The thing that bothers me most about layoffs due to “financial difficulties” is when you observe management wasting absurd amounts of money on something in one year, then announcing the following year that they have to make cuts to baseline, “low level” employees that don’t cost much at all.
This kind of managerial behavior seriously kills employee motivation, because it both communicates that 1) no one has job security and 2) that management is apparently incapable of managing money responsibly.
“Sorry, we spent $200k on consultants and conferences that accomplished nothing, so now we have to cut an employee making $40k” really erodes morale in ways that merely firing people doesn’t.
A former employer decided to freeze pay for a few years and later later start laying off people. During the pay freeze a colleague suggested that we might save a significant amount of money by hiring staff, rather than paying the large number of consultants we had hired. I think the ration was something like getting rid of two consultants would free enough money to hire three developers.
Managements take was that we should keep the consultants, because they where much easier to fire, two weeks notice, compared to four. So it was "better" to have consultants. My colleague pointed out that the majority of our consultants had been with us for 5+ years at that point and any cancelling of their contracts was probably more than 4 weeks out anyway. The subject was then promptly changed.
In fairness to management large scale layoffs did start 18 months later.
There’s the whole capital expenditure vs operating expenses angle too, and depending on a company’s particular situation, one might look better on paper than the other. Without going into too much detail, contractors will be hired typically to contribute to capital expenditure and employees to the latter.
This distinction is even more relevant for earnings. So companies will optimize this for taxation and accounting to win shareholder brownie points.
I am wondering whether a company "optimizing for shareholder brownie points" is a good signal to either look for employment elsewhere or as an investor start investing elsewhere. It seems like a company who prioritizes this either has reached their potential (which might be fine) or is just not able to innovate anymore.
> A simple question to ask an employer during an interview is whether the company is profitable or not. If so, for how long?
This is great advice.
For instance, I was once in an interview where they were grilling me. I was reluctant to do the interview in the first place, because they'd gone bankrupt TWICE in the past five years.
At the end of the interview, it seemed fairly clear that my odds of getting the job were about 50/50. The interviewers were smart and they were asking hard questions.
But when I asked them to comment on their two recent bankruptcies, it changed the mood entirely. At that point, the entire "vibe" of the interview shifted. It became CLEAR that they'd been losing employees at a furious pace, because of their financial struggles.
Once we talked about "the elephant in the room," the entire interview tone changed, and they made me an offer in less than twelve hours.
My "hunch" is that they'd been grilling interviewees (because they were smart folks) but had been scaring interviewees off because they were in such terrible financial shape.
Basically, potential hires were ghosting them because of their financial problems, while they were simultaneously discussing technical issues when the real issue was financial.
I accepted the offer, and the company is still around. I had a similar interview experience at FTD in San Diego (the florist), and they are kaput:
I'm in a VC-owned business with a 50% profit ebitda. But a common trick is to just load it with debt. The VC firm pays out all profits as dividends, all investments into restructuring, M&A and new technology is paid for by high-interest loans from the shareholder. What's left is a company that barely cashflows as all profit goes towards paying interest to the VC firm.
The appointed management team has to operate within that scope (i.e. no real budget to work with, despite the 50% interest), and they squeeze a bit more each year, meaning it's an uphill battle each year to get a raise or promotion. On top of that it's a cashcow in an otherwise dying and slowly shrinking business sector.
In other words a terrible place for general salary growth.
So I'd add two points to your list which is to: look for (1) profitable companies, (2) in expanding markets, (3) that aren't owned by VC.
Startups have their own set of rules where (3) doesn't really apply as much.
You stated that there aren't many profitable lifestyle companies. And the insinuation put forth is that they are very rare to the point of almost nonexistent.
This comes off as rather reductionist and absolute to me; tech is a massive industry, do you know every sector within and adjacent to tech to have reached this conclusion?
No. But I do know statistics. The largest employees in tech are the public companies that we have all heard of. The next largest segment are VC funded companies with the smallest segment by far being the “lifestyle companies”.
Do an exercise, go to any job board and put in filters to match the types of jobs you are qualified for. How many of those do you think are going to be profitable, private, lifestyle companies?
I would put money on all of big tech and all public companies combined not employing more than 30% of professional programmers. At least in the US only 15% work at a large company (500+).
There's still a question of what you consider profitable.
A company may make more in revenue than strictly expenses but stock-based compensation is often not considered an expense so if you add those into the expense side it could change profitability.
> We provide non-GAAP free cash flow because it is a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities, including investing in our business and acquisitions, and to strengthen our balance sheet.
Layoffs in big tech are mostly to place workers in their place and shake the market, they've definitely been able to drive down salaries these past two years.
Large US companies that I’ve worked with or for do this as a SOP. It’s not a calculation being done at the hiring manager level as much as a path of least resistance because that’s the way it’s been done for so long.
> contractors will be hired typically to contribute to capital expenditure
You know, operational expenses are the ones that get an immediate tax break, and capital expenditure the ones with a depreciation period.
Changing the expenses that way can only increase the company's tax payments. The only reason one could possibly want to make that change is if they want to fraudulently show the money paid for the contractors as earnings.
This is exactly what has changed [1]: R&D costs had been an immediate tax break, but since 2022 became an expenditure requiring a 5-year amortization period.
That change had been planned to be canceled before coming into force, but it was not canceled on time.
Hence the wave of layoffs in 2022, as companies were urgently trying to improve their balance sheets, as investors and the Wall Street requested, AFAICT.
