Layoffs at Google 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 which have already downsized this year.
As the global financial situation weighs on wallets, big names like Meta, Twitter and Amazon all made layoffs in 2022. In November, layoffs in the tech sector topped 45,000 people, the largest companies that have reduced their workforce by more than 10,000 people each. But Google has managed to stay away from talk of 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 weigh on profit margins and stock prices. The company also faces calls from at least one wealthy activist investor to cut its “excessive” headcount and cost per employee.
And with the help of a new “performance improvement plan”, Google’s layoffs could reach 6% of its workforce (about 10,000 employees) by early 2023.
Here’s what you need to know:
Layoffs at Google are 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 typically had to cut about 2% of the company’s total workforce to weed out underperforming employees. But the new plan requires nearly three times as many workers – around 10,000 – to be made 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 top marks. About 6% of the lowest performing employees could be fired from the company.
According to The Information, “managers could also use the ratings to avoid paying employees bonuses and stock” to further reduce costs.
Will the 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 spike was fueled by the boom in tech usage, as well as companies fighting the Great Resignation, finding or poaching top talent wherever possible.
But as inflation and rising interest rates continue, advertisers cut spending and pundits worry about a possible recession, many companies have realized they’ve over-hired. They therefore have no choice but to choose between declining results and declining workforce.
So far, Google itself has yet to confirm any layoffs. But its hiring and growth patterns mimic many of the trends seen in the broader tech sector over the past two years. The company recently froze all new hires while telling some teams to “organize or leave” if they can’t meet new expectations.
CEO Sundar Pichai also hinted at 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 the company needs to “be smart, lean, tough, and more efficient.”
External pressures are felt
As if macroeconomic pressures weren’t enough, Google also faces calls from at least one notable activist investor to make major changes.
Recently, hedge fund billionaire Christopher Hohn argued in a letter from TCI Fund Management to Alphabet that Google’s payroll costs have spiraled out of control. The letter says Alphabet’s management “must take aggressive action” to reduce costs and improve profit margins.
He recalls that executives said Google “should be 20% more efficient.” TCI Fund Management argues that Google’s doubling of its workforce since 2017 is “excessive” and that employee ranks should be reduced to align with the current business environment. (Currently, Alphabet employs about 187,000 people.)
Additionally, TCI Fund Management believes that Google’s per-employee costs are also too high. Hohn points out that Google’s median salary in 2021 was “67% higher than at Microsoft and 153% higher than at the top 20 U.S.-listed tech companies.”
TCI Fund Management estimates that these inflated numbers, along with lower advertising spend, helped to reduce Google’s earnings by 27% year-on-year in the third quarter.
On the one hand, TCI isn’t wrong: Google’s profits have actually fallen year-over-year (though the company still raked in nearly $14 billion). However, while TCI’s letter may have provided any momentum, it’s unlikely the hedge fund was solely responsible for Google’s new firing practices. In other words, the fund’s $6 billion stake is only a drop in the bucket compared to Google’s $1.27 trillion market capitalization.
It can also be said that Google’s enormous success is due to the fact that it retains the best talent. By paying above market rates, the internet giant can attract – and keep – the best and the brightest, avoid costly departures and maintain the flow of production and creativity.
What the Google layoffs mean for investors
Of course, Google is far from the only major tech company to make layoffs this year. Meta has already started the procedure by firing 11,000 employees. Amazon is considering more or less similar referrals in terms of cost.
And Twitter is being sued after cutting its workforce in half. Several hundred other employees are said to have walked off the job following the company’s controversial takeover by mercenary Elon Musk.
With so many layoffs underway and on the horizon, it’s natural to worry about your wallet. Investors big and small have spent the last decade relying on high-growth tech companies to drive up profits. Now that earnings (and stock prices) are slowing down, it may be time to reevaluate your strategy.
And what better way to do that than with the power of artificial intelligence to manage your investment potential?
With a portfolio filled with specially selected AI-backed investment kits, you can diversify your capital across industries, concepts and innovations.
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Article translated from Forbes US – Author: Q.ai – Powering a Personal Wealth Movement
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Layoffs at Google: GAFA continue to reduce their workforce and it’s far from over – Forbes France
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