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Silicon Valley needs to stop laying off workers and start firing CEOs

IllustrationTech CEOs shouldn’t be making $280 million a year or even $1 a year — they should be fired for poorly managing some of the largest companies in the world.

Arif Qazi/Insider

Now laid-off employees are paying the price

In an attempt to explain why the company had laid off 12,000 employees, Sundar Pichai, the CEO of Google’s parent company, Alphabet, said executives decided to slash jobs after a “rigorous review” of Google’s internal structures and organization. Pichai suggested that the company “hired for a different economic reality” than the one it faced and that the layoffs were necessary to set Google up for the future.

But while Pichai, who made $280 million in compensation in 2019, said he took “full responsibility for the decisions that led us here,” he failed to elucidate those choices. He didn’t mention that during his time at the helm Google has been hit with billions of dollars’ worth of antitrust fines, been left in the dust by OpenAI’s ChatGPT despite “pivoting the company to be AI-first,” and seen its core search product get steadily worse. And though Pichai later said at a company town hall that “all roles above the senior-vice-president level will witness a very significant reduction in their annual bonus,” including his own, the vast majority of the pain from his missteps seemed to fall squarely on the shoulders of the 12,000 people who were let go. The employees who were laid off — via email — included several high-performing staff members and longtime employees, such as an engineer who’d been at the company for 20 years and who described the sudden layoff as a “slap in the face.”

This sort of responsibility dodging is running rampant around Silicon Valley. CEOs at companies like Amazon, Microsoft, Salesforce, and Meta set their companies on an unsustainable course, investing in boneheaded new ventures and assuming the pandemic-driven tech boom would be a new normal. Now that those expectations have been shattered, rank-and-file tech workers are bearing the brunt of these bad decisions, while the executives most responsible for the messes face little to no meaningful consequences.

Any executive who participates in decision-making that leads to hundreds or thousands of people losing their jobs should be the one leading them out the door. Pichai and other tech CEOs shouldn’t be making $280 million a year or even $1 million a year — they should be fired for poorly managing some of the largest companies in the world.

CEOs made mistakes, workers bear the brunt

In their layoff announcements, pretty much every tech company placed the blame for the cuts on the economy. At Amazon, the cuts were supposedly necessary because of “supply chain difficulties, inflation, and productivity overhang” and economic uncertainty. Salesforce CEO Marc Benioff cited the “economic downturn we’re now facing” as the reason for the company’s 10% headcount reduction, and Workday laid off 3% of its workforce based on a “global economic environment that is challenging for companies of all sizes.” PayPal CEO Dan Schulman pinned the blame for his company’s decision to lay off 2,000 employees on the “challenging macro-economic environment.”

But in many instances, the real source of concern at these companies comes down to boneheaded decisions made by CEOs — whether it’s Mark Zuckerberg at the company formerly known as Facebook, who authorized a hiring binge over the pandemic and invested billions of dollars into his metaverse folly before having to cut 11,000 jobs, or Tobi Lütke at Shopify, who laid off 1,000 people based on a bet on the future of e-commerce that “didn’t pay off.”

While many of these companies have made serious strategic blunders, layoffs won’t solve those problems — cutting workers won’t suddenly make the companies more productive or improve their products. And many of these tech behemoths are still eye-watering ly profitable, making the economic case for layoffs questionable. Microsoft’s profits declined by 12% in the last quarter of 2022 from the same quarter in 2021, but it still pulled in a whopping $16.4 billion. Amazon pulled down a profit of $2.8 billion in the most recent quarter, below the online-shopping highs of the pandemic but in line with its historical average. But the company still turned around and laid off 18,000 employees

It seems that when profits or even projected future profits slipped a bit, something had to give — and it certainly wasn’t going to fall on the CEOs. When one company chose to lay off thousands of people, it became optically justifiable for other companies to follow suit — a natural way for the CEO to seem “disciplined” or “responsible” despite the brutal cost to employees. 