If you have time, how can capex, an expense, appear as earnings? (I'm pretty clueless about these things)
Aha, it's that: "Opex is subtracted from earnings before public reporting and before taxes" (I see in other comments here),
but capex is not subtracted, so then it looks as if the company is doing better, on paper, although it's not. And this works only for a while, maybe some years? Which might be long enough for the current management, if they leave before things get too bad?
Without going into too much detail, contractors will be hired typically to contribute to capital expenditure and employees to the latter.
That doesn't make any sense. In any situation in which a contractor expense would be capitalized, an employee's salary would also be capitalized. Labor costs are labor costs; whether someone is a contractor or an employee is a labor law issue, not a tax issue. (Internal R&D was the big exception to the capitalization rule, but that loophole was closed, which is what prompted a lot of tech and videogame layoffs over the past 2 years.)
Can you explain more how paying double for a contractor for tax reasons saves the company money? Or is this all some nonsense setup by the company to shuffle the numbers to look superficially better for a specific metric?
"We spent 1B in one-off costs for increased future growth" is a much happier story to investors than "we have recurring costs of 1B", put simply, even if the actual recurring cost number is worse.
(There's also some complexities in some industries around money from, say, grants, which you can only spend on certain types of expenditures...)
It’s all about accounting for the spend. Wall Street often looks at Capital Expenditures as a sign of growth or at least net neutral, but they view Operating Expenses as negative. If you can reduce your operating expenses by 200k, but increase your capital expenditure by 400k, you’ve reduced overall profit in order to increase growth potential because your investing 400k into new stuff that will bring in more revenue.
This strategy cannot work long term unless there is growth happening elsewhere in the company to make up for the excess money burned on contractors and reduced number of employees. But it can definitely work short term if the growth numbers for the quarter are going to look bad, and it has the benefit of giving management someone else to blame when the project work doesn’t get done.
If your company starts replacing employees with contractors, that’s a bad sign.
That might be it, this company was obsessed with CAPEX vs. OPEX. Everything was always put into the context of CAPEX or OPEX. OPEX being bad and CAPEX good.
Wait, when did that change? I thought the prevailing wisdom in our industry is that CAPEX sucks, OPEX rules. I understdood that's what's driving SaaSification of everything - replacing some internal tool and labor with a SaaS is literally turning CAPEX into OPEX, and it was supposedly what the investors liked.
The only real difference is tax treatment. Opex is subtracted from earnings before public reporting and before taxes. So opex are more tax-efficient, but they lower your reported earnings.
>Can you explain more how paying double for a contractor for tax reasons saves the company money?
This may vary due to region. For example in the U.S where you can fire people quickly the contractor benefit is less apparent, but in EU where after a short period you may have to spend a long time to fire someone it may be beneficial to hire a contractor rather than going through a lengthy hiring process only to find out you want to fire them.
Contractors in such an environment often are a reasonable investment for a project that has a particular dedicated timeline. Like we expect 1 year for project to finish. We hire for 1 year, and opportunity to extend for 3 months 2 times in case it goes bad.
Otherwise you have to hire for project and then do these layoffs everybody here is complaining about.
Furthermore in EU if you are paying 10000 for an employee, you probably have extra fees on top of that so you are paying 14000 (estimation) then for contractor you are not paying 28000, but 20000. The pricing is not great, but there are lots of factors that can make it seem more attractive than it might appear on its face.
Finally, Contractors tend not to do any of this quiet quitting or whatever, probably because for them it is more a business and they are also earning significantly more that makes it an interesting business to be in and to maintain.
In my experience long time contractors will absolutely "quiet quit" if put into the same catch-22 situations that push employees to do this.
The main difference at least in my region is that if you're a contractor then it's much quicker for you to quit and find a better job so the incentive to stay isn't as strong. In other words, tech workers who become contractors here usually are better contributors and have an easier time finding good offers.
You can give workers temporary contracts and extend them as you see fit. None of what you are saying makes any sense to me.
Also, I will repeat this as many times as possible: you can fire employees in Germany exactly the same way you can fire employees in the US. You just need to follow the damn law. You need to give your employee a WRITTEN letter of termination, to make the termination legally binding. Then all you have to do is give them notice (or pay the salary out immediately if you want to get rid of them immediately).
Paying double so you can fire contractors is illogical. The maximum amount of notice you can be legally entitled to is 7 months, after working 20 damn years at a single company, which means at worst the company would have to pay half your salary out a single time to get rid of you immediately. None of this 2x every year multi-year bullshit.
The reason why you hire contractors is that you do not need the full output of an employee. You might only need three months or maybe just a week. It's the same reason companies rent equipment instead of buying.
> you can fire employees in Germany exactly the same way you can fire employees in the US. You just need to follow the damn law.
That is overly simplified. First, you have to commit to one of three types of layoffs, only one of which usually is applicable (betriebsbedingte Kündigung). But if you do that you have to consider the social circumstances of the employee and also other comparable employees. Which absolutely can result in not being able to fire the employee you would like to fire without also firing a number of other employees first. That could be really disruptive, so it is not quite so easy for German employers.
Outside of the US this optionality does have some value to deserve at least some premium.
Hire an extra dev for the same money looks good on paper, but employment being the trapdoor function that it is in some jurisdictions does muddy the water.
(I do understand that there's a historical context to keep in mind, and that the relationship is often asymmetric in the other direction as well)
> but employment being the trapdoor function that it is in some jurisdictions does muddy the water.
Absolutely, I should have clarified, this was in Denmark. Laying off someone is pretty easy, unless they happen to be pregnant, a union representative or work-place-safety representative.
