Being on board the space rocket that was the tech industry for many years suddenly turned very bleak in 2022 and 2023. When tech firms were faced with the unfamiliar, the way some handled reductions in force and downsizing led to less than ideal results.
A closer look at tech sector data from Randstad Enterprise’s 2023 Global Severance research — which surveyed 400 HR and procurement professionals across all sectors from organizations in Australia, Germany, the U.K, and the U.S. — reveals interesting insights that tech leaders can use as they plan workforce strategies for 2024.
almost no-one avoided the crunch
According to the research, only 3% of respondents in the tech sector say their organization didn’t take any downsizing action in the previous 12 months. Of the vast majority that did, the most common action was conducting layoffs due to strategic shifts in the organization (48%). As was so often reported in statements from tech firms last year, 63% in this sector attribute prior over-hiring as a root cause of layoffs last year.
But the sector isn’t out of the woods yet: When asked about whether they anticipate having to take any downsizing actions over the next 12 months, 42% are expecting layoffs due to strategic shifts in the organization, 32% anticipate layoffs due to AI and/or automation, and 23% believe they will see hiring freezes.
Most (77%) tech firms report that previous downsizing to reduce labor costs has resulted in negative sentiment within their organizations. Despite this, and all the media coverage about how downsizing was handled poorly within the industry over the last few years, only 67% of tech firms say they feel prepared to manage layoffs to reduce labor costs now. This means the associated risks are ever-present.
what good downsizing looks like
In recent conversations with C-suite leaders in tech, VP, Global Sales at Randstad RiseSmart, Heather Rockwell-Artist has been encouraged by the themes surfacing. When layoffs are unavoidable, many set out to manage them with care. Here are five ways she says great leaders are approaching layoffs:
- Do not treat layoffs like a task that you have already mastered.
- Truly seek to understanding what support and resources you are making available.
- Take the time to examine the process and resources; put the people first, before speed or efficiency.
- Value the time that you need to give to both those who are giving and getting the message about workforce reductions.
- Challenge what you’ve always done and seek to find the most high value, high touch ways to support people transitioning out of your organization.
Lisa Barto, strategic relationship manager at Randstad Enterprise, partners with many tech organizations to support their affected employees when faced with downsizing. She recommends five best practices for handling this difficult situation with humility, authenticity and compassion to protect both people and your brand:
- Plan how you’re going to deliver the message.
Where possible, leaders or managers should deliver the message one-on-one, rather than in a mass meeting or by text or email. While communications may be urgent, it’s important to create a clear plan that answers questions and provides clarity to all of your audiences.
- Think about the impact on the person.
A layoff is always a challenge for employees. Give them an opportunity to ask questions and have follow-up information and resources ready, rather than just lock them out of systems and send an email. Consider creative ways to provide support and help them land their next role.
- Remember that layoffs are hard on the survivors, too.
Expect that employee morale will suffer. If you’re compassionate in how you manage those leaving, you’ll minimize the fallout at the watercooler, on social media and in the news. PwC’s 2023 Trust Survey found that more than half (55%) of employees say the way their company conducted a layoff damaged trust; seek input and feedback to build it, instead.
- Be honest and transparent with people to the greatest extent you can be.
If you’ve made mistakes in strategic decisions that have resulted in the need for layoffs, show some humility. A little honesty goes a long way in helping people feel respected and valued.
- Consider alternatives to layoffs.
Tech firms may feel compelled to move to layoffs due to pressure from investors or follow what their peers are doing. But offering redeployment, for example, is one of the most effective means to manage downsizing while avoiding layoffs and the risks that come with it. Tech leaders are also exploring other ways to reduce costs without reducing headcounts.
how outplacement can help
By their nature, tech companies are fast-moving, agile and constantly having to innovate to stay ahead of the competition. The tech sector is also known for talent innovation — providing exciting work and workplaces for employees, offering attractive benefits and focusing on well-being to support both their overall company and employer brands. This perhaps explains why 45% of the tech firms say they always work with an external partner when managing layoffs — the highest of all key sectors we examined.
When downsizing is required, business leaders need to focus on realigning the organization to new objectives. Partnering with an expert in managing workforce transition is a smart way to compassionately support employees who might be leaving or redeploying, while boosting morale among surviving employees and protecting the brand you work so hard at building externally. Working with a partner also frees up internal resources from having to provide the personalized assistance that those affected by change appreciate. This leaves you with more resources to focus on what the organization needs to thrive during challenging times.
If you anticipate your organization will be taking downsizing actions over the next few months, these top ten tips for tech sector firms can help you effectively manage the process with care.
what severance best practices in tech look like
Offering competitive severance benefits are also a critical part of managing layoffs effectively. That’s why 74% of tech respondents wish they could provide more support beyond what they currently offer or are planning to offer in future. As part of our Global Severance research, we asked business and HR leaders to report on their severance practices and mechanics to help you benchmark your policies. Key findings follow:
How much is severance changing?
- Over the past three years, 45% of tech firms have already made changes to their severance policies.
- 70% say they currently have changes underway, and another 13% plan to make changes this year.
Who is eligible for severance?
- Only 35% of tech firms offer severance to all employees.
- 52% provide it for senior leaders and C-suite/VPs.
- 29% provide severance to managers, 19% provide it for individual specialists and 10% to admin/clerical workers.
What length of service is required to qualify for severance?
- Employees qualify immediately at 13% of tech organizations, with another 3% eligible after one year.
- One to two years of service is required at 42% of firms, and three to six years service applies at 29% of companies.
How is severance calculated?
- 74% of tech firms report basing severance on a specific number of months of salary.
- 26% say it is based on a specific number of weeks of salary per year of completed service.
What severance benefits are provided?
- The most common severance benefit among tech firms is a cash payout (offered by 48%), with 42% also offering payment of bonuses for which the employee was previously eligible.
- 45% offer retirement benefits (with 29% offering retirement planning services), and 39% continue health benefits for a period of time (and/or COBRA, if applicable).
- Just over 1 in 4 firms (26%) provide outplacement support, such as career coaching and resume/interview support.
- 23% offer continuation of stock options, and the same percentage (23%) offer life insurance and financial planning (23%).
- Only 16% provide reskilling or retraining — a potential missed opportunity in today’s skills-scare landscape.
think carefully as you plan your next move
In the last five years or so, it’s become clear that organizations face public scrutiny for the way they treat their people — especially through times of change and challenge. When so many tech firms were previously celebrated as great places to work with incredible perks and company culture, some fell far as reputations became tarnished during times of economic uncertainty.
If you anticipate your company will restructure over the coming months, now is the time to start planning how you will prepare for, announce and implement the changes your organization may need to make. When every action has consequences that can impact your competitiveness, your reputation and your ability to attract future talent, you want to be making headlines for the right reasons, not your mistakes. There’s still so much at stake.
Get your copy of the 2023 Global Severance research findings for additional insights across all industries. And contact us for a confidential discussion about how to approach any aspect of downsizing.