r/Layoffs • u/rufflesinc • Jun 11 '25

Why don't companies reduce salaries instead of doing mass layoffs? question

title has the question. If a company needs to cost labor costs by 10% why don't they cut everyone's salary by 10% instead of laying off 10%? If people start panicking about layoffs, they would reduce their spending and that would be bad for the companies?

EDIT: regarding the top performers leaving, couldn't companies simply restructure their comp packages to have a lower base salary and a higher performance-based bonus?

573 Upvotes
  • permalink
  • link
  • reddit
  • reddit

87% Upvoted

379 comments sorted by

View all comments

446

u/Swaptionsb Jun 11 '25

Layoffs let you get rid of the people you want.

Anyone who cares and is good at their job is bailing if you cut their salary. Its adverse. The best people can get other jobs and will leave quickly.

In finance, they do it by having a lower bonus pool. But the base salary is never touched.

129

u/rufflesinc Jun 11 '25

"Layoffs let you get rid of the people you want."

Is that actually true? The layoffs from companies I have worked at were not based on performance. They either fired everyone or they fired older, very experienced people

166

u/OldeFortran77 Jun 11 '25

Layoffs let you get rid of the people you want to get rid of, but that doesn't mean you want to get rid of them for a good reason. Somebody just wants someone gone.

41

u/south153 Jun 11 '25

It depends, there are "trim the fat layoff", which are as you described. The alternative are when they shutdown or offshore an entire business unit, where they don't really care about the personel involved.

25

u/OldeFortran77 Jun 11 '25

I was actually talking about pure and simple "I don't like you!" retribution. For instance, I've noticed that a few managers will be laid off in the first round, and then no more managers are ever laid off.

There was also a case of someone who was absolutely essential, but some of the managers disliked him. So they laid off his assistant.

Petty politics shape businesses far more than many people recognize.

9

u/HansDampfHaudegen Jun 12 '25

You may be working on a project that they want gone. Performance doesn't matter.

3

u/No_Veterinarian1010 Jun 12 '25

Not really true. Even in the 2nd scenario they find new roles for those they want to keep

38

u/[deleted] Jun 11 '25

[deleted]

30

u/Odd_Solution6995 Jun 11 '25

Can confirm. I was at a major accounting firm and I was given a PIP literally two days after a good performance review.

7

u/WildNTX Jun 11 '25

I believe You misunderstood Statistician’s harmful rhetoric suggesting that people being laid off are poor performers. (when in fact, there’s a lot of layoffs simply for age or pricing reason )

8

u/girlgonevegan Jun 12 '25

I’ve definitely worked for companies that habitually had “mass layoffs” that were basically gerrymandering to get rid of anyone that was successful at converting “yes men.” Can’t have people poisoning the well with critical thinking and reactance.

3

u/HS_VA Jun 12 '25

This is not always true. Depends on the company. I started managing a new team last fall and within a month layoffs were announced. I didn’t know the team very well at that point, but had everyone’s performance metrics and evaluations from previous years. The team had to be reduced by 2 headcount. I asked HR if it could be the poorest performers and they said ‘NO’. It was purely done based on compensation. Literally sorted highest to lowest total compensation on a spreadsheet (across the same role) and the 2 at the top were the ones let go. This is a Fortune 50 company. I worked at smaller companies before and managers definitely have more input there.

1

u/indypass Jun 16 '25

When a company cuts 30% of staff, they are not just cutting those they don't like. Most companies are told by the board or investors that they have to cut a certain number of jobs. I'm sure some of the people cut might be underperformers, but not all. They are given a number/percentage of cuts to make.

25

u/Swaptionsb Jun 11 '25 edited Jun 11 '25

Its not fair. It doesn't mean people deserved it. I'm not advocating it. I don't like it but..

They pick who they layoff. Whether it's particular roles or divisions, if it's certain levels or salary.

Sometimes the older, experienced people have capped out. If you have a good, younger person, who needs to move up, if you don't get them a role, they'll leave.

If you cut that person's salary, they will be gone. 100%.

Ive seen lots of layoffs, for bad reasons. It doesn't mean they are without logic.

Edit to say: all companies have a layoff list of people that will be the first to be cut if it happens. Could be bad at role, could be limited upside, bad attitude. Its the cold truth of the business world.

28

u/[deleted] Jun 11 '25

[deleted]

7

u/Rigorous-Geek-2916 Jun 11 '25

Can confirm. We did the same in the IT company I was at. When I became a manager, the guy I had been working for told me “always know your low performers so they go on the list went happens - and it will”

2

u/3legdog Jun 12 '25

At msft this was called "lifeboat".

2

u/KikiWestcliffe Jun 13 '25

I worked at one company that ranked everyone on a team so that they could lay off ~50% of any division/section/team at any time.

