Google layoffs could reach 6%, or 10,000 employees, in early 2023, according to a report by technology news site The Information, a letter from an activist investor. If Google commits to downsizing, it will follow Big Tech peers like Meta and Amazon who have already downsized this year.
As the global financial situation weighs on portfolios, big names like Meta, Twitter, and Amazon laid off workers in 2022. In November, layoffs in the technology sector exceeded 45,000 people, the largest companies to cut their workforce by more than 10,000 people each. But Google has managed to get away with talking about downsizing… until now.
According to a report by technology news site The Information, Alphabet, Google’s parent company, is now feeling the pressure. Adverse market conditions continue to affect profit margins and share prices. The company is also facing calls from at least one wealthy activist investor to cut its “excessive” headcount and cost per employee.
With the help of a new “Performance Improvement Plan,” Google could layoffs to 6% of its workforce (about 10,000 employees) by early 2023.
Here’s what you need to know:
Google layoffs driven by improved performance reviews
According to the information, Google asked team leaders to evaluate employees using a new “ranking and performance improvement plan”.
Under previous systems, managers had to cut about 2% of the company’s total workforce to get rid of underperforming employees. But the new plan would require nearly three times as many workers — about 10,000 — to make it redundant.
Basically, the system allows management to rate employees based on their performance and impact on the business. The new guidelines limit the number of employees who can achieve the highest score. 6% of the lowest performing employees can be fired from the company.
According to the information, “Managers can also use ratings to avoid paying employee and stock bonuses” to further reduce costs.
Will Google layoffs happen?
Google, like many other companies in the high-tech sector, has experienced significant growth — and hiring — during and after the pandemic. This rise has been driven by the boom in the use of technology, as well as companies fighting the “great quit”, to find or poach the best talent where possible.
But as inflation continues and interest rates rise, advertisers cut spending and experts worry about a potential recession, many companies have realized they’ve been overhiring. So they have no choice but to choose between declining results and declining workforce.
So far, Google itself has not yet confirmed any layoffs. But its employment and growth patterns mimic many of the trends seen in the broader technology sector over the past couple of years. The company recently froze all new hires while telling some teams to “clean up or leave” if they can’t meet new expectations.
CEO Sundar Pichai also hinted at the upcoming changes. In particular, he said that Google could become 20% more efficient, hinting at job cuts and productivity improvements. Although Google continues to make long-term investments, it believes that the company needs to “be smart, agile, tough, and more efficient.”
External pressures are felt
As if macroeconomic pressures weren’t enough, Google is also facing calls from at least one prominent activist investor to make big changes.
Recently, billionaire Christopher Hone argued in a letter from TCI Fund Management to Alphabet that Google’s payroll costs have spiraled out of control. The letter says Alphabet management “must take drastic measures” to reduce costs and improve profit margins.
He recalls that executives said that Google “should be 20% more efficient.” TCI Fund management argues that Google’s doubling of its workforce since 2017 is “excessive” and that employees should be downgraded to align with the current business environment. (Currently, Alphabet employs about 187,000 people.)
In addition, TCI Fund management believes that Google’s costs per employee are also high. Hohn notes that Google’s average salary in 2021 was “67% higher than that of Microsoft and 153% higher than the top 20 listed technology companies in the US.”
TCI Fund Management estimates that these inflated numbers, along with lower ad spending, helped reduce Google’s earnings by 27% year over year in the third quarter.
On the one hand, TCI isn’t wrong: Google’s profits are actually down year-over-year (although the company still makes close to $14 billion). However, while TCI’s rhetoric may have provided any impetus, it is unlikely that the hedge fund was solely responsible for Google’s new firing practices. In other words, the fund’s $6 billion stake is just a drop in the bucket compared to Google’s $1.27 trillion market capitalization.
It can also be said that Google’s massive success is due to the fact that it retains the best talent. By paying rates above market, the internet giant can attract – and keep – the best and brightest, avoid costly departures and keep production and creativity flowing.
What does google layoffs mean to investors
Of course, Google isn’t the only major tech company laying off workers this year. Meta has already begun the action by firing 11,000 employees. Amazon considers referrals somewhat similar in terms of cost.
Twitter is suing after cutting its workforce in half. Several hundred other employees are said to have left the business after mercenary Elon Musk’s controversial takeover of the company.
With so many layoffs underway and on the horizon, it’s only natural to worry about your wallet. Investors big and small have spent the past decade relying on high-growth technology companies to boost profits. Now that earnings (and stock prices) have slowed, it may be time to re-evaluate your strategy.
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Translated article from the American magazine Forbes – Author: Q.ai – Promoting the Personal Wealth Movement
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