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Google Laid Off 12,000 Workers: Why Is One Of The Most Profitable Companies In The World Retrenching Its Staff?

Google recently laid off 12,000 workers or about 6% of its global workforce the exit, joining the string of number of tech giants to retrench their workers. However, unlike some of the newer tech unicorns which have yet to show profitability (such as SEA) or tech giants that are facing restructuring (such as Twitter), Google has resilient cash flows from its ad market dominance.

In its last published earnings report for 3Q2022, Google reported $69.1 billion in revenue with a net income of $13.9 billion. While the 4Q2022 earnings report is expected to be released on 2 February 2023, analysts’ revenue expectations range from above $72 billion to $78 billion.

So, why is Google retrenching its staff when it is still making profits? We take a look at Google’s memo to its employees regarding the layoff and its financials to find out.

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Read Also: The Twitter Retrenchment: Why Labour Unions Are Still Relevant Today

Staffing Needs Change With Different Economic Realities

One key reason Sundar Pichai, CEO of Google, gave for the retrenchment is the fact that they had “hired for a different economic reality than the one we face today.”

Instead of an environment rich for tech giants to thrive as companies are forced to work remotely and adopt digital services, the current environment is now fraught with economic uncertainties with rising interests, soaring inflation and a plateau in digital adoption as companies return to physical offices or have already been onboarded to digital services.

Google Has Increased Its Workforce By Almost 40% In Two Years

Over the past two years, Google underwent a period of dramatic growth. From 135,301 employees at the end of 2020, Google grew to 156,500 employees by end of 2021 and 186,779 by 30 September 2022 (3Q2022). This is an increase of almost 40% in employee numbers in the span of almost two years.

 

4Q2019

4Q2020

4Q2021

3Q2022

Revenue (in millions)

$46,075

$56,898

$75,325

$69,092

Net Income (in millions)

$10,671

$15,227

$20,642

$13,910

No. of employees

118,899

135,301

156,500

186,779

 

2019

2020

2021

2022

Revenue (in millions)

$161,857

$182,527

$257,637

Unreleased

Net Income (in millions)

$34,231

$40,269

$76,033

Unreleased

No. of employees

118,899

135,301

156,500

Unreleased

Based on the end-of-year results for 2020 and 2021, Google had revenue growth of 60% while its workforce grew by 30%. While the end-of-year result for 2022 is yet to be released, the 3Q2022 earning results showed slowing revenue while its workforce continued to grow.

As mentioned in the memo (see the end of the article), Google had hired to “match and fuel” the explosive growth it saw in 2020 and 2021. However, the changing economic environment in 2022 made Google reconsider its hiring.

Read Also: Retrenchment Should Be The Last Resort: 4 Options Companies Can Consider To Reduce Cost First

Google Will Still Have More Workers Compared To 2 Years Ago Even After Retrenchment

Assuming Google’s workforce remained at about 186,000 employees at the point of retrenchment (and not grown beyond that), the cut of 12,000 employees would mean a reduction to 174,000 employees. This is still higher than their workforce number at the end of 2020 which was about 135,000 employees.

Suppose Google had indeed over-hired and overspent on manpower over the past two years. In that case, the shedding of 12,000 employees may actually still be insufficient to make a significant difference in the manpower expenses. Thus, it may not be surprising that in addition to the layoffs, Pichai also announced that Google executives will be taking a significant cut in bonuses. These bonuses are tied to the company’s performance which would reflect Google’s slowing growth.

Read Also: Here’s How Companies Can Carry Out A Retrenchment Or Restructuring Exercise Responsibly

Google Is Providing A Golden Handshake

While being retrenched is never easy, and the sudden swiftness of Google’s layoffs didn’t help, the 12,000 retrenched workers will be getting a golden handshake, especially when compared to other layoffs of other tech giants.

Google’s retrenched US workers would receive full salary during the full notification period (minimum 60 days), a severance package starting at 16 weeks salary plus two weeks for every additional year at Google, and acceleration of at least 16 weeks of GSU vesting, full payment of 2022 bonuses and remaining vacation time and 6 months of healthcare, job placement services, and immigration support for those affected.

In comparison, retrenched Twitter workers reportedly received less than the 3 months of severance promised to them. Google’s severance package is also on par with (or even slightly better than) Meta’s severance package which includes 16 weeks of base pay plus two additional weeks for every year of service, with no cap, payment of remaining paid-time-off time, RSU vesting and six months of healthcare and 3 months of career support and support for immigration.

Read Also: MOM Responsible Retrenchments – Guideline For Companies To Be Fair And Decent

Google Is Facing An Antitrust Lawsuit Filed By The US Department of Justice

Another motivation for Google to “sharpen (its) focus, reengineeer (its) cost base and direct (its) talent and capital to (its) highest priorities” may be the pending scrutiny they would receive under the eyes of the US Department of Justice (DOJ). On 24 January 2023, the DOJ filed a civil antitrust suit against Google for monopolising multiple digital advertising technology products in violation of Sections 1 and 2 of the Sherman Act.

This isn’t the first antitrust lawsuit faced by Google. In 2017, the European Commission fined Google €2.42 billion for breaching EU antitrust rules by abusing its market dominance as a search engine to advantage another Google product, its comparison shopping service. However, as Gizmodo puts it, Google may be screwed even if it wins the antitrust case. The antitrust investigation would hamstring Google in the race to outrun emerging competitors.

Under such circumstances, Google would need to shed any excess deadweight (even if they are high performing employees but working in non-priority areas) to remain agile enough to tackle both an antitrust investigation and growing competition such as ChatGPT.

<em>Credit: </em><a href="https://www.cnbc.com/2023/01/20/google-to-lay-off-12000-people-memo-from-ceo-sundar-pichai-says.html" rel="nofollow noopener" target="_blank" data-ylk="slk:CNBC;elm:context_link;itc:0;sec:content-canvas" class="link "><em>CNBC</em></a>
Credit: CNBC

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The post Google Laid Off 12,000 Workers: Why Is One Of The Most Profitable Companies In The World Retrenching Its Staff? appeared first on DollarsAndSense Business.