These are hard times for employers and employees. Since 2021, we've experienced the "great resignation," "quiet quitting," and mass retrenchment. Reductions in workforce aren't easy. Even the most seasoned executives who have lived through Y2K uncertainty, the dotcom crash, 9/11, the GFC, and the COVID-19 pandemic usually struggle to let people go. Many retrenched people describe the experience as brutal, harsh, and blindsiding.

While many executives are taking comfort that they are not alone in retrenching people, others are wondering how their peers manage to retain staff despite not giving raises or bonuses in the current challenging market conditions.

Recently, a few CEOs have asked me to present to their Senior Leadership Teams on current market conditions and its impact on the workforce. Below are a few highlights from my presentation, built on conversations with executive candidates and technology clients over the past seven months.  

Right-sizing the over-recruitment trend of the COVID-19 pandemic. 

A US cloud-based software company executive told me recently, "Initially, we weren't affected during the pandemic because of multi-year advance bookings. At the start of COVID, our leadership team told us no one would lose their jobs and that we would receive one and a half to two times our normal salary. However, by mid-2022, business performance started to change. Customers weren't prepared to sign off on multi-year deals, and deal sizes shrank." 

The management consultancy firm that reviewed their business recommended restructuring and taking out the highest-cost employees. Specifically, individuals with long service leave, large amounts of accrued annual leave, significant base salaries, huge bonuses, and RSUs about to vest.

The result? The software company retrenched over 300 senior, experienced, long-serving employees in Australia.

This isn’t a casual anecdote or an isolated case. Over the last two to three years, many firms bulked up on headcount and now need to contract.

Job sizing is messy.

Post-pandemic, many companies are future-proofing business operations. The new ways of working are forcing businesses to rethink traditional organisation structures. Among listed tech companies hoping to improve operating efficiencies in tough economic times, many CEOs are taking the advice of Meta CEO Mark Zuckerberg, who earlier this year observed, "I don't think you want a management structure that's just managers managing managers managing managers managing managers."

There is no playbook for future-proofing business, and the local market is turbulent. Atlassian infamously "rebalanced" (aka retrenched) 500 people in March 2023. In June 2023, the firm put 480 engineering managers "back on the tools." 

The Head of Talent Acquisition for a leading Australian bank told me that, having completed its agile transformation, its senior leaders had to re-apply for their jobs. The bank consolidated some roles and offshored others. Ultimately, 100 leaders lost their roles, and the firm created 6,500 jobs in their off-shore centre of excellence. 

A Managing Partner from an international professional services company said that the firm asked them to take a 20 percent pay cut in Australia.

Right-shoring for better productivity and ROI.

In a twist perhaps not yet spotted by the legions of employees who've enjoyed working from home over the last few years, firms are realising that if local employees can perform a role remotely, an off-shored employee in a country with much lower labour costs can likely do it just as well. While this isn't true for every job type, the costs are so attractive many executives are running the numbers.  

One of our CIO clients shared that, for every headcount he loses in Australia, four are available in India. Right-shoring is becoming a compelling solution for companies under pressure to deliver increased productivity at lower costs.

Salary realignment and new performance rating frameworks to manage payroll costs. 

The over-recruitment scramble of the mid-pandemic saw some wild packages on offer to lure talent into new positions. It wasn't uncommon for tech firms to double candidate salary expectations and throw in a sign-on bonus and/or some restricted stock units to seal the deal. 

An executive at an India-based outsourcing firm mentioned they were losing people on base salaries of USD$150,000 to global software companies who paid them USD$250,000 salaries plus $200,000 sign-on bonuses ($100,000 on the start date and $100,000 after six months) and restricted stock units. 

The same tech companies who aggressively headhunted candidates over the last two to three years are now carefully revising performance rating frameworks to scale down the bonuses they must pay and start exiting under-performers from businesses.

Atlassian has changed its performance scale from a three-point rating, where 95 percent of its staff were deemed "great" or "exceptional," to a five-point performance rating system. Under the new system, 15 percent of the team greatly exceeded expectations, 30 percent exceeded expectations, 45 percent met, and 10 percent did not meet expectations. Canva did the same, citing the need for the company to "clean house."

So, where to from here?

In the uncertainty of the current market, employees are demanding pay rises and better bonuses and threatening resignation, with talk of more money and better working conditions elsewhere.

Employers are on eggshells, not enjoying being put over a barrel by their teams, but also wondering if more retrenchments are on the horizon, if revenue goals will do the impossible and lower, how to sustain productivity with a rotating workforce, if forcing people to return to the office is okay, and if high-performance talent is affordable and available if their employees quit. 

My advice to candidates: 

  • Remember, the employment grass is rarely greener.
  • Supply always outstrips demand, and there is an over-supply of talent in the current market. 
  • Stay where you are for 2023 and reassess in 2024 when the current right-sizing and job-sizing phase has settled.
  • If you want promotions, bonuses, and new opportunities: be visible. Like it or not: out of sight = out of mind. Go into the office. 

My advice to employers: 

  • You are not alone. Retrenchments are happening daily. 
  • You DO have talent choices. There are good people available but remain mindful of over-recruiting. As markets swing back into more healthy cycles, high-performance talent always has options.
  • Employees recently retrenched are still holding out for inflated salaries. These expectations reflect a cycle of awareness and education we must all live through as the market right-sizes. The longer people are out of work, the more reasonable their salary expectations will become. 
  • Ensure you have risk management built into your talent plans. Are you ready NOW with a succession plan in case a key person resigns? 

For more insights like these, or to make time to have a chat with one of our Managing Partners, please contact us.

Suzanne Day is the co-owner and a Managing Partner at Morgan Young.  Suzanne has spent more than 20 years as a specialist adviser to Australian, UK, US, and Japanese listed corporations on their C-Level and Executive recruitment, succession planning, and performance. Suzanne is the adviser of choice for technology and professional services companies seeking guidance on senior leadership needs.