probation period. So they’ve been there maybe for six months perhaps, and they’re in a large intake of lots of people at one of the big three, four, five tech companies. They even brought in this massive intake of graduates expecting to probably work there for at least a few years, and they’ve only been there 6 to 9 months and then they’re being laid off. And I’ve met people who have been at the same company in the same cohort and met them before they were laid off and then met them both again. And one has been laid off and the other one is panicking whether they’re going to be laid off and they have no knowledge of if that’s coming or not coming.

Isabel Berwick
And are you hearing that some of these big tech companies are working to nurture the people who are left behind? Are you hearing that from your members?

Andy Milton
Some companies do take a real effort to try and help people that have been left behind and also actually the people that they’re laying off, putting together like a mini directory of the people that they’re laying off. Because often, as those people are really sought after by other companies who have been trying to headhunt them and then suddenly they’re just on the market. And it’s a bizarre situation where people would be paying huge amounts to people to recruit those people and try and prise them out of these amazing companies.

Isabel Berwick
But that’s great that they’re doing directories. I know people were going on LinkedIn and saying, I’ve been laid off from Google or Metro or something, but having the employer take charge of that seems like a really positive step.

Andy Milton
I think it’s something that I’ve not really seen in other industries. I don’t think I’ve ever seen that before. Yeah, definitely going above and beyond, I guess in a way in that sense, I think partly because when companies have done lay-offs and they’ve done it in a really bad way of a mass lay-off across Zoom or something like that. Now I think companies do realise that they’re under the spotlight as soon as they do lay people off. So they really have to show that they are doing that in the right way.

Isabel Berwick
Andy, can you think of any examples of companies that have laid off their staff in a humane or can we say caring way?

Andy Milton
I think the example that I’ve heard the sort of most positive things around and this may be a slightly older example, which was Airbnb, I believe it was them who pioneered the idea of creating this directory of people who have been laid off. And then that just obviously means diverting some of the spotlight that’s on a company like Airbnb towards the people who are being laid off and giving them that helping hand, whereas they could have quite easily just rushed under the carpet as much as possible. But instead they’ve said, actually, look, we’ve laid off loads of people, here are the people who’ve been laid off, they’re all great in these areas. See, I think that’s probably one of the most positive ways that I’ve seen people laid off.

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Isabel Berwick
As Andy says, some companies are offering good support to the workers they’ve sacked. And I wanted to hear more about that from Brooke in the US. Which companies have treated laid-off workers in a humane way?

Brooke Masters
People like the way Stripe did it, Stripe is a fintech — it, like lots of other tech companies, overexpanded and needed to get rid of people. But what the CEO did is he sent an email to everyone saying, look, I screwed this up. We overhired, I’m really sorry. And they did it with lots of notes. They said, you are going to be fired, but you have a certain amount of time that you’re still on the payroll to help you go look for another job. And the other thing that you could do is if the company is not absolutely bleeding so much money that it’s barely functional, is to offer proper outplacement and alumni networking. And so actually, if you see this, most of the big professional services firms, whether they’re law firms or consultancies, they’re an up-and-out systems. They are routinely getting rid of people at the promotion periods and they almost always have very strong outplacement so that people leave with a good feeling like, yes, I didn’t make it there, but they were nice to me. And then, of course, today’s ex-employee is tomorrow’s potential customer. And so it’s very important that you not have people leave with bad feelings.

Isabel Berwick
So my inbox has been absolutely heaving with advice on doing lay-offs well, or alternatives to lay-offs. I know you’ve scoured for advice from management professionals and professors. What advice do you rate on this? What can you pass on to the listeners?

Brooke Masters
I think that the key things are: Speed. Clarity. Be a nice person. Treat your workers as you would want to be treated. Don’t chicken out and do it with a mass voicemail or something. And really, in order to make your current employees comfortable, do it in one fell swoop. Don’t do it in dribs and drabs. Because if you do 2 per cent here, 3 per cent there, 3 per cent there, they’ll start thinking, when is this gonna end? I better get out of here. Much better to do 5 per cent now and say now we’re done.

Isabel Berwick
So salami slicing is not the answer?

Brooke Masters
Definitely not. I think that only makes your current employees very uncomfortable.

Isabel Berwick
Yeah, that resonates. And thinking more widely are people listening to this who are in companies that are not facing lay-offs or perhaps they’re a manager with difficult decisions ahead. I hate to say the word key takeaways, Brooke, but are there any wider lessons from this whole mess that all of us can take?

Brooke Masters
I think to remember that when good times are really good, don’t assume they’re going forever. I think most of the biggest lay-offs, particularly in tech, are a direct product of everyone assuming their massive growth during the pandemic was actually not a one-off short-term thing, but a permanent state of growth. Look for the bloom to come off the rose and be ready for it. Have a decent performance rating system so that if you do have to lay people off and you do wanna get rid of your worst performers, you know who they are and they know who they are. And so people who are solidly in the middle and in no danger of lay-off, do not worry about it.

Isabel Berwick
That’s a really good advice, Brooke. But we’ve had a lot of lay-offs, particularly in tech. Do you think there’s still a lot more to come?

Brooke Masters
A lot of it depends on whether the Fed is able to engineer what they keep calling a soft landing and avoid a recession. If they aren’t and it’s bumpy and there is a recession, there will clearly be lay-offs far more broadly than in tech. You’ll see it in all the cyclical industries, things like travel, which at the moment are doing great, will come back down. I think fingers crossed, we don’t see a huge amount more beyond tech, but I wouldn’t bet the house on it.

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Isabel Berwick
Brooke, thanks for coming on.

Brooke Masters
Always a pleasure to talk to you.

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Isabel Berwick
It’s been an extraordinary few months in the world of work, particularly for people working in tech companies and big finance companies. You know, so much changes happen so quickly. And I think there are some lessons that most of us can learn from this. And one of them is to treat people as people. And one of the things that really struck me was the positive ways in which companies are helping laid-off workers. So creating a directory so that potential employers can find those people. That seems like a really simple thing to do, but very few companies are doing it at the moment, so let’s hope more people take notice of that. As Brooke says, we’re still in a very uncertain phase, but that’s where we are in the whole world of work at the moment. And all employers can do and all we can do as colleagues and workers is treat everyone else with respect as individuals.

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Thanks to Brooke Masters, Andy Milton and the members of the London Tech Network for this episode. If you’re enjoying the podcast, we’d really appreciate it if you left a rating and review on Apple Podcasts. And please do get in touch with us. We want to hear from you and we’re at workingit@ft.com or I’m Isabel Berwick on LinkedIn. If you’re an FT subscriber, please sign up for our Working It newsletter, with the best workplace and management stories from across the FT. Sign up at FT.com/newsletters. This episode of Working It was produced by Manuela Saragosa and Audrey Tinline with mix from Breen Turner. Thanks for listening.

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