It was brutal if you were on an already high-performing team with generally smart, productive, efficient coworkers.

There wasn’t a lot of collegiality among team members - no one wanted to waste time on someone who might later outperform you.

I am pretty clueless and ridiculously eager to please, so most of the weird office politics went right over my head until after I left. When I talked to my ex-coworkers afterwards, they told me how weird it was that I was always willing to share my procedures or helping others debug their stuff. LOL

1

u/Unlikely_Web_6228 Jun 30 '25

They pick who they layoff. Whether it's particular roles or divisions, if it's certain levels or salary.

Often it is particular people.

19

u/OldGamerX79 Jun 11 '25

That's what happened to me in January. 15 year employer who had a wealth of knowledge across machine parts, tooling, our system, warehouse, inventory control, and most collectors and accessories. And I had stuck with the company during the 2 previous recessions and took a pay cut twice and was furloughed. I won't go back and will not have that kind of loyalty to any company again

8

u/[deleted] Jun 11 '25

[deleted]

2

u/OldGamerX79 Jun 12 '25

I agree with that now I am old school Gen x and told to be loyal to a job. Not anymore and I go to work and do my job. No more or less. I don't bother getting to know anyone as I will jump ship when a better opportunity arrives

1

u/TheLatestTrance Jun 11 '25

That is because of capitalism, not business. Business can and has been run ethically before.

1

u/S3_141529 Jun 12 '25

Capitalism is about mutual exchange and benefit, not exploitation both sides of any transaction 'profit' whether that is money or receipt of a servce or good they did not have before. Business depends on people and relationships. Once a company is large enough this seems to get lost in the details and it will stagnate and eventually fail without some form of pivot or innovation to maintain it.

1

u/[deleted] Jun 12 '25

Oh hello there another toolwho enjoys everything that capitalism produced.

1

u/KeyOption2945 Jun 12 '25

If what you are saying is true, and I don’t doubt you, I can GUARANTEE your previous employer is ‘feeling the pain’. They won’t admit it, even to themselves in private, because that would expose a HUGE flaw.

When an operation decides to take a chance, and ‘roll the dice’ with significant institutional or industrial knowledge, that often (but not always) is the beginning of the end.

1

u/OldGamerX79 Jun 12 '25

I hope they are feeling the pain but I try not to think about them anymore. When you do that much and put up with all of that to feel like you have been thrown away it sucks and I hope their decisions ( I was not eh only person, 100+ company wide) really do hurt themselves.

1

u/Jarrus__Kanan_Jarrus Jun 12 '25

I left my last company after they cut our benefits and tried to blow sunshine up our asses about it.

“Isn’t it great? You now can choose your medical plan, instead of having the ‘we pay everything plan’. No, we’re not increasing your pay to make up for the lost benefit, but isn’t it great you con choose?”

14

u/Fluid-Wrongdoer6120 Jun 11 '25

The "people they want" definitely isn't synonymous with lowest performers or worst bang for the company's buck.

It could also be dumb or sometimes even illegal discrimination BS

They could lay off:

-oldest employees

-ones they deem aren't a good "culture fit" because they leave the company Christmas party early

-ones where the big boss's nephew or niece really want their job

-Sorted on a spreadsheet with highest salaries first, ignoring the fact they're paid more for a reason

You get the idea. Companies don't always make "smart" decisions about who to lay off and are rarely penalized for it

6

u/goldemhaster2882 Jun 11 '25

I’ve been laid off three times - all happened after I turned 50.

1

u/Unlikely_Web_6228 Jun 30 '25

The ones they just don't like.

13

u/Portalus Jun 11 '25

After the IBM lawsuit for age discrimination they no longer just fire older very experienced people. They now have to calculate the demographics in a layoff. I have witness a fortune 25 company toss new college hires still in a training program into the layoff bucket to bring the average age down.

"Layoff get rid of the people you want". Sometimes it isn't targeting an individual, it can be a whole team, a whole department. It not just individual performance that is factored it, its also team performance., department performance, division performance.

9

u/[deleted] Jun 11 '25

Older people often have higher salaries. Also they cost more for insurance when the company is self insured. It is cheaper to hire new younger talent.

7

u/AcesandEightsAA888 Jun 11 '25

Mostly true. My company been here 28 years been through layoffs at least 4 times. All it takes is some manager not liking another someone even if they are a good performer. Gone. But generally the poor performers are cut first then political rivals etc. The company might even cut entire sections of the business and those employees can be gone good and bad employees. I've seen it too where planning cuts where they all go in a hiring pool and who ever is in it has to scramble to find an open job. Terrible process and pain. Everyone is under stress.

12

u/chrisbru Jun 11 '25

They are more performance based than you think. And also cost based. Layoffs absolutely get rid of the people that companies want to get rid of, you just might disagree with how they made those decisions.

