Question on Layoff strategy
Hi.
I am curious about the layoff strategy.
Sometime I see xxx company laying off xx% of employees. How do you bring this conclusion?
To be specific
How do you come up with that %? Is it just considering the amount of the total cost? Or by closing departments or businesses, hiring ppl who served those?
When you decide you are firing 25% of employees, how do you decide who should leave?
If only the cost matters on firing, would you fire one manager who costs the same of three entry level employees or those three employees?
Off the topic, if the CFO from portfolio company claims he is understaffed, but you do not want to raise the cost, how do you deal with it?
Every layoff is different but, from the layoff discussions I have observed ($20bn business, $1bn business), and would assume it broadly holds true:
1) Typically there is a certain metric the business wants to hit ($ EBITDA quantum, profitability margin, etc.) the layoff % and/or headcount is the output
2) Each function/business head will have a directive from the CEO that they will need to achieve whether it's # of heads or $ of costs saved. The decision will probably come after the CEO/CFO does internal work (with inputs from various C-suite management, external consultants, PE deal team,etc.)
3) This will come at the discretion typically of the C-suite/VP of each function/business and there is no right answer
4) Just because there are cost cuts/layoffs doesn't mean there is no hiring occurring. For example, you might cut 10% of the HR workforce but may still onboard new employees to join the other functions because there is strategic interest to invest in that part of the business (e.g., Amazon cutting Alexa workforce but may hire AI software engineers)
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