In recent months, numerous high-profile tech companies have announced massive layoffs — even though, by all accounts, those companies have been doing tremendously well. Over at The Verge, Elizabeth Lopatto dug into the seeming contradiction between record-breaking profits and record-breaking staff reductions. Surprising no one, it has everything to do with appeasing potential investors — and s soon as one company announces layoffs to improve their stocks, the others follow suit.
One measure people use for measuring tech companies' investment value is revenue per employee — and having hired all this staff during the pandemic, that means revenue per employee has gone down.
Software companies like Microsoft should have $500,000 in revenue per employee, or at least a minimum of $300,000, Cusumano says. "It could be higher than that, but when it starts to get below that, you start to worry that they've got too much headcount. So that's something people look at on a yearly or even quarterly basis."
The theory behind layoffs is that they save the company money, even though there's an initial expenditure of millions or billions of dollars in severance. The idea is, with fewer salaries, the company's costs are lower on an ongoing basis.
Also perhaps unsurprisingly: there doesn't seem to be much evidence that an increase in revenue-per-employer actually improves revenue in the long run either. But it's not like the stock market is really based on rational empiricism anyway.
Why are so many tech companies laying people off right now? [Elizabeth Lopatto / The Verge]