And I should know, I was laid off from a job after two months because they decided that they didn't have the budget anyway.
Furthermore, the "additional cost" of an employee in Europe is a further 35% of the salary due to social fees. That is why contractors often don't cost more to the company, although it might seem like that to employees.
In this case a consulting company was hired, so these where employees, just with a different company. They just opted to station the same people at the same client for all those years.
In Germany now there are laws in place for this, you get ridiculous stuff like as consultant you are not allowed to eat together with team mates from the employer because that is seen as bounding activities (you may "accidently" bump into each other in the cantine, but not go together), or share the same office equipment for coffee, having to go down the stree to get coffee while employees get theirs from the kitchen, and so on.
Why is that ridiculous, I work in consulting. Why would I expect to be invited to the Christmas party? If you had consultants from McKinsey working for you, would you expect them to be invited to your Christmas party?
Because in a lot of places the consultants and employees work side by side, sometimes for a long time, on the same project/work. They operate as one team, more or less. The consultants are more like staff augmentation, than McKinsey consultants.
If I was a manager of that team, I'd worry about the effect of treating part of my team differently.
If I was an employee on a team like that, I'd feel really bad about my team mates not being allowed to participate.
There is admittedly a difference between staff augmentation and McKinsey style strategic “consulting”. The distinction is usually who owns the project?
If the client company owns the project and you are just coming in as a warm body, that’s staff augmentation.
But if the client company is putting out Requests for Comments to different companies and they sign a Statement of Work and your consulting company comes in and does the work, that’s “consulting”. In the latter case, you don’t usually get let go as soon as there is no work for you - ie when you are “on the bench”.
Even if you are a more junior employee at the latter company where you are more hands on keyboard than flying out to meet customers and sometimes you might even be doing staff augmentation for the client, it still feels differently.
My consulting company has internal employee events, is responsible for my pay, performance, etc - not the client.
At the same time, a consulting company's employee might spend 30 times more time together with the employees of his/her client, and then it might have felt more natural to join them on Christmas dinner too, and a bit sad to be "left out" (although of course everyone probably understand why).
The client's employees can be your "real" coworkers that your at every day, for years and years? Although maybe your company does shorter projects (?), what do I know
No experience with McKinsey directly (thank goodness) or any consulting groups like that, but why not invite them to the holiday party? But certainly we should invite "Sheryl from accounting" who is technically a contractor, or the janitor who works for the landlord. These people are coworkers, whether or not our paychecks have the same signature on them.
If you were working with a general contractor where you signed a contract with them and they just went out and led the work and kept you updated with statuses, would you invite them? Would you invite the subcontractors? The actual construction workers?
This how true “consulting companies” work. You sign a statement of work with the requirements and costs and then they (we) go off and take care of staffing and lead the project. Your company will probably never interact with anyone besides sales, the tech lead and maybe the people over sub projects of the larger project (work streams) and their leads.
OK sure, but I never once mentioned any of this and have no idea what the social customs are around hiring general contractors to build buildings or asking CIA-adjacent consulting companies how to jack up the price of bread. I just know that half my coworkers have a slightly different email address for "legal reasons", and they aren't allowed to come to the Christmas party. This is, in my opinion, simply mean. Basically we seem to have invented a kind of at-will apartheid that 0.0001% of the population understand and even fewer benefit from.
That’s staff augmentation which is completely different. If your company doesn’t know anything about Salesforce for instance and you just need a one off large project, you are going to hire a consulting company to go off and do the work and leave.
It doesn’t make sense to build the competencies in house if that’s not your core line of business’s
I left our part of my explanation of a general contractor. I meant when you are having a physical structure built like a house or in the case the analogy would be adding on to your office building
Many companies use consultants as easier-to-fire employees. I've occasionally worked with the same consultants for years, with them acting as team mates doing the same work as every other internal. And we were team mates in everything work related, except the parties.
I understand the contractual and financial logic but from the human perspective excluding the people who are otherwise just as much part of the team as anyone else is definitely eyebrow raising.
I have worked for third party consulting companies for 5 years. Companies hire my company to do a job or issue guidance and then leave. If I am on the bench, I still get paid. I report status to the client company and they are ultimately responsible for signing off on work. But they don’t manage my work.
I’m not embedded into their team, we might embed them into our team. But at the end of the day, we are leading the projects.
Then you have staff augmentation “consultants” like you are referring to.
I saw both sides a few years ago when I was the dev lead for a company. We hired both staff augmentation “consultants” where we paid the contracting agency $90/hour and the end consultant got $60-$65 and we also paid the AWS consulting companies $160/hour and I have no idea what they got paid. But it was a lot more.
That’s what made me work on pivoting to cloud consulting in 2018. I didn’t know AWS when we hired the consultants.
Nothing ridiculous about it. That came out of the permatemp lawsuits in the US by contractors a couple of decades ago which resulted in employers avoiding doing anything that made it look like contractors were being treated like permanent employees. Squeezing for money by a few contractors ruined a good thing for the rest of them.
Why is that ridiculous? Contractors are not employees, so why should they be invited to a give thanks party for employees? Become an employee if you want to partake.
Feelings of entitlement are wrong here. Decency though tells us to invite everyone.
Christmas part is not special "give thanks to employees" party, it is more of end of a year party. It makes perfect sense to invite contractors. Even if it was "give thanks" party, contractors worked on projects.
I remember a work Christmas party attended by a contractor. The company was an sme and as usual we closed the office at mid-day and headed for a local restaurant to eat and socialise. The contractor as chatty and sociable, and seemed happy to be dining on the company's bill. Wine flowed.
