Photographer: David Paul Morris/Bloomberg
The good times for the tech sector may be over—for now. Layoffs, hiring freezes, relocating positions to lower-cost locations, rescinding job offers, putting people on performance improvement plans (PIPs) and threatening job security are some of the ways in which the industry is cutting down on headcount to save money.
The leading tech companies are starting to feel the pain of a recessionary environment. For over a decade, tech giants and startups benefited greatly from artificially low-interest rates. With access to cheap money, they were able to aggressively hire, build new products and experience immense growth.
Elon Musk Looks To Lay Off 75% Of Twitter Employees
According to a report by the Washington Post, Elon Musk told potential investors that he plans to lay off 75% (5,600 employees) of Twitter’s staff. This decision would leave the company with a smaller team, resulting in potentially stronger free cash flow and the chance of profitability. This move would attract investors looking to get in on Musk’s deal to own and run the company.
With Musk, what he says and what actually happens are not always the same. He may be thinking that by massively cutting staff, he could gain a perspective of first principles regarding how broad of a workforce he needs at the social media platform. The company has not been nearly as profitable as other well-known marquee tech companies in San Francisco and Silicon Valley.
Another theory, which may be more likely, is that Musk was using a scare tactic. By threatening to terminate a large portion of the employee base, they’d work harder to keep their jobs. If this was his goal, it didn't go over well, as workers signed a petition demanding that their jobs be saved, among other requirements.
Initiating large-scale layoffs is a challenge. People need to be paid severance packages. There may be allegations of discrimination, ageism, sexism and racism when people are downsized, which could lead to bad publicity and lawsuits. By dangling the threat of mass firings, Musk is likely planning that people will aggressively start searching for a new job. The headcount will be lower through attrition, without replacing people after they’ve left. A drawback to this calculation is that the best and brightest will be the first ones to leave. There will be an initial brain drain as recruiters are competitive, like sharks in the water, and will go after the top talent at Twitter. LinkedIn data shows that around 580 employees have already fled Twitter over the past three months, and about 50 people quit in October.
Meta Putting People On PIPs
Meta is getting crushed by competition from TikTok and changes in privacy rules from Apple. Detractors say that the pivot into the metaverse looks like it will be a disaster. The once-invincible social media giant may be burning billions of dollars with nothing of substance to show for betting the company on it. As the economy weakens and inflation raises the costs of goods and services, Meta is hurting from a shortfall in advertising spending on its platform.
In light of the financial challenges, Meta executives initiated a plan to place at least 15% of its team on PIPs. This move is likely to affect around 12,000 workers across the company.
People notoriously dread PIPs. It's promoted as a tool to identify deficiencies and offer ways for struggling employees to improve. There will be specific objectives and goals set for the person to meet. The underlying threat is that you won’t be with the firm for long if you don't meet or exceed expectations. The constant stress and anxiety of constantly being watched over will likely make many people hunt for new jobs.
Cutting Contractors At Apple
There has been a growing trend of companies hiring contractors instead of full-time permanent employees. The gig-economy workers usually are not afforded health benefits and could be let go at any time. Some enjoy the autonomy to pursue different projects at an array of companies. Others feel forced into these short-term assignments because they can’t procure more permanent roles. Since it’s easier to let go of a part-time contract worker, they are the first to go when things go wrong.
Apple recently downsized about 100 contract recruiters. The main reason for jettisoning contract recruiters is that there is a likelihood that the company doesn’t have plans to add more people to the payroll. Large firms, like Apple, bring on contract recruiters since there is an overwhelming need to hire, especially when it’s a hot job market. It’s also an ominous sign that Apple’s outlook on the economy has darkened, and now’s the time to prudently reign in costs. Unfortunately, contract recruiters will need to hunt for a new job at a difficult time. As other firms hold off on hiring, there won’t be as many recruiting roles available as last year.
Recruiting People From Smaller, Lower-Cost Cities
With remote and hybrid work options, companies no longer have to depend upon people living in close proximity to their offices or headquarters. The price of real estate in places such as New York City and San Francisco is exorbitant. It is costly for both the company and employees who need to rent or purchase homes close to the office.
In San Francisco, Silicon Valley, New York City and Seattle, the average tech worker earns a base salary of around $160,000 to nearly $180,000. Their total compensation goes much higher when you factor in bonuses and stock options.
To cut employee compensation costs, Oracle announced that its hiring managers and recruiters should seek out job applicants outside of expensive cities and focus on those who live in lower-cost locations. The arbitrage between paying people will save the software and cloud-computing giant a substantial amount of money. The company is also taking the next step of seeking out talent in Eastern Europe countries.
