How Corporate Layoffs Work – The Sad Truth About Employee Loyalty

Corporate Layoffs. Shhh, don’t talk about it. As an employee, we’ve all experienced the whispers, rumors, and fear shuddering through the rank and file. But really, how do corporate layoffs work? How long have “they” been planning it? Who’s privy to know who, how many, where, and when? 

The fear and the inability to do anything about layoffs are, frankly, demoralizing. You have zero control. Some believe “if I work hard, I won’t get laid off.” Having worked in corporate finance (FP&A), I’ve seen dozen of mass layoffs and can share the behind-the-scenes of how corporate layoffs work. 

TL;DR As Forbes says it best, “Companies Don’t Care About You: The Days Of Corporate Loyalty Are Over And It’s Time To Take Control Of Your Career“.

How Corporate Layoffs Work

1) Layoffs Start with a Reason – Deciding to have a layoff

Corporate layoffs happen for many reasons, such as restructuring, bad earnings, and moving workers to lower-cost locations. To keep things simple, the “bottom line,” so to speak, is cost savings. These cost savings make a company’s earnings call look good since they will be making more money in the future by spending less. The conversation usually starts with the CFO and CEO, though the CEO makes the final decision. 

The sad truth is that it’s easier to do a corporate layoff and eliminate headcount than to sell a building or, you know, find ways to produce more revenue. Corporate layoffs are relatively cheap and easy. There is an upfront cost in terms of severance packages, but they are a one-off occurrence and counted as a non-operating expense on the balance sheet. This means the severance pay-offs will not impact the net income for the quarter (USGAAP).

Fun Fact: CEOs are paid heavily in stock. If the stock prices go up, so does their payout. Some even get bonuses if the company hits stock price targets.

Corporate reasons to initiate a layoff: 

  1. The company is making a lot of money (millions or billions) but profits are not as high as previous quarters. We need to report growing revenues every quarter to meet Wall Street expectations to keep the stock price rising.
  2. The company is losing money after a long streak of making money. This will result in a falling stock price. We need to get back to profitability fast. Reporting out the company is profitable will pump the stock price.
  3. Company’s performance won’t meet projections as communicated to Wall Street. The stock will drop and executives’ total compensation upwards of 80% will get reduced. Need to pump the stock price.
  4. Pump the stock price and make timely insiders stock sales (even when declared in advance to the SEC).
  5. Feeling cute, might pump the stock price later idk..

“Not many people understand what a pump is. It must be experienced to be understood. It is the greatest feeling that I get.”

Arnold Schwarzenegger, (Also your CEO)

Corporate layoffs and earnings announcements

Corporate earnings are when a company announces its performance to “Wall Street.” There is a huge focus on how much money the company makes and how the company is growing. It’s not enough to just be profitable, and you need to make more than the last report; otherwise, it might cause alarm and impact the stock price. Corporate layoffs can help to boost how much money the company makes.

As the sample headline above states, you can use “cost-cuts to “offset” blow to sales”. Here’s an example of visualizing how layoffs impact the Net Income. Keeping all expenses equal, you can “boost” or “offset” your net Income by spending less.

how corporate layoffs work to boost net income

Keep in mind, even without the layoffs, the company will still make money, with positive revenues, “wall street” doesn’t care. It’s meeting those “expectations” is what will keep the stock price up. Essentially corporate layoffs are a way to please wall street; the stock price will rise as long as you meet those wall-street estimates.

2) Kicking off a layoff – Give it a cool Project Name 

Like any big and secretive project, Apollo, Manhattan, Titan, the layoff needs a catchy name for everyone to refer to in secrecy.  As with anything corporate, a layoff “event” is nothing more than a project.

Something like “Project Minotaur” might be a cool name. A mythical creature that devours humans. It has a bull form, which is the perfect symbolism for the bull market to come. Excellent.

3) Corporate Layoff Analysis and Financials – How much can we save?

how to layoffs work -the job posting for the analyst that will calculate layoffs
None of the job responsibilities lists “layoffs” analytics, but now you know what “ad hoc analysis” means.

Next comes the financials of a layoff. How much can we save? The whole point was to save money, but how much do we need to cut, and what are some different ways we can do layoffs. Someone does the data crunching, and that work goes to the financial analyst.

Who does the analysis?

The analyst will “slice” the data in many different ways and present different scenarios to reduce costs. You can layoff by business units, departments, location, or pick trim across the whole company. With so many options, the CEO / CFO will have the final say in strategy. 