Then at the stoke of 5pm, as we permies were discussing which pub to move on to, the contractor stood up, mumbled his thanks, and left. Billable hours over for the day.
I have seen employees doing exactly the same, so I do not see anything worth anger here. It is never the case that everyone goes to christmas party. Unless not going is punished in some way, in which case they go, but only to avoid punishment.
> Then at the stoke of 5pm, as we permies were discussing which pub to move on to, the contractor stood up, mumbled his thanks, and left. Billable hours over for the day.
yeah it was just my facetious way of observing that there could be other explanations that he was gone as soon as he couldn't charge for his presence, in fact when I consult I would never charge for going to one of those things - but I would of course expense it on my taxes.
Its caste. The cleaning lady is part of the company and its a horror that the dalit are dis-included from all company activities. The only actual reason is to divide and conquer and prevent them being part of any employee unionization.
I've been a consultant/contractor, less than 4 months in, and I still have been invited to (great) Christmas party, and even shared paid buses that took whole company and also given free accommodation.
Human decency is human decency, nothing more to that.
How dare people have feelings right? A lot of contractors (like myself) are treated like employees who are easier to fire.
I understand the separation from a legal perspective, but at the same time I've developed relationships with the people I work with and enjoy working with them. Being entirely honest? It hurts being excluded from things and not everyone has the option to just "become an employee".
> In Germany now there are laws in place for this, you get ridiculous stuff like as consultant you are not allowed to eat together with team mates from the employer because that is seen as bounding activities
AFAIK in Germany the model of using temporary agency staff (AÜG or "staff leasing") is now tightly regulated. It works for a limited time period and tries to guarantee some equitable conditions for temporary workers like fair treatment, equitable wages, and benefits, aligning with the protections afforded to permanent employees.
Consultancy has no such protections.
I have never heard of any laws that prohibit internal employees from socializing with the externals (consultants or AÜG), or eat together. Bonding can happen equally at the desk or the lunch table. And I haven't heard of any company or institution enforcing this. Legislating who one is allowed to eat with sounds crazy.
What many companies probably enforce is "no internal benefits for consultants", so the free company coffee, parking, canteen, or maybe even a desk/office are not available for the externals, and they have to look elsewhere. Or maybe some unwritten internal rules to discourage bonding.
You get that at many companies whose legal department is too worried that AÜG might somehow be triggered for them, or have a strong union that would rather see all consulting folks be gone, which I understand when placed in the shoes of internal folks.
That's a manifestation of your specific environment and not a general rule. I guess it is the work of some overeager compliance department, because it is the kind of overreacting self-mutilation that happens if people do not understand a law and want to be absolutely sure (cf. GDPR).
[1] is a PDF that tax advisers and lawyers distribute to employers to check if freelancers are only ostensibly self-employed. The checklist at the end of the PDF is all you need if you are an employer. If you are a freelancer you must also check if you are employee-like and possibly file an application to be exempt. The PDF tells you when. Watch the 5/6 distribution of income (not law, but established judicature)!
There was an lawsuit against Microsoft in the past that they lost because they used to treat contractors almost like employees. I'm guessing that is why these days most contractors are employed by someone else and not truly independent.
There are soft perks. I have a pension that counts how long I work for the company (I have no idea what the real terms of it are, but that simplification will do for this discussion). Long term than pension is - hopefully - worth far more than a couple years of no raises. Depending of course on how long I live - statistically I will die sometime between 60 and 100 with the most likely age being 80 - the longer I live the more than pension is worth, on the low end it is worthless.
That said, when the no raise hit I made my boss aware of my displeasure in that (As a senior engineer at the top of the pay scale I expect my raises should just match inflation, but no raise is a clear pay cut). I did find a transfer position in the company that resulted in a nice level promotion and thus raise, which is sometimes the best option.
I forgot that pensions are still a thing in some places.
But when you calculate the the present value of the pension (ie discounted future cash flows), is the difference between staying and going and making more money elsewhere worth it? (serious question, not trying to be combative)
> is the difference between staying and going and making more money elsewhere worth it?
That is a great question that is at least partially unknowable. You cannot discount future cash flows without knowing how long you will live and thus how much you should discount. Also things like inflation are unknowable.
As I said, I did leave. I stayed with the same company but found a different division. Which is the best of all worlds. I think, perhaps I could get a better offer elsewhere? If so would that better job still exist or would I now be laid off for months before finding a new job and thus destroying all the income gain from that new job?
There are a ton of unknowable factors. I can say it worked out okay for me so far, but that is about it.
It depends on who you are and what market you are in. Many people in recent years have reported putting in over a thousand job applications and only netting a couple of interviews, none of which resulted in a job offer. But if you have a network into available jobs and can short cut all of the pipeline insanity going on now, making a jump would be smart. Then again, the type of companies that play these games typically don't have top notch talent in the first place. Many people might endure it because they fear they don't have other options.
Exactly. Generally, when one company institutes pay freezes, they're probably also in a hiring freeze, along with the rest of the industry. Everything's nice and coordinated and they all use the same "macroeconomic environment" as the excuse. So an employee doesn't really have the option to just hop jobs, nobody else is hiring. Ironically, the best time to hop jobs is when you're getting raises because the economy is strong and everyone else is hiring.
Think about a wider scale than your employer: if the costs of the consultants goes in fact in the pockets of the investors of your employer, that money is not lost.