While they may protect the CEO’s reputation or placate investors, layoffs are immensely damaging for workers, even well-paid tech employees. People who are laid off face long-term career damage and harm to their mental and physical health. Not to mention that layoffs are of dubious value to the company; studies have found that layoffs are a net negative for productivity, that they suppress innovation, and that they can lead to a long-term decline in profits. Studies have also suggested that layoffs make life harder for the employees who weren’t let go, especially since many of these companies cut back on benefits and other services that could help remaining workers. Given the human and business downsides of layoffs, a CEO’s top priority should be to avoid them at all costs.

Some companies have managed to do just that. Apple has managed to cut costs without layoffs in part by reducing Tim Cook’s salary by 40%, to $49 million. While one can’t necessarily applaud a company for paying a CEO “just” $50 million, there’s something to be said for the chief executive willing to slash their own pay before resorting to letting employees go. Similarly, the chipmaker Intel’s CEO took a 25% pay cut and reduced the salaries of his executive team by 15% to avoid broad layoffs. 

For the companies that turned to job cuts, the blame rests squarely on the shoulders of their CEOs. As the sole person in charge, they’re responsible for misjudging the macroeconomy, making terrible investments, and then following along with the industry in a shortsighted attempt to please Wall Street. And yet, despite a smattering of pay reductions, none of them have faced real consequences. By focusing on “broader economic uncertainty” rather than admitting the cutbacks are because of executive mismanagement, CEOs can save their reputation while sidestepping the blame.

With great power comes no responsibility

The blame-shifting of these tech companies and their CEOs is not unprecedented, or even that uncommon. Corporate America has pledged fealty to the almighty executive, applying a totally different evaluation matrix to CEOs than to other employees. Because of this noxious adulation for the most powerful person in the company, companies will contort themselves to try to save money in any way other than cutting the pay of or firing their most responsible and most expensive employee: the chief executive officer. CEO pay skyrocketed by 1,460% from 1978 to 2021, and the ratio of average-worker pay to CEO pay ballooned from 20-to-1 in 1965 to 399-to-1 in 2021. And it’s not as if this staggering rise in pay has made CEOs any better at their jobs. Top executives abandon companies when they anticipate a recession and always treat workers as disposable, even during a hot economy. Analyses have argued that these staggering pay packages are far from justified. 

When high-ranking executives make a serious blunder, they almost always get the benefit of the doubt. The modern executive lacks any actual responsibility or oversight, only occasionally reporting to typically pliant boards. They’re largely insulated from the consequences of their actions, even if they’re performing poorly. If any other kind of worker made a series of decisions that led to a double-digit drop in profitability, they’d be threatened with termination or terminated. Instead, tech CEOs have passed the pain off to people who in many cases were performing well in their roles. And while many employees in tech and elsewhere have received generous severance packages, they pale in comparison to the payouts that failed executives have gotten on their way out the door. Take, for example, the car-rental company Hertz, which let go of 10,000 people in 2020 as it stumbled into bankruptcy, all while paying its executives $16 million in bonuses.

If CEOs are expected — and paid — to be some visionary demigod at the top of an organization, they should be expected to bear that weight and pay a commiserate price when they mess up. At some point, the chief executive has to be held as accountable as the people they employ. There is no reason that the best-treated and highest-paid member of an organization should experience less scrutiny, unless the company does not truly care about operating efficiently.

If companies are wary of firing top executives, then fine, refashion the job of the modern CEO. Instead of trying to be swashbuckling saviors with gobsmacking salaries allowed to operate the company with relative impunity, these top executives should focus on actual management and execution to sustainably grow their companies. Instead of focusing on short-term investor relations and public accolades, CEOs should put in the time to manage their companies and help improve the products they create.

The fundamental problem with corporate America is that it no longer makes any sense. The CEO, the most powerful and influential person at the company, is now a figurehead who receives all the benefits of a company’s success without being endangered by any of its failures.


Ed Zitron is the CEO of EZPR, a national tech and business public-relations agency. He is also the author of the tech and culture newsletter Where’s Your Ed At.

Read the original article on Business Insider