In a memo to employees on Friday, Alphabet, Google’s parent company, announced its plans to lay off around 12,000 people. The decision will decrease the workforce by about 6%. The downsizing is the largest in the search engine’s history. The reduction in staff will impact a cross-section of divisions and locations. Recruiters and staff working in units not aligned with the firm’s core businesses will be affected.
Similar to the recent layoff announcements from prominent companies, including Goldman Sachs, Amazon, Salesforce, Meta and Microsoft, Alphabet’s CEO Sundar Pichai attributed the business decision to current economic conditions and prior aggressive hiring, which is not compatible with the present time.
The tech giants are mostly profitable, have strong balance sheets and are well-capitalized. Therefore, it looks like there’s more to the picture. After years of catering to its workers, the tech companies are now bowing to their shareholders.
Shifting The Power Dynamic
In nearly rapid succession, layoffs at major companies have been announced from mid-year last year to today. Recently, Microsoft announced 10,000 job cuts—nearly 5% of its workforce. Amazon has said it’s cutting 18,000 jobs. Previously, Meta shed 11,000 positions, or 13% of its workers. Saas giant Salesforce laid off around 8,000 employees, representing 10% of the total workforce. Twitter CEO Elon Musk pushed people out the door to cut costs, as the social media platform was burning through $4 million daily, according to Musk.
There are other under-reported reasons for the layoffs. There has been an emergence of a new power-dynamics shift. In light of the changing economic landscape, employers now have greater leverage. With thousands of tech professionals on the job market, the supply and demand equation has changed.
It was incredibly difficult to find and recruit top talent during the Great Resignation. A sizable premium to their compensation package needed to be offered to entice a software engineer to jump ship. With so many people searching for a job, it’s reasonable to conclude that salaries and total compensation will decline.
The tech giants are highly profitable and have a war chest of money at their disposal, yet they still cut jobs. It looks like they are pivoting toward catering to their shareholders.
For the last number of years, tech companies have acquiesced to the demands of their workers. Tech professionals were given high salaries, bonuses and stock options. They’d have free catered meals, laundry and other perks. The techies could work remotely; some secretly held two jobs and had enough time to make TikTok videos of how much fun they had not working in the office.
It’s worth noting that Alphabet’s shares rose more than 4% in trading Friday morning after the layoffs were announced. It’s a noticeable trend that stock prices rise when people are let go. The rationale is that investors applaud a company’s fiscal responsibility by tightening their budgets and clamping down on expenses. White-collar workers are one of the highest expenses at tech companies. It’s unfortunate that downsizing people boosts the value of the business and increases the attention of investors to purchase more of the shares, driving its prices higher.
Bosses Pushing People To Return To The Office
Layoffs are hard fastballs thrown close to the head of the batter. It serves as a scare tactic and warning sign. If you demand too much, you can be on the list for the next layoff, or your role can be sent abroad. The United States doesn’t have a monopoly on talent, and workers can be found almost anywhere and paid less than those in Silicon Valley.
Many bosses never fully embraced the work-from-home culture. Now, they finally feel that they have the upper hand to order staff to return back to the office. They’ll also continue to move positions to other countries around the world to save money.
Musk pulled back the curtain, showing that Twitter was overemployed. Headcount boomed during the pandemic. Companies wanted to hoard talent from their competitors and kept people in golden handcuffs so they wouldn’t start a startup that could disrupt their business. Big Tech is not invincible, as TikTok has asserted its dominance. ChatGPT is showing new technologies can shake up even Google. If these companies really cared about the money, other CEOs would do what Tim Cook did and take a pay cut to save the jobs of the rank-and-file workers.
The Push For Fiscal Responsibility And Shareholders’ Interests
Christopher Hohn, a U.K. billionaire activist investor, wrote a letter to Alphabet, asserting that its employees are paid too much compared to other tech giants and its bloated workforce—187,000 workers—needs to be cut down.
Hiring grew out of control at 20% annually. According to Hohn, the company’s headcount is “excessive” compared to prior hiring trends and doesn’t match the needs of the current climate at the company. Similar to Musk’s vision for Twitter, the activist hedge fund manager claims that the search engine can be efficiently run with considerably fewer highly compensated professionals.
The median compensation for an Alphabet employee last year was around $295,884, according to a Securities and Exchange Commission filing, Hohn said in his letter. The pay was nearly 70% more than what Microsoft paid its employees. Compared to the 20 largest U.S. tech companies, Alphabet paid its people 153% more than what competing firms offered their employees.
Google executives recently said it would reign in expenses and have a more disciplined approach toward spending. The Wall Street Journal reported, “Pichai said he wants to make the company 20% more productive, the latest sign that the technology giant is planning changes to deal with macroeconomic uncertainty.”
Source: Forbes