Sample Headcount Excel model – the How

The below is an overly simplistic headcount model to get the point across. In practice, there will be a lot more inputs and variables that go into these calculations, such as cost by location. The overall goal is to run different scenarios of how much we can save by eliminating a mix of different positions or departments. Sometimes the financial models will drive the creation of the strategy and story.

how corporate layoffs work, the excel analysis

4) Choosing the employees to layoff – How to choose who to layoff 

Deciding who to lay off is the next step. Finance will hand down a budget and a $ amount to cut. The individual department managers will have to decide who and how to cut to reach that financial goal. Do I let my star engineer go, or three entry-level engineers go? Like a pokemon master, Managers and Directors have discussions like these to decide which employee to release from captivity. 

how corporate layoffs work, choosing who to lay off

For example, finance might tell the Director of Engineering to reduce $5M to the engineering organization. They will work with their managers to decide how best to cut that $5M across the entire org. You need to complete the numbers but also need someone to do work on the projects.

These meetings happen months before the actual layoffs. That meeting your manager had with the director a months ago. Yep thats the one. Like neo in the matrix, you may be the chosen one all along, and you don’t even know it. 

5) “Executing” the layoff – Game Day

Once all the decisions are made, the next step in the layoff flow is the actual layoff itself. A date is ultimately chosen for the event, and all the teams have been given a game plan. Who will do and say what has been all prescribed well in advance. All that is left is to wait for the date to execute the plan.

Employees across the company that is laid off will be told at exactly the same time. These meetings are usually quick 15 min conversations, where each manager will consecutively tell their employees back to back. The timing helps to prevent the spread of panic and rumors. Within an hour, all the meetings with the impacted employees will have taken place. IT will have the list of all employees and would have disabled your access while you are in the meeting.

Corporate layoff announcements and public relations damage control 

As you can see, layoffs are planned and coordinated to a great level of detail. HR, Communications, and Legal have also scripted the communications that managers receive and send out.  

There is an “all-hands” emergency meeting in the company to calm everyone’s fears for the rest of the remaining employees. Managers will tell you things like “I have no idea this was happening,” ” I don’t have any extra information,” and other reassurances to the team that there is nothing to worry about.

A week after the layoffs, it’s business as usual. No one talks about what has happened; it’s another day in the office. You should feel lucky you still have a job, unlike your poor team member who was laid off. Though you will have more work to do because someone left, be happy to do it because you still have a job, until the next round. They want you to think, “I’m fine with the extra work; at least I still have a job.”

The reality is, no one wins in these scenarios, you either lose your job, or you have more work to do to pick up the slack. The only winner is the company and that sweet, sweet stock price.

Wall Street Reactions

This is the moment we’ve all been waiting for, the “Street” reaction. Will the stock price go up or down? There has been a lot of research done on the impact of corporate layoffs and the initial reaction to the stock price. That’s hotly debated, but we’ll let some of the headlines speak for themselves.

What does corporate layoffs mean for you as an employee? 

This article is to show how mechanical and impersonal these decisions are. There is little you can do to control it. What you can do is to have your interview skills fresh and keep an eye out for the next opportunity. In the corporate world, the only person that would take care of you is yourself. Let’s face it, it’s a numbers game and you’re gonna get laid off eventually.

Do what is necessary to take control and propel your own career and life goals. Don’t feel bad for quitting a job after working only a month. Don’t feel any guilt for taking a job offer and then rejecting it. Working two jobs within the guidelines of employee handbooks, go ahead. With “at-will” employment, you’re just a number. If it makes financial sense to the company, your position can be eliminated.

All the work and planning that goes into corporate layoffs are some of the worst-kept secrets in the company. There are so many people involved in the decision-making, analysis, and meticulous planning. Everyone knows basically for a while, except you, the chosen one. 

You can do better work and exceed your expectations. Will that help? Yes, you might get promoted, but then you would be expensive, and you’re back at square one, hoping not to get laid off. So, actually, no.

Here, we are spreading the word of working two remote jobs at once and reach financial independence early. That way, you can hedge against having all your eggs in one job or needing a job at all.

Volunteering for corporate layoffs

Volunteering for a corporate layoff would be a strategy to consider f you were planning to leave a job in the near future anyway. By raising your hand, you will get your name on that layoff list and potentially collect the layoff package. If you had resigned, you would not get a package. If there was an incoming layoff, your manager would be grateful that you volunteered, making their decision-making of who to keep much easier. Help your boss, read and execute the How To Engineer Your Layoff playbook.

Takeaways for corporate layoffs

The moral of the story is that corporate layoffs are inevitable. The social “loyalty” contract between workers and employers had been broken a long time ago. You’re reduced to an anonymized title on a spreadsheet with your salary number attached — a number that CFO and HR want to make lower. Nowhere in the financial model has “years of employment” or “loyalty” as an input. That is not quantifiable in a financial model.

Would upper management keep more worker bees than one higher-paid senior manager or architect? Yes, probably. This is just a glimpse into one of the ways corporate layoffs are developed. Though there are countless other reasons, the underlying theme remains the same — help investors make more money. That’s what is taught in business schools since the 1970s, to maximize shareholder value.

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