How What goes up must come down – even in the tech industry.
In a period of a little more than a month, the biggest tech companies have dropped trillions of dollars in valuation, setting off alarm bells across the industry. Recovering from this downturn will be different, though: Businesses will have to walk a fine line between meeting metrics and respecting a new work culture that has emerged since the pandemic.
Investors are telling companies in their portfolios to cut staff, reduce budgets, raise prices, and prepare for a long, slow recovery – and even the most cash-flush tech giants are reevaluating their employee spends, from salaries to stocks to perks.
At Microsoft, for example, this has meant pausing hiring except in manager-approved cases. At Meta, hiring has been frozen and recruitment is being scaled back, with significant slowdowns at Reality Labs, Meta’s metaverse development team. Uber has told its employees to begin treating hiring as a privilege, Apple has retracted offers and stopped filling Genius Bar jobs, Nvidia is paring down hiring, Paypal – which went on a hiring spree after the pandemic kicked off – has trimmed some of its workforce , though staffing remains higher than before the pandemic.
Google’s CFO has described headcount as the company’s “primary driver of expenses,” and that sentiment isn’t unique.
“The good big companies are overstaffed by 2x. The bad big companies are overstaffed by 4x or more,” said venture capitalist and Facebook board member Marc Andreessen, whose firm has contributed $400 million to Tesla CEO Elon Musk’s takeover of Twitter.
What pre-pandemic economy?
COVID-19 brought an end to US economic expansion, though tech was unfazed, even boosted, by it.
The causes for the tech world’s latest headaches are an echo of what brought the windfalls when the coronavirus shut the world down in early 2020. Mass layoffs were necessary to keep businesses afloat, but plenty of companies staffed up to support usage spikes caused by remote work and lockdowns. Consequently, earnings soared.
Now layoffs are hitting Microsoft’s Windows, Office and Teams groups, each of which was recently expanded. Amazon’s overstaffing has largely been a warehouse problem, but again, its issues stem from pandemic-related hiring, The same can be said for PayPal.
This should have been obvious, and the signs were there for a while: think of Peloton as the proverbial canary in the coal mine. When unsustainable levels of pandemic growth inevitably began to decline the company nearly collapsed. The same goes for Netflix, which has also had to reassess its reach as subscription numbers drop with the waning of the coronavirus amid other controversies.
The tech industry is somewhat alone in its slump, too: as the world has begun returning to normal, job openings are at an all-time high, with most of the openings in sectors that shrunk during the pandemic, such as hospitality and manufacturing. As the world opens up, tech has lost more than 15,000 jobs, yet hiring still isn’t keeping pace with openings.
Work just isn’t the same anymore
The “great resignation” that kicked off during the pandemic is still going strong, especially in the IT world, where only 29 percent of surveyed professionals have a high level of intent to stay in their current job. Much of the reason that people leave has to do with compensation, analyst house Gartner said.
Amazon, at least, appears to know this, faced as they are with the prospect of losing some of its top people, the company doubled its max base salary to $350,000 early this year. Microsoft, Google and Apple have made similar moves to retain talent with bonuses, higher salary caps and other perks.
That’s hardly been universal, though: plenty of companies continue to get pushback from employees unhappy with their compensation, among other things. Apple, bonuses aside, has earned employee ire through forced return-to-office plans, only to be met with rebellion and the company ceding ground to workers. Apple isn’t alone, either.
Tesla CEO Elon Musk has taken the opposite tack, instead opting to tell leaders at the electric car maker that anyone not back in the office 40 hours a week will be fired. Other companies have acted with moderation in this attempt, instead cutting pay for those remaining remote.
Microsoft’s Work Trend Index Report describes the current jobs climate as one that’s radically different from before the pandemic, and one that leadership hasn’t adapted well to. While leadership tries to figure out what’s wrong, employees are weighing how “worth it” their jobs are when there’s plenty of other firms willing to give them what they want.
In this case it’s money and flexible work, and good people know they’re able to get what they want as long as they look for it, even among hiring freezes and sagging valuations. Dan Ives, analyst at Wedbush Securities, told the San Francisco Examiner that, while there are pain and layoffs coming in tech, “engineering talent will still have multiple choices of where to work.”
That makes it hard to take Elon Musk’s pronouncement of bringing everyone back to Tesla offices, like it or not. It’s the same mentality that caused Apple to lose its director of machine learning to Google over return-to-work policies it has since scrapped.
So, for companies worried about the bottom line as stocks crater, inflation rises and prices soar, there are two options: Spend a bit more now to retain good people, or force them to work on your terms with firing as the motivator.
Then, express complete surprise when short-sighted strategies lead to another crisis next year. ®