Compared to downsizing, a hiring freeze feels like the lesser of two evils.
Compared to downsizing, a hiring freeze feels like the lesser of two evils. Putting a pause on hiring and nudging attrition without backfilling the roles are lesser-known business strategies to cut costs in an uncertain environment.
A hiring freeze is a loose term for the policy to temporarily halt recruiting and hiring new personnel. The goal is to hunker down, hope that the bad times will soon pass and then reconsider hiring once again when the situation improves. As evidenced over the last few years, it’s not easy to find talent, recruit and onboard candidates. There is the need to train and upskill the new employees, and put in a lot of time, effort and resources to retain the new hires. Enacting a temporary moratorium on hiring can buy time, while a company waits out the storm and holds onto the current staff without having to lay off people.
Marquee companies, such as Goldman Sachs, Meta, Amazon, Salesforce and Microsoft, recently announced significant layoffs. The executives enacting the downsizing say they need to cut costs after overhiring in the last few years. They also cite that layoffs are necessary to combat the pernicious effects of high inflation, rising costs and a possible recession on the horizon.
What Happens With A Hiring Freeze
A hiring freeze isn’t set in stone. Exceptions are made for roles deemed too crucial to be subjected to a freeze. For instance, the crypto sector has been beset by questionable ethical behavior, the implosions of a number of digital asset companies and the epic collapse of FTX. Coinbase and other crypto-centric firms have enacted layoffs and hiring freezes; however, it would be prudent to exempt compliance, legal, risk and audit professionals, as they are a must-have priority amidst the regulatory upheaval.
A hiring freeze is not as disruptive as a layoff announcement. It can even be viewed as a positive. By only delaying hiring, it shows that the company is upbeat about the long-term outlook for the firm. When large-scale downsizings are announced, it has a deleterious effect on the remaining workers. They have to do more work for the same amount of pay. There is a concern that they may be next in line to lose their jobs. It's hard to do your best work when there is the possibility of losing your role at any time.
Bank of America informed executives to pause hiring and only prioritize the most critical positions. This was an escalation of the bank’s prior policy to slow-walk hiring after fewer employees decided to leave of their own accord. At the end of December, Tesla announced a freeze on hiring, along with plans to lay off employees. Meta, in addition to layoffs, enacted a hiring freeze through the first quarter of 2023.
Forbes reported, “Google sent out a companywide memo in July explaining that hirings would be severely scaled down for the remainder of the year. Amazon and Microsoft have also instituted hiring freezes.” Uber has said it’ll have to be “hardcore about costs.” Meta sent a memo to employees warning of “serious times” and fierce headwinds after implementing hiring freezes for some teams. In a cost-cutting move, Apple previously paused hiring for roles outside of research and development.
The Push For Attrition
Attrition plays a big role within organizations. Usually, businesses anticipate a certain number of people leaving their organization for several reasons. It could be that they found a new job, want to retire or just want to try something new and different. However, if too many people leave at once, the firm could suffer a loss of talent that can adversely impact the business.
Some companies, instead of laying off workers, push for attrition. Attrition is when employees leave. There are two basic strategies companies enact. For example, Elon Musk, shortly after taking over Twitter, issued an ultimatum: workers must put in long hours with high intensity and be extremely “hardcore.” Many employees felt uncomfortable with this mandate and elected to pursue opportunities, resigning from the social media platform. In this instance, it looks like Musk purposely tried to goad people into leaving, so he could trim headcount and cut costs to reign in expenses.
The second approach is to make it attractive for people to leave of their own volition by offering buyouts, severance packages or other inducements. When the workers leave, they are not replaced. The work is handed off to the remaining staff tasked with picking up the slack—often without any extra compensation. In a challenging environment, people may not complain as they see layoffs occurring elsewhere and worry about how hard it will be to find a new job. According to Business Insider, software giant Microsoft advises managers to embrace “good attrition” to drive out low performers.
The downside of attrition is that many of the best and brightest will be the first to leave. They have the skills, talents and attributes that are highly coveted. Rival firms will quickly pick them up. Recruiters will swoop in to introduce the A-players to their clients. The company then faces a brain drain and is left with the people who are happy doing the bare minimum to get by or lack the skills and are not sought after by competing organizations.
