According to a Crunchbase News report, in July 2023 alone, in the United States, more than 30,000 employees from more than 60 technology companies were laid off. So far, the infamously “record” month for this market has been June, with at least 75 reports of mass layoffs.
The last year has hit the public and financial sectors hard, and this has shifted to the private sector. Concerns about inflation, rising interest rates and Russia's invasion of Ukraine have all contributed to the stock market in a state of limbo.
The difficult situation affected even those companies that for many years seemed “inviolable” and stable. Microsoft has laid off “less than 1%" of its 180,000 employees - that means almost 2,000 jobs. Ford said goodbye to more than 8,000 people, Spotify to 1,500.
In Poland, on the other hand, we recently had loud layoffs at Aptiv, PepsiCo, planned mass layoffs at Nokia. The scale of group layoffs in the first quarter of this year affected about 8,000 people.
Tech companies — including those that have done great in the pandemic and picked up more rounds — have particularly felt the recession. Valuations, especially at a late stage, began to fall, and many experts say that at present it is practically impossible to raise new funds. Many tech companies not only froze recruitments, but also opted for cuts and layoffs.
Below are two examples of mass layoffs that, for various reasons, were not carried out in the best way. With full understanding of the difficult situation these companies found themselves in - these mistakes could have been prevented and that is why we point them out.
Case 1: Klarna
“They seem to be figuring it out on the fly,” one former Klarna employee told The Guardian, describing the entire process of layoffs at Klarna and highlighting the chaos at the company.
From the same article, we learn that, according to employees, the company offered more than twice as much salary to those fired from the United States as to workers from Europe. After an internal objection, Klarna proposed a “compensation”, whereby injured employees can keep their laptops and phones if they cover the related tax. If this is true, then the process was evidently prepared in haste and without good thought. The proposal with the equipment, if it fell at once and applied to everyone, could be perceived as a positive element. However, as a form of patching inequalities in the treatment of workers, it certainly does worse.
The biggest scandal, however, was caused by the form of the dismissal communication. The employees received a pre-recorded video on which Klarna CEO Sebastian Siemiontkowski informs all employees about the reduction of staff by 10%. It also informs that selected people will receive invitations to a meeting on this topic. We do not know how much time usually elapsed from watching a video to receiving an invitation, but we can imagine the tension in the employees caused by this type of message. Not to mention the lack of openness to dialogue with his employees, which the CEO demonstrated by taking the opportunity to record a message.
Making redundancies impersonally, for example through previously recorded video messages, is unacceptable. Do we require people to be committed and work hard, so that in such a difficult situation they are not able to devote even a moment to them?
It also caused controversy post, in which “with mixed feelings” he shared a Google spreadsheet prepared by one of the “surviving” employees, into which colleagues (560 out of 700) could enter their data and thus signal their readiness to talk to recruiters. It was, of course, a grassroots initiative, as Siemiontkowski himself admitted.
Many people criticized the CEO's move. Commentators on LinkedIn accused him of being “tone deaf” and using a grassroots initiative to improve his self-image. For others, the post was “a clear sign of how poorly managed this' change 'at Klarna was.” It's hard to disagree, especially since the material shared included private emails from employees, which is hard to call a prudent move. Especially since it was not published until about 2 weeks after the media storm broke out around layoffs at Klarna and was basically the only position the company took on this topic.
We do not intend to “graze” on Klarna's communication mishaps, but looking at this situation clearly shows chaos and a certain lack of sense. Certainly, the introduction of remote work for everyone, for the period of informing about layoffs and the meetings mentioned above, was an attempt to take care of the emotions of the team and minimize the discomfort of the dismissed people. On the other hand, the lack of a “live” meeting looks a bit like another way to minimize dialogue and sort of distance yourself.
Case 2: Bitpanda
On May 31, 2022, Bitpanda's Chief Product Officer, Lukas Enzersdorfer-Konrad, wrote on the company's Slack that there is no threat of mass layoffs.
“There will not be any kind of mass layoffs under Bitpanda,” Enzersdorfer-Konrad wrote. “We have not yet reached our limit and will continue to hire until all the positions we need are filled.”
He also wrote that financial results in 2022 are “below budget,” which is why employees should focus on product and tech infrastructure improvements in preparation for the “next bull run.”
Less than a month later, it turned out that the company was laying off 1/3 of its employees - about 277 people.
When TheBlock.co asked a Bitpanda spokesperson about this, he replied: “Three weeks before the day of the announcement we didn't plan to do a restructuring and we have always transparently communicated our plans to our people.”
Being open and honest with employees is one thing, but every good manager knows that certain things should never be promised if we are not 200% sure that we are able to keep our word. Here we are dealing with a situation in which either the company is not able to realistically assess its financial liquidity and plan in a matter of weeks, or it manipulates and transmits false information. Both scenarios do not inspire confidence in the brand and a good opinion about the employer.
In a statement, the company said: “We reached a point where more people joining didn't make us more effective, but created coordination overheads instead, particularly in this new market reality. Looking back now, we realize that our hiring speed was not sustainable. That was a mistake.”
It is very important to make it clear in external communication what is the reason for the layoffs - savings, and not the quality of work of the dismissed people.
