Workplace

Are layoffs a reputation killer or just part of doing business?

Credit Karma’s chief people officer said many layoffs can — and should — be avoided. Here’s how she steers clear of them, and why she thinks you should, too.

Businessman walking away from colleagues with head bowed - stock photo

HR chiefs disagree as to whether cutting jobs is shameful or an unavoidable part of staying afloat.

Photo: Justin Pumfrey/The Image Bank/Getty Images

Are layoffs a scarlet letter on your company’s reputation? Not all HR leaders agree.

Tech companies have already cut thousands of jobs this year; some are now implementing a second round of layoffs. But even among some of Silicon Valley’s most seasoned HR chiefs, there’s substantial disagreement over whether cutting jobs is shameful or an unavoidable part of staying afloat.

“If your company does layoffs, [it] seems like you should be disqualified from any ‘best place to work for’ lists/surveys for at least one year following,” Credit Karma’s HR head, Colleen McCreary, posted on LinkedIn earlier this month. “And if they’re handled poorly, that disqualification extends even longer, especially large public companies who should know better.”

McCreary, whose full title is chief people, places and publicity officer, keeps reputation in mind when thinking about personnel decisions. She told me she wrote the post after cringing at other companies named to “best of” lists for company culture despite being “in a continual habit of laying people off.”

Putting aside the veracity of “best places to work” lists — McCreary dismissed most of them as “bought and paid for,” anyway — should companies consider any layoffs to be a mark of shame?

It depends on a few things. McCreary directed most of her criticism at companies conducting habitual layoffs rather than one-off “business reaction” cuts.

McCreary also cut some slack for the companies that did layoffs during the first year of the COVID-19 pandemic, and praised Airbnb as one example of a company that conducted pandemic-related layoffs while employing “a lot of empathy” and later offering laid-off workers the opportunity to return.

Larger companies in general have more responsibility to find a way to retain their workers, she said.

“I think the expectation is much higher, the bigger your organization is and the larger your company is, to be able to defend why someone couldn’t be moved around or retrained into working in another part of the company,” McCreary said.

Yet even the current market downturn shouldn’t be an excuse for a round of layoffs in most cases, McCreary said.

“We’ve known that this inflation experience was coming. It’s not unpredictable. We were talking about it for almost a year now,” McCreary said. “Just as many companies are thinking about long-term product strategy, you’ve got to be thinking about the short-term impact of those kinds of things.”

Salt in the wound?

Not everyone agrees. Nolan Church, who served as chief people officer at Carta before co-founding the executive talent marketplace Continuum, called McCreary “incredibly smart” and said her background speaks for itself.

But her post, he said, amounted to rubbing “salt in the wound” of leaders who were making tough choices.

“I think her post lacks empathy,” Church told me, stating that HR professionals tend to hold “some of the most luxurious beliefs that exist within a company.”

As a first-time founder, Church said he has a new appreciation for a set of challenges that he didn’t grasp even as a senior executive. Other HR leaders could benefit from empathizing more with leaders who are “actually in charge of the P&L, running the business and making sure that they can make payroll,” he said.

Pressure from investors to grow at all costs led many companies to over-hire in the last two years. Church disagreed with McCreary that this level of inflation was predictable.

“Investors are the arbiter of how CEOs run their companies,” Church said. “When the macroeconomic rug gets pulled from founders, everything changes, unfortunately.”

In Church’s view, leaders have two choices here: Don’t make any changes, and “end up like Fast,” the payments startup that suddenly shut down in April, or “pull the emergency brake and course-correct,” likely by cutting jobs. Continuum this month launched a "product line" of layoff consulting services aimed at helping leaders make these decisions.

“Survival is the name of the game in moments like this,” Church said.

Some layoffs are better than others

David Hanrahan, who stepped down as Eventbrite’s chief HR officer in May, called McCreary’s post “provocative,” recalling that LinkedIn and Salesforce had made it on “perennial best employer lists” despite layoffs in 2020.

“Marc Benioff had committed to no layoffs at the start of COVID for 90 days, and just a few months after that period, I think he laid off 1,000 employees,” Hanrahan told me. “And then they announced a hiring effort of, like, 12,000 employees.”

Yet at many large companies, layoffs are the norm and often fly under the radar. Hanrahan said it would be “a little bit too crude” to say “you’re not a ‘best employer’ if you lay people off.” He agreed with both McCreary and Church that the circumstances around a layoff matter.

Better.com provides a “perfect example” of a bad layoff, Hanrahan said, between the announcement over Zoom and a lack of ownership on the part of the company’s leadership. Cutting pay, reassigning workers internally to limit layoffs and trimming costs like SaaS contracts can make for a much more defensible layoff.

Survival is the name of the game in moments like this.

When Credit Karma took a 70% revenue hit in 2020, McCreary said the company cut pay in order to keep jobs, and offered employees “off the bus” packages if they proactively resigned. And Credit Karma moved several dozen employees in departments like recruiting and marketing (that needed to shrink) to other positions.

This is a great alternative to layoffs, Church and Hanrahan agreed, though it’s much more available to large companies than small ones. So why don’t more big companies move employees to new roles rather than lay them off?

“Executive teams don’t trust their next-level leaders to have been managing their workforce,” Hanrahan said. When they realize they need to cut 30% of their head count operational expenditure, “they assume that that means we’ve got 30% of people who are underperforming, and let’s just go find them.”

How to avoid layoffs

If you truly want to avoid layoffs, start planning now. McCreary recommended that management teams commit in advance to either no layoffs or only using layoffs as a last resort. Executives should continuously scrutinize whether their hiring plans make sense relative to their revenue.

And for companies with at least 100 employees, no more than one-third of workers should be new to the company. (McCreary defined “new” as having joined within the past year.)

“That’s a pretty big warning sign of: Can those people even be productive and effective in your organization?” McCreary said.

Finally, McCreary recommended that HR leaders undertake a “people review” every quarter: Sit down with managers and discuss their teams, where the gaps are and whether any employees should be moved around.

“I’m hopeful that more people will get the word out that you can do this better,” McCreary said. “I think it’s better for society at large if we take care of each other.”

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