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While layoffs may be warranted to reduce overhead in challenging times and resolve inefficiencies, they can also lead to lower employee morale, damage to brand reputation, and reduced productivity.
Last week, Sundar Pichai, Google’s CEO, acknowledged that while the layoffs earlier this year of 12,000 employees were necessary “amidst the global shifts we've witnessed this year," it had a significant impact on morale and could have been handled better. According to Business Today, Pichai said at an employee meeting, “Clearly it's not the right way to do it. I think it's something we could have done differently for sure.”
Facebook’s parent Meta saw many remaining employees become over-anxious about losing their jobs after a second round of job cuts arrived earlier this year. Erin Sumner, one of the employees Meta let go, told the New York Times in April, “So many of the employees feel like they’re in limbo right now. They’re saying it’s ‘Hunger Games’ meets ‘Lord of the Flies,’ where everyone is trying to prove their worth to management.”
Major workforce reductions at Amazon, Salesforce, Snap, Microsoft, and other tech firms led to several articles exploring the value of layoffs and steps to mitigate any negative fallout. REI, Express, Etsy, JOANN, Hasbro, Petco, and Wayfair have recently announced sizeable layoffs amid weaker sales.
According to a survey conducted in late November by BizReport, 71% of workers who have survived a round of corporate layoffs say their motivation at work has declined, with 65% feeling overworked since the job cuts, Additionally, 61% were less likely to recommend their company as a “great organization to work for,” and a third of respondents believed that things would worsen for their company in the future.
Research and advisory firm Gartner said CFOs tend to underestimate the “organizational drag” that’s created as a result of large-scale workforce reductions.
Beyond the upfront costs of severance, an increased need for costlier contractor hiring and more demands for increased compensation from the remaining overworked employees offset the labor savings. Within three years, the forecasted savings from layoffs tend to become offset by the “unforeseen consequences,” including excessive turnover and customer loss, according to Gartner analysis. Additionally, when businesses eventually need to rehire to fill empty positions, it will likely be at higher rates than the employees who were laid off.
“In the more negative scenarios, the factors detailed here are also going to harm growth in existing and new business, and ultimately a firm will start losing its customers,” Vaughan Archer, senior director of research and advisory in the Gartner Finance practice, said in a statement. “None of this is conducive to long-term shareholder gains.”
Gartner advises firms to seek out alternative ways to reduce personnel costs — including a voluntary reduction in hours, a hiring freeze, remote work, benefit cuts, and organization-wide pay cuts — instead of broad layoffs.