Management tend to get a bee in their bonnet about headcount, specifically full time employees, while they don't count consultants as being under the same kind of restrictions. It does often end up in the madness you describe, like that time there was a data entry consultant costing at my 0 company 100k, which a full timer would have been paid 35k max.
How exactly does one become a consultant on a 1099? Go work for a consulting company a W-2? That’s how I did it four years ago. Well, the consulting company takes a nice chunk above what they bill you out for.
How does one do it freelance? I also would prefer contract work or consulting work, I like that no feelings are hurt when I leave having done a good job, leave em better than you found ‘em.
You have to legally start a company. That means some legal work (you don't need a lawyer, but it helps). You need to do the books yourself - and because this is very different areas of tax law you really should hire an accountant (only an hour/month, but having extra eyes look at the books is useful). If you do this right you make more money, but there are problems if you miss some legal detail that W-2 employees don't have.
Many times you cannot get called as a 1099 as some places won't work with you. however most of the big consulting companies have others working for them on a 1099 and will be happy to deal with you. However the amount they pay you doesn't change so you have to really understand how to make tax law work for you to make it worth out. (perhaps you can give yourself a 401k with a match - check with the lawyers/accountants above to see if that is legal and if so what the rules are. If not there are other loopholes that work similar)
As I understood it, you're also on the hook for valuing yourself properly. You may think you're making more money, until you factor in vacations and medical and retirement and slack time and...and...and
The easiest way is to reach out to consulting companies and ask if they take subcontractors. Second easiest is to ask companies that want to hire you if they’ll take you as a contractor instead.
In quite many places, hiring consultants has a very high corruption potential (e.g. the hiring manager favoring one of several suppliers). With employees they don't have this leverage.
I was laid off once. The reason on paper was budgetary, times are tough, etc. But the real reason was that I was a bad fit for the role - for a variety of reasons.
I got pipped, and foolish me tried hard to work on the items in the pip (to no effect). The layoff came right on schedule.
A few years later, I was chatting with an old coworker and I came to find out that the director of engineering had demanded it. It was in direct response to me refusing to participate in building a knowingly DMCA-violating product.
The pip was theater. The "times are tough" bit was theater. The reality is that the director wanted me gone, and that is how they did it for legal coverage reasons.
I don't really blame the company - I was a bad fit, and I can see that clearly in hindsight. But it did teach me never to accept budgetary layoffs at face value.
I don't see the theater as bad or good. If anything, it's slightly good.
It gives people an out; a soft landing. Being fired because you suck is going to destroy your confidence and tarnish your work reputation (because layoff is public).
I was never really concerned about the ethics, but was more worried that I'd be personally liable for it. I kept thinking about the VW emissions scandal, where the engineer that implemented it was given prison time.
In hindsight, it was probably a stupid thing for me to worry about. I also never should have expected that I'd be able to change the director's mind by refusing to do what he said.
Getting soft-fired really shook me, and it was a hit to my self-confidence. I did learn some valuable life-lessons from it though, and including that nobody should ignore office politics.
Afterwards, I found a job that was a much better fit. That next job changed the direction of my career, and I'm very happy with where I am now.
Also mostly it's speculation of an accepted kind. Executives can say, listen we have these initiatives, I think they will print money next year, so based on this prediction I will raise the budget for the FY. Then when the prediction of revenue fails, you do cuts, oh well you were wrong. But next year you can do the same thing. Game theory wise this works because if you're right, you bet big, hire big, are ahead next year vs your competitors that invested less. If it goes wrong you are seen as a serious executive that has the courage to have layoffs when needed, and if your market is ebbing your competitors will also be suffering somewhat.
It's also easy to make the next year prediction be whatever you want since in a small company it's just you saying a number that the board doesn't think is too outrageous and in a large company involves you asking an analyst to increase the word of mouth factor of their model or whatever.
This happened to a friend of mine. Executive made far-fetched PowerPoint slides and tried to raise a budget, the board loved the powerpoint. They restructured, the company laid-off dozens, and hired new foreign contractors. Because past engineers got the blame, and the legacy code. They rewrite from scratch using X this time. Massive failure because of poor morale, brain drain and over-ambitious features. So what now? well let's do another round of layoffs, make new powerpoint slides and repeat the same process.
That is the problem with presentations of all sides - doesn't matter if it is power point, a blog post, a NYC article, government report, a documentary, or something else. Whoever writes it gets to choose what arguments and facts to bring out. However listens to it is generally primed to think it is correct and not ask hard questions - often they don't even know what the hard questions would be. And so garbage gets approved all the time because it looks good.
One that is functionally different but causes the same type of morale hit is managers and upward equipping themselves with fully loaded MacBooks and iPhones, but equipping rank-and-file employees with shitty Dell laptops and budget tier Android phones.
That happens more at traditional companies than tech companies, but it immediately signals that it's a crappy company steeped in "rules for thee but not for me" culture.
Managers have a budget. They can't save it, and may spend big on consultants to create a buffer for their team when cuts hit. This is especially true in government, and big companies are similar.
There is only one person who really can stop cycles hitting budgets and that is the CEO. IIRC Warren Buffett lamented the fact that the CEO is more of an investor than a manager and that spending budgets as a senior manager gives them almost no experience in setting those budgets.
Governments have lost many skills to do fuck all. The consultant justification is just hiding the fact that years if not investing in skilled people have resulted in a lot of clueless administrators that can't do much.
Suddenly I'm connecting the relationship between "budget based economics" and "agile" as commonly implemented. It's trying to fit creativity into a budget. In the places that do it well, it's like "We're supposed to make some really great art, here's the crayons we can afford, sorry if it's not exactly right but it's what we could manage, do whatever you can, we will take it!" In places that do it poorly, it's like "we need you to make the Uber of the Mona Lisa, I'm gonna need you to find a way to make that work, but we can totally be flexible on this, which crayons do you need."