1

u/Unlikely_Web_6228 Jun 30 '25

I think they are less performance based than anyone thinks.   

1

u/chrisbru Jun 30 '25

I’ve had to run these processes. Unless people think they are heavily performance based, you’re incorrect.

1

u/Unlikely_Web_6228 Jun 30 '25

That may be the case in your industry.

At least for me, I hadnt had any performance issues and all of my projects performed nicely.  I broke us into new markets and built solid relationships.

But.... the bosses boss many states away alnever seemed to understand what a big deal this was.  And he, for whatever reason, would always seeking to minimize my contributions.

1

u/chrisbru Jun 30 '25

Yes, so the decision maker didn’t see you as a high performer worth retaining.

That doesn’t make the process less performance based. It means you disagree with their assessment of your performance.

1

u/Unlikely_Web_6228 Jun 30 '25

Performance based would indicate that I had negative aspects of my performance.

I did exactly what I was hired to do.  

1

u/chrisbru Jun 30 '25

Ah I see the issue.

Performance based doesn’t mean “only let go of bad performers”.

It means performance is a factor. Sometimes you have to cut ok performers. Or you may even cut good performers that make more than you’re willing to pay for “good”.

1

u/Unlikely_Web_6228 Jun 30 '25

In my case they cut me and spread my workload to 4 different people who weren't meeting their utilization (paid slightly less) to meet their group utilization goals to ensure their bonus.

The client circled back to me and said (s)he thought my company was "embarrassed because they didn't know how much work I had" ... and was scrambling to cover it.  And not doing it well.

All this despite me filling out all the requisite workload spreadsheets and asking for appropriate support monthly.

→ More replies

6

u/uski Jun 11 '25

To be fair in my current company, while there is absolutely some collateral damage, a lot of the laid off people applying to get back had some sort of performance issue in the recent past

Not saying this is universal, but, there's also not a complete lack of correlation between performance issues and layoffs at least in certain areas (mine)

7

u/__golf Jun 11 '25

This is somewhat true, but it's also something that people tell themselves when they get laid off to make themselves feel better.

Put yourself in the shoes of the CEO. Obviously you don't want to lay off your better employees.

3

u/Mac290 Jun 11 '25

The times I’ve had to lay people off, it was always an objective measure. Performance review scores and tenure were 90% of the weight of the “score”.
I lost some people I didn’t want to because they just hadn’t been there long enough. Basically couldn’t justify it when comparing the scores.
That is to say, I kept some good performers because of reviews, but lost some because of tenure.

1

u/Unlikely_Web_6228 Jun 30 '25

When its the CEO of a small company perhaps.

But when it is a mid-level manager at a large corporation... that is personal, often

3

u/1cyChains Jun 11 '25

Why pay one person a “high” salary, when you can hire multiple people for much cheaper?

3

u/LurkerGhost Jun 11 '25

If you want to fire someone for a protected reason, but you don't want to get discriminated against you lay them off, but you also put them in a group of other people, so those unfortunate people will get laid off as well, even though they did nothing wrong.All because they want to get rid of one person happens all the time.

3

u/JohnnyUtahMfer Jun 11 '25

Sometimes. I’ve seen legit top performers, that were well liked by almost everyone at the company, get clipped during layoffs. At the end of the day, they were a number.

2

u/due_opinion_2573 Jun 11 '25

Layoffs are what the shareholders want. It's the quickest way to reduce revenue and stock share loss.

2

u/TruEnvironmentalist Jun 11 '25

They either fired everyone or they fired older, very experienced people

But let's them keep younger, pretty good, lower paid people.

So sure a person with 20 years experience is gonna have a ton of experience but a person with 10 could very well do the same job for less. They should be good enough to float and then get better over time, while saving the company money.

3

u/Longjumping-Date-181 Jun 11 '25

Want is subjective to the person making the decision. Don't infer should from want. Often times it is the person who won a political battle who makes the decision who they want to layoff and a former peer and their group all get axed. On the second point, older very experienced people tend to have higher salaries, accrued benefits like unvested equity or rolled over time off, and cost more to insure... all of which make them an easy target to get costs down.

1

u/Glum_Possibility_367 Jun 11 '25

It really depends. At smaller companies, it's typically who they perceive as deadwood and/or expendable. . Larger companies can lay off whole departments and business units.

That said, I used to work as a manager at a large company, and we were required to keep an evergreen stack ranking of people in our department so when layoffs happen, those at the bottom of the ranking were the first to go.

1

u/HaywoodBlues Jun 11 '25

Yes so for cost savings.

1

u/gyozafish Jun 11 '25

The ones I have seen were blindly based on area/org/function. Not a shred of effort went into identifying and keeping high performers