In May 2019, Uber was on the rise. The ride-hailing company was about to go public and its initial public offering was valued at more than $120bn. However, in the run-up to its IPO on May 9 of that year, it reduced its valuation back to $75 billion and on the first day of trading, the company’s share price dropped more than 9 percent.
At the same time, the company’s research and development teams brought up ambitious projects – which left many employees scratching their heads.
“There was talk of products like Uber Chopper and Uber Submarine. At a certain point that just sounds crazy,” former Uber employee Maddy Nguyen, now co-founder and CEO of recruitment software company Talentdrop, told Al Jazeera. “This is such a disruptive company in its core product and it drives all the money. Then all the money goes into research and development for crazy ideas because they kind of have to for investors. It doesn’t make sense.”
“The interest of the company and the investors really don’t always align at all, and companies get pressured to do things that just aren’t really that smart for employees or founders,” Nyguyen added.
Such moves are often made to satisfy a concept known as shareholder supremacy, experts have said. As a 2019 Harvard Law School Forum on Corporate Governance paper explained, “The board of a corporation owes its ‘fiduciary duties’ exclusively to shareholders, meaning that the board, when it makes decisions, is accountable only to shareholders.”
In other words, companies are legally liable to their shareholders to make the best financial decisions. In turn, managers make decisions to maximize shareholder profits, including by increasing stock price, over just about everyone else involved—the workers, the consumers, and the product itself.
Investors first
Publicly traded corporations put their shareholders first when making decisions, even if that means developing products that leave a company’s own people confused and vulnerable to job cuts.
That could mean taking on ambitious projects that facilitate hypergrowth — a risky move that the tech sector has proven in recent months is a recipe for an industry-wide implosion.
Several companies, including Meta, Tesla, and even fashion brands Kate Spade and Co and recently Adidas, have been sued by their own investors after allegedly failing to meet those obligations.
“The investors own the company. They must first have a duty to them, which is their legal duty,” Nguyen added.
Putting shareholders first is notoriously a rallying cry for both progressive Democrats and far-right Tea Party Republicans. Layoffs in the middle of it are just a vector for bad public relations.
Innovation is a key way companies try to satisfy shareholders without resorting to job cuts. In Uber’s case, the plethora of new products didn’t help their woes.
Even before the pandemic, his stock is falling. Within months, Uber began layoffs, and by October 2019, it had laid off more than 1,000 people. Like most companies, Uber’s layoffs continued to pile up as its stock plummeted in 2020 at the height of the COVID-19 pandemic.
While 2021 was a good year for the company, that success was short-lived. Uber laid off 6,700 employees last year.
In January at the World Economic Forum, CEO Dara Khosrowshahi said there would be no company-wide layoffs. Less than a week later, the ride-hailing company announced it was cutting the workforce of its Uber Freight division by 3 percent or 150 jobs.
Since the announcement of the reduction in January, its share price has increased by more than 50 percent.
Layoffs, share buybacks, a ‘masterpiece’
Uber is far from the only one. Meta actually led the corporate pack amid the latest wave of layoffs.
Facebook’s parent company went too deep in its Metaverse effort, which according to a Morning Consult poll was doomed from the start, as 68 percent of adults simply aren’t interested in Meta’s virtual reality foray.
In the first quarter of 2022, the company reported that it lost users for the first time ever. In the next quarter, it reported its first revenue drop.
While Meta’s reasoning is different, it sent a message to other big tech players: laying off tens of thousands of employees is OK and maybe helpful for their stock. The day the social media giant announced it would lay off 11,000 people, its stock rose 5 percent.
Meta was obliged to its legal responsibility to shareholders. In short, it’s the C-suite way of saying, “Sorry, I wish I could do something, but my hands are tied.”
That’s exactly what happened at Salesforce. After a tumultuous 2022, the company instituted share buybacks ahead of job cuts, and in January it laid off 8,000 people.
At the time, CEO Marc Benioff mentioned the economic outlook in a letter to employees: “The environment remains challenging and our customers are taking a more measured approach to their purchasing decisions. With this in mind, we have made the very difficult decision to reduce our workforce by approximately 10 percent reduce,” Benioff wrote. Echoing a line other tech industry CEOs used at the time, he added, “We’ve hired too many people leading into this economic downturn that we’re in now have to deal with, and I take responsibility for that.”
Then came March 1 — the day the San Francisco-based business software giant released its quarterly report.
The company announced it would double its share buyback program to $20 billion from the $10 billion it announced last August. From an investor’s perspective, it was stellar. Wedbush Senior Analyst Dan Ives called it a “masterpiece.”
Benioff then made the rounds on the financial news programs, taking friendly questions from anchors. In one 15-minute interview, the executive editor and anchor did not even mention the layoffs.
Salesforce may be one of the bigger companies to make cuts as it touts stellar earnings, but it’s far from alone.
In the past few weeks, Ottawa, Canada-based e-commerce platform Shopify announced that it would cut 2,300 jobs or 20 percent of its workforce, while at the same time reporting better than expected quarterly earnings. Just days before, San Francisco tech giant Unity Software cut 600 jobs after it reported its first quarterly profit since the company went public three years ago.
In February, Eventbrite reported strong fiscal year and fourth quarter results. At the same time, the ticketing platform cut 8 percent of its workforce. About a month earlier, IBM deployed a similar strategy.
CEOs like Bennioff often blame macroeconomic conditions as the reason for layoffs in their letters to employees. Amazon CEO Andy Jassy said in a letter to employees announcing layoffs: “This year’s review was more difficult given the uncertain economy.”
Layoffs overwhelmingly hit the tech sector. According to a new report from workplace agency Challenger, Gray and Christmas, 34 percent of all layoffs in 2023 were in tech. This means that around 114,000 people are without work.
C-suite executives are in their own right financially incentivized to push this framework.
Executive salary and company stock price
Executive salary is largely tied to the company’s stock price. For example, Amazon CEO Andy Jassy’s cash compensation totals $175,000, but his equity on the other hand, mostly made up of stock prices, totals nearly $212m.
Under Jassy’s leadership, the company underwent the largest round of layoffs in the e-commerce giant’s nearly three decades.
Representatives for Amazon did not confirm the specifics of Jassy’s compensation package, but said it compensates executives for what are called “restricted stock unit awards,” and those have long vesting periods that can be more than five years long.
According to statistics compiled by the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), the largest federation of trade unions, Jassy makes 6,474 times more than the average employee at the company. Amazon has the highest CEO-to-average-worker pay ratio of any company in the S&P 500.
The average worker at Amazon makes $32,855 a year — a little more than $2,000 more than the federal poverty line for a family of four. That also means the average employee at the Seattle-based e-commerce giant is paid low enough to qualify for some public assistance programs.
Amazon reps told Al Jazeera that the affected roles were part of its corporate workforce and did not confirm the average compensation of those fired. It added that due to the large workforce, only salaries are disclosed annually and the statistics provided are not a completely accurate representation.
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