The key differences being that in one case there's well defined constraints on resources but open ended results, and in the other the resource constraints are poorly defined but the end result is much more fixed.
I have never even understood the approach. The sub-budgets within an organization seem so arbitrary and become games in and of themselves, often leading to frivolous purchases just to use up the budget and not get your budget slashed.
Does anyone know when this came into favor? What was used before? What are the alternatives?
Managers play games because they are looking out for their own team, not the company's bottom line. Budgets constrain this. Overspending is bad, but so is underspending, because they are tying up resources - companies will have a desired internal rate of return (maybe something like 10%) - if they can make 10% on their investments then a manger tying up capital is costing a lot.
Maybe https://www.joelonsoftware.com/2006/08/10/the-identity-manag... is Joel Spolsky's suggestion - get the team behind the goal, keep morale high, and share information. Sharing information at least cuts down on some of the issues. Keeping morale high isn't always possible - you need someone to drive it, a great founder / CEO can do it to some extent (see Steve Jobs) but it has a limit at scale.
Splitting orgs into more or less independent businesses gets done sometimes.
Bezos just turns everything into a clockwork machine, I think.
Ray Dalio has spent half his life and an unbelievable amount of money trying to solve this problem, some would say with very mixed results (see the book "The Fund" - my reading is he basically tried to create a system where everyone is indoctrinated and rated against his principals, but it just doesn't work as well as he hoped).
There's better and worse ways to try to get around the Principal Agent Problem, but it's a very hard problem.
This is what Palmer Luckey criticizes in how the DoD do procurement. The way contracts are signed makes it that contractors are only incentivized to provide solutions that maximize the budgets set by higher management in government focusing on filling out those reimbursements rather than delivering effective warfighters that the military needs.
It seems that all this layoff discussions should shed light to the blight of managerialism that permeated modern business culture. It’s this system that encourages managers to obfuscate accountability for their high-stakes decisions, and while the low-level employees shy away from suggesting solutions that solve problems or identify bottlenecks because at the end of the day they're just part of the budget in an excel sheet table. It feels like a betrayal to the promises of capitalism.
Conversely, budgets are based on estimates and forecast of resources needed. It's not like a manager gets a random number out of the blue and then needs to find ways to spend it. Budgets in engineering, especially software dev., are mostly based on number of people (aka 'resources') needed in the team, so a manager will want to fill their headcount otherwise it means they don't actually need this number of people.
Feel free to contradict me with personal experience, but I actually posit that (like many interesting phenomena in life), the truth is exactly the opposite. The number of people in a team expands to fill the budget allocated. That budget flows from a legible & convincing narrative told to the check-writers (internal or external) that may or may not overlap with reality.
Managers have an interest in expanding their "fiefdom" and thus push to get more and more people (either by grabbing actual work or by generating work). This is indeed how you create a "legible & convincing narrative" to increase your budget (end goal being more people, more power).
In some startup envrionments the execs may want to show growth by hiring as much as possible but that's not your typical company.
That's because they have a budget which is planned ahead (e.g., 2024 for 2025) for everything.
Typically if the company is really in financial trouble, they will also NOT use the pre-allocated budget which was not yet spent (=200k for company events, although the budget for such things was planned and approved last year).
I have seen companies actually taking care of finances (both firing people AND blocking useless events) and I have seen companies doing what you said, which creates pure hatred.
Right, which is more indicative of how yearly budgets which don’t factor in continual employment of staff lead to the morale decline I mentioned. Perhaps the manager isn’t actually capable of doing much about it, and can only spend or not spend their budget. But that indicates a failure in the company as a whole; at least if keeping employee morale high is a goal (which it definitely isn’t at many companies.)
Even then, the mismanagement of funds just communicates a level of incompetence that is more demotivating than cuts from an actual lack of funds, IMO.
“Sorry, the market has shifted and we can’t afford this,” is at least somewhat understandable when you have trust in management’s ability. When you don’t, it comes unpredictable and chaotic - never a recipe for getting good work done.
Playing devil's advocate: Firing people has a huge financial impact - around $100,000 per person per year. The event only cost $50,000 once. So it might not be that significant, and at least the staff gets to enjoy a nice event. Why eliminate both when the event's cost is equivalent to just half a position?
This one's easy. Because you value your people more than the parties they can throw. The cost/benefit are not just monetary. If they were, the event would have no reason to happen under any circumstance.
You fire someone because they are hurting the company? That feels like a company that cares about doing well. Event seems more okay, and there's no reason to question the financial cost if the org seems to be doing well. You layoff someone off because you're tight on cash? Tell everyone you only hire top performers but had to let a top performer go because of budgetary reasons? Feels gross to throw more money away when you're already making "hard" decisions about letting quality people go.
I think it has more to do with the psychological effect than with money itself.
We're used to think that in difficult situations you cut the useless "fun" expenses.
When that doesn't happen in a company, people blame it on management that already "moved on".
It has to do with how people perceive a company and with all that culture that has been pushed down our throats for years, with "We're a family" and things like that. It has also to do somehow with showing some respect...
I'm not disagreeing - but I think it's worth pointing out that an employee on $40K actually costs the company a lot more ( can be as much as > 2x ) - not just employers tax, pensions contributions etc, but also the cost of factory/lab/office space and equipment and consumables[1].
