CEOs feel pressured to downsize, including with ‘silent layoffs’

• Uber, GM and others are targeting underperforming workers to lay them off, according to reports.
• CEOs do it because they feel compelled to follow their competitors, labor experts said.
• It is also a way to make workers and investors understand that they put performance first.

Laying off large numbers of workers is one thing. This usually happens when the economic winds change and a business needs to cut costs quickly; it is not the fault of the employees themselves.

But giving up whole swathes of employees for “performance reasons” carries a lot more weight. Employees on the proverbial chopping block are labeled as mediocre, which could make it harder for them to get new jobs.

Namely, GM said this week that it was cutting about 500 salaried positions as part of performance-related layoffs. It comes about a month after the Detroit automaker reported strong earnings and GM CEO Mary Barra told investors the company would cut its workforce through attrition, not layoffs.

GM is not alone. Insider recently reported that several Big Tech companies — including Salesforce, Uber, and Amazon — are spending more time targeting underperforming employees to fire to eliminate company ranks.

Business advisers who work with executives told Insider that companies are doing what are sometimes called “quiet layoffs” for two main reasons. First, in an uncertain economy, it’s a way to signal to remaining employees — and, just as importantly, investors — that performance, both individual and corporate, is paramount. Second, companies copy each other: when one of them makes cuts, competitors feel compelled to do the same.

Kerry Sulkowicz, chief executive of the Boswell Group, which advises CEOs and boards on people and culture issues, told Insider it’s a “double-edged sword” for companies to frame. compressions in this way.

“It certainly doesn’t help the short-term career prospects of those who have been made redundant,” he said. “But it’s also a powerful way – and I say this without the slightest trace of cynicism – for the company to convey that it cares about performance. It puts its money where its talking. ‘Not only do we we’re cutting back, but we’re keeping our best employees and we’re going to be leaner and meaner in the future,” he said.

Job cuts send powerful message

Many leading companies — including Compass, Microsoft and Meta, Facebook’s parent company — are targeting underperformers to cut staff and cut costs, according to Insider reports.

Meanwhile, other leaders are wondering if they too should take a tougher approach to management, according to Marc Benioff, CEO of Salesforce. In an interview with Insider this week, Benioff said, “Every CEO in Silicon Valley has looked at what Elon Musk has done and thought, ‘Do they have to unleash their own Elon inside of them?'”

He was, of course, referring to Musk’s takeover of Twitter and his moves to cut expenses by cutting staff and closing offices.

As high interest rates, high inflation and uncertainty continue to weigh on the economy, shedding underperformers is an act of financial prudence, Sulkowicz said. Simply put, it makes sense to remove workers who don’t contribute as much to the organization.

To be clear, however, Sulkowicz doesn’t endorse Musk’s particular playbook. “My unsolicited advice to CEOs: don’t do this,” he said. “It creates chaos and terror among the employees.”

On the contrary, Sulkowicz said that eliminating poor results sends a clear message not only to employees, but also to others, including investors and the business press: this company has no tolerance for laggards.

“Hiring and firing decisions convey values, organizational priorities and belief,” he said. “It’s communicating that we prioritize performance over other things, like longevity or loyalty.”

Companies could imitate each other

According to Jeffrey Pfeffer, professor of organizational behavior at the Stanford Graduate School of Business, there could also be job cuts among CEOs.

He recently told Insider that widespread layoffs in the tech sector are more likely due to repeat businesses than necessary cost cuts. “A lot of companies were hiring during the pandemic, so everyone decided to hire. Now companies are laying off, and everyone decided to follow each other and lay people off,” Pfeffer said. “A lot of it is just an imitation.”

Jennifer Reynolds, CEO of Women Corporate Directors, a foundation that connects women directors, said executives are “undoubtedly” under pressure to cut costs, whether through traditional layoffs or by removing underperformers. , when competitors announce similar measures.

In other words, a competitor’s announcement of job cuts gives other companies reason to follow suit.

“If your competitors are laying off, so should you,” said Reynolds, who has held several senior positions in investment banking and venture capital. “It’s a response to quarterly expectations.”