As much as we support the open admission of error, communicating that employees have not made the company more effective (on the contrary) does not seem to be a supportive message in such a difficult moment as dismissal. Moreover, it does not help in the search for a new job and improves the negotiating position in conversations with recruiters.
How to carry out the dismissal process well?
It is not possible to carry out redundancies related to the necessary cost cutting in such a way that someone enjoys it. Except for the truly exceptional cases, no one enjoys the sudden loss of a job.
However, it can be carried out in a way that shows respect to people and shows that the time spent together and the contribution of these people to the company is appreciated.
Below are three key areas that need to be taken care of - so that the dismissal process is carried out properly and with sensitivity towards the employees we have decided to part with.
- Do more than you have to
Since we are planning redundancies related to the need to cut costs, we are in a difficult financial situation. However, this process, and the associated obligations, should not be an area of drastic savings. It happens that companies boast that they have given employees all the due allowances in accordance with the requirements of the law. Honestly - keeping your obligations, is not yet a reason for glory and glory. After all, very often developing companies expect from their employees more effort, full commitment, creativity, work after hours, etc. All the more they should give themselves more than the minimum required by law.
This does not necessarily have to be an additional severance (although of course this option is a good option), it can be, for example, taking care of the future of the dismissed employees. This can be done by preparing a good outplacement action. A good practice is to prepare a separate subpage with a list of people affected by the reduction, their skills and references. This, fortunately, is happening more and more often. There is even a special aggregator, Layoffs.FYI, in which all the companies that are currently reducing their teams are placed along with the lists of dismissed employees.
It is very important to make it clear in external communication what is the reason for the layoffs - savings, and not the quality of work of the dismissed people. Corporate social channels, including personal leaders' channels, can be used to promote these individuals to potential new employers. It certainly will not harm these leaders in terms of image - even in the case of Sebastian Siemontkowski's controversial post, many people received it positively. It says more about us how we endure difficult situations and what we are guided by then than how we celebrate success.
It is also a good idea to take care of, for example, the medical care of dismissed persons after the date of termination of cooperation, which is especially important in countries where the basic, universally available set of services is poorly available. Crucial especially for people undergoing treatment at a given time (or families). Companies with an ESOP can change its rules so that the dismissed persons obtain rights in an accelerated way, for example, to take part of the shares in proportion to the moment of dismissal. There are also organizations that have allowed employees to keep equipment so that they have a tool to look for a new job - in this case, let's be careful of the mistake, made by Klarna, that is, charging employees with tax while trac at the same time.
- Plan your communication well
Communication and the form in which dismissals are carried out must show maximum respect for the dismissed persons. Impersonal dismissal, for example, through previously recorded video messages or an official e-mail message “from HRu”, is unacceptable. Do we require people to be committed and work hard, so as not to give them a moment at the time of the problem?
It is very important to be completely transparent about the reasons for the reduction - to emphasize that this situation is not due to poor performance or dissatisfaction with work results. The most important message is one that will allow the dismissed person to quickly get on their feet - you are a great employee and with all confidence you can look for work in other companies, this step is forced by the economic situation. The idea is that the dismissed person continues to believe in their own abilities.
In such a situation, abrupt cutting off of access, preventing farewells from colleagues or leaving by security personnel (!) , is an additional, completely unnecessary emotional shock that produces enormous, negative effects.
It dramatically affects, for example, the process of finding a new job and potential success in it. Not to mention the negative opinion about the laid-back company, which may one day bounce back with a ricochet.
Any company that reduces its employment for economic reasons wants to grow back and hire again in the future. How she carried out the reduction will have a very strong impact on the possibilities of regrowth.
- Take care of the people who carry out layoffs
Conducting a collaboration termination meeting is a great stress for any normal person - even if the whole process is prepared and carried out with great care for the people being fired. And with mass layoffs, there is a lot to be done about such conversations.
During these types of meetings, a whole spectrum of reactions and emotions arises - crying, blackmail, screaming and even panic attacks. After all, people are faced not only with fear for their material future, but also with a sense of injustice and loss - for some very important - part of their lives.
Observing these emotions and responding appropriately to them costs a lot. Thus, the organization preparing such a process must include in it support for those enforcing exemptions - whether in the form of additional rest, “valve” meetings or therapeutic assistance.
I would also add that if for someone firing their colleagues is not a burden, it does not mean that they are a good manager, HRowec or specialist in the field of People & Culture. It is exactly the opposite.
Processes you need when conducting layoffs:
- Dismissal plan, including risk calculation, action schedule, communication
- A system of severance or other benefits (e.g. health insurance, eSopy, as well as outplacement - a process that makes it easier for the dismissed employee to look for a new job)
- Process and guidelines for deciding who stays with the company - with a focus on the principles by which decisions are made so that they are not influenced by non-material considerations
- Review, Validation and Implementation of Performance Evaluation Strategies
- Crisis communication plan inside and outside the company
- Work plan (projects, tasks, areas of responsibility) with a reduced team, so as to take care of the well-being of employees, burdened by the situation
- Plan to maintain organizational culture after transformation into a smaller team
- Dismissal Support Plan
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