[1] Assuming the consultants aren't also in the office with a desk etc
Employee headcount is also evaluated less favorably when potential investors evaluate the company's health. They're implicitly seen as a promise to continue paying them in the future, whether that's materially different from what the company does with contractors or not.
And some of that is probably fair. As an employee, a layoff of a bunch of employees is a lot more troubling than a bunch of contractors not having their contracts renewed.
$40k is a tiny salary, too. Taxes, facilities, and benefits are going to be more than 2x that. A contractor paid $200k/year is likely cheaper in total cost than an employee paid $100k/year.
Surely this is a question of having skin in the game, where management is all game and employees all skin. If the clowns making decisions would get hit by bad ones, things would look differently. You now, actually "taking full responsibility".
One thing I learned the other day is to never believe the internal corporate newsletters. For an entire year, pretty much every single day would bring in an e-mail from Company BU A, or Cross-Company Initiative X, or Podcast with CEO, or such. Every single one of them would talk about the great successes in recovering from the economic crisis, the amazing results this quarter, the great product release here, another successful merger there, new perspectives on Bitcoin or AI or such from CEO, whatnot - all giving you the picture of the enterprise being like literal USS Enterprise hitting warp speed. And then a layoff wave finally reaches your department, and you learn that apparently the whole BU is deep in the red and they're forced to cut staff across the board, and it's been like this forever, and that's why there was an emergency meeting last Thursday (called "Financial Update Q3 for BU Y" or something, non-obligatory and otherwise not announced or discussed), and "don't you ever attend town halls?".
(Yeah, no one at PM level or above does, there's nothing relevant in them. Until one day there is.)
Newsletters, meanwhile, continue coming and announcing even greater growth due to digital transformation in the age of blockchain or AI or stuff.
Lesson learned: the first impression was correct - it's all internal marketing, and it's about as truthful and helpful to the recipient as regular marketing, i.e. not at all.
When narratives fail, to casual observers the failure seems sudden and out of the blue, but there are usually unmistakable signs of "narrative breakdown" that often become obvious to most observers only in hindsight. One of the most dramatic stories of a "failed narrative" we have ever read comes from Barton Biggs, in his book "Wealth, War and Wisdom":
>> "...the Japanese official battle reports and the Japanese press reported the Battle of the Coral Sea as a great triumph, and Midway was portrayed as a victory, not a defeat, although some loss of aircraft and ships were admitted. Although casualties must have been noted and grieved, Japanese society at the time was so united behind the war policy and believed so totally in the invincibility of the Japanese military, that defeat and economic failure were virtually inconceivable. It would have been unpatriotic to sell stocks..."
>> "Not every investor in Japan misread the battles at Coral Sea and Midway. Food was in short supply, and railings in the parks around the Imperial Palace were being dismantled for their iron. The Nomura family and Nomura Securities in mid-1942 began to suspect the eventual defeat of Japan. Although the newspapers and radio broadcast only good news about the course of the war, the Nomuras apparently picked up information in the elite tea houses of the upper class. Many of the naval officers and aviators involved in the battles at Midway and the Coral Sea had geishas, and when the officers failed to return, rumors began to circulate."
>> "The Nomura family, sensing something was amiss, began to gradually sell its equity holdings, and even sold short. Later they purchased real assets, probably reasoning that land and real businesses would be the best stores of value in a conquered country. These protected assets allowed the family to have the capital to finance the rapid expansion of Nomura Securities & Research in the immediate postwar years and eventually emerge as the dominant securities firm in Japan."
When did the narrative above "officially" fail? Many date it to August 15, 1945, six days after the 2nd atomic bomb was dropped on Nagasaki, when Emperor Hirohito addressed Japan on the radio to announce Japan's surrender, noting "...the war situation has developed not necessarily to Japan's advantage..."
For most execs/people, there's a big difference between what people will say in a meeting and what they will write down. They feel the permanance of the writing or recording.
one of lessons i learned hard way: do not trust - or avoid - managers/higher-ups who do not want their things in written - even e-mails. While still have you sign all kind of stuff.
"the Ministry of Plenty's forecast had estimated the output of boots for the quarter at one-hundred-and-forty-five million pairs. The actual output was given as sixty-two millions. Winston, however, in rewriting the forecast, marked the figure down to fifty-seven millions, so as to allow for the usual claim that the quota had been overfulfilled. In any case, sixty-two millions was no nearer the truth than fifty-seven millions, or than one-hundred-and-forty-five millions. Very likely no boots had been produced at all. Likelier still, nobody knew how many had been produced, much less cared. All one knew was that every quarter astronomical numbers of boots were produced on paper, while perhaps half the population of Oceania went barefoot. And so it was with every class of recorded fact, great or small." - https://www.george-orwell.org/1984/
Centralised rule, surveillance, privileging the upper classes, meaningless statistics, perfomative loyalty; things capitalists say they hate about communism, they love when designing companies.
> "all giving you the picture of the enterprise being like literal USS Enterprise hitting warp speed."
Everything whizzing rapidly upwards while your cube farm gets more crowded and your tools slower and your once-respected skilled work devalued in favour of pump-n-dump funny-money schemes?
