Good morning,
With an economic downturn looming, persistent inflation, and rising interest rates, big tech companies, in particular, have announced mass layoffs this month.
Following years of aggressive hiring, Google is reducing its workforce by 12,000 employees, Amazon by 18,000, Microsoft by 10,000, Salesforce by 8,000, IBM by 3,900, and SAP by 3,000. Meanwhile, layoffs have reached Wall Street, due to deal slumps, at firms including Morgan Stanley and Goldman Sachs.
Although layoffs shouldn’t be a company’s first course of action regarding cutting costs, they are sometimes necessary. Workforce reductions are difficult emotionally and managerially, but there are ways to do it correctly and humanely, according to my colleague Geoff Colvin.
In his new report, “From planning to execution: A step-by-step guide to conducting layoffs the right way,” he provides a blueprint for companies preparing for workforce reductions. A vital step—include all relevant decision-makers in the process.
Colvin writes: “Deciding how many employees to cut is one of the toughest judgment calls. The goal typically is to reduce headcount to match the current or expected lower level of business. How low will it be? How long will it last? Those estimates require input from the entire C-suite—CEO, CFO, CHRO, CMO, CDO—plus business unit heads and lawyers.”
CFOs may be the stewards of the balance sheet and cost management. But making the decision on layoffs, which involves employee well-being and the short and long-term viability of the business, is a collaborative one they share with the C-suite.
Layoffs are big projects that take time if you do them correctly, especially regarding risk management. “Legal compliance alone is a high-stakes, painfully complicated process,” Colvin writes. ”The subject is vast, and mistakes can be expensive,” he writes. “More broadly, exactly how the layoff is conducted—internal delivery, CEO wording, severance details—can burnish or taint a company’s employer brand for years.” Colvin's piece explains how to avoid costly errors and what steps to take to prevent layoffs in the future.
And most importantly, how do you communicate with employees about the news and practice empathy? Colvin provides some do’s and don’ts. You can read the full report here. Many layoffs took place this month, and more are seemingly on the horizon. According to Grant Thornton's latest survey of CFOs, the top area cited for potential cost cuts was human capital expenses related to employee headcount and compensation.
In the tech sector, overall, there have been more than 59,000 employees laid off since the start of the year, According to Layoffs.fyi. And more tech layoffs are expected.
If you do reduce headcount, it’s important to “decouple skills from jobs” to make sure that even as unneeded roles are eliminated, employees with critical skills are retained and redeployed to different areas, according to a report by Mercer. “Companies are pivoting much more to looking at ‘What are the skills that we need?’” Mercer CFO Mark Elliott recently told me.
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See you tomorrow.
Sheryl Estrada
sheryl.estrada@fortune.com