> "The fabulous statistics continued to pour out of the telescreen. As compared with last year there was more food, more clothes, more houses, more furniture, more cooking-pots, more fuel, more ships, more helicopters, more books, more babies -- more of everything except disease, crime, and insanity. Year by year and minute by minute, everybody and everything was whizzing rapidly upwards. As Syme had done earlier Winston had taken up his spoon and was dabbling in the pale-coloured gravy that dribbled across the table, drawing a long streak of it out into a pattern. He meditated resentfully on the physical texture of life. Had it always been like this? Had food always tasted like this? He looked round the canteen. A low-ceilinged, crowded room, its walls grimy from the contact of innumerable bodies; battered metal tables and chairs, placed so close together that you sat with elbows touching; bent spoons, dented trays, coarse white mugs; all surfaces greasy, grime in every crack; and a sourish, composite smell of bad gin and bad coffee and metallic stew and dirty clothes. Always in your stomach and in your skin there was a sort of protest, a feeling that you had been cheated of something that you had a right to. It was true that he had no memories of anything greatly different. In any time that he could accurately remember, there had never been quite enough to eat, one had never had socks or underclothes that were not full of holes, furniture had always been battered and rickety, rooms underheated, tube trains crowded, houses falling to pieces, bread dark-coloured, tea a rarity, coffee filthy-tasting, cigarettes insufficient -- nothing cheap and plentiful except synthetic gin. And though, of course, it grew worse as one's body aged, was it not a sign that this was not the natural order of things, if one's heart sickened at the discomfort and dirt and scarcity, the interminable winters, the stickiness of one's socks, the lifts that never worked, the cold water, the gritty soap, the cigarettes that came to pieces, the food with its strange evil tastes? Why should one feel it to be intolerable unless one had some kind of ancestral memory that things had once been different?"
> “Sorry, we spent $200k on consultants and conferences that accomplished nothing, so now we have to cut an employee making $40k” really erodes morale in ways that merely firing people doesn’t.
One time I was tasked with auditing what my team spent, at a tech startup. During my audit, I found that we'd spent a million dollars to make a single phone call.
Basically:
* We were spending money like it was going out of style
* We were getting the highest level of support contracts on EVERY piece of hardware and software that we bought. This mean that we would routinely purchase hardware, stick it in the corner of our data center, and it would have an expensive support contract, before it had even been installed in a rack and plugged in. In some cases, we bought stuff that never got installed.
* The software support contract from one of our vendors was a million dollars a year. The software was quite reliable. In a single year, we'd made a single support call.
This is why I recommend to everyone, both in and out of tech, that you need to try and get as much money out of your initial negotiation and down the line as possible from your prospective employer; if you don't get it, it'll be fucked away on like one single meal or evaporate some other way.
If it makes you feel any better, there is usually little connection between management wasting money last year and laying off employees this year. Downsizing targets are based on predicted future needs so if business is trending down they'll cut just as many employees even if they have an enormous amount of cash saved.
What's even more absurd than cost cutting after mismanagement is a layoff and cost cutting while having record profits. Look at most of the big tech layoffs last year and the year before. Every one of them was reporting more profit and revenue than ever before and still doing layoffs
when you observe management wasting absurd amounts of money
Working in corporate America has caused me to view layoffs as proof of managerial incompetence. I understand that the market doesn't see it that way, but that's the conclusion I've come to.
I think that the honorable thing in those companies is for a CEO to demand seppuku from a significant portion of the c-suite. At least as a form of solidarity with the workers put to the sword.
It doesn't matter what the reason is. The reason is whatever will look least bad in the news (if it ever makes it in the news) - and is legal. Ignore the reason, it has nothing to do with you, it's not about you, it's a technical detail. But yes, it would be nice if the manager was helping their employees understand that.
Even for an investor keeping an eye on their holdings, give minimal weight to the reasons for a detail level layoff.
It's just normal late Capitalism syndrome - no one takes responsibilities, and everyone, at least everyone that is close to the trough tries to get his/her head into it.
From politicians to corporation managers to civil servants, it's everywhere. That's it.
"low level" do count in stats if need to show "savings" and can be easily replaced when needed. Also they do not generate profits but need resources (mentoring etc.). On the other side costs are tax deductible.
Um, I have seen irrationality all across the board. Market participants shooting themselves in the foot.
I have seen investors not invest even $10K into a project and then line up to invest far more for the SAME amount of shares.
When you apply for jobs, you see recruiters (who get commission from placements) tell you that your background isnt a fit when it is a perfect fit, and prefer to not show candidates.
I have even explained to recruiters that there is an opportunity to represent the candidates, like a Hollywood agent or like a seller agent i Real Estate. That the candidates would also pay a commission out of their salary, if placed in a job they actually like. And that all they have to do is call their counterpart recruiter and vouch for the candidate, which usually a quick call. But most are stuck in their ways and don’t want to tap new opportunities, no matter how easy. To their credit, some are not.
And so, it is no surprise to me that businesses waste money and then cut their task force. Many of them don’t care about you, but expect you to care about them. They’ll even expect you to stay late and demonstrate commitment, but they won’t pay you overtime.
We are apparently going through a "year of efficiency" and most of us know what it means. After "more with less" round come layoffs so one might as well do some basic prep work, dust off resume, reach out to your support network.. just saying.
They don't spend $200k on consultants just because it's fun. They do it when there are already difficulties in figuring out how to productively use the employees who make $40k (say 20 of them).
This is not to say managers don't make stupid decisions, but they are more like bets. Somewhere between the fall of Nokia and the hit of iphone are thousands of decisions that lead to hiring or firing some 10-100 people.
This kind of managerial behavior seriously kills employee motivation, because it both communicates that 1) no one has job security and 2) that management is apparently incapable of managing money responsibly.
“Sorry, we spent $200k on consultants and conferences that accomplished nothing, so now we have to cut an employee making $40k” really erodes morale in ways that merely firing people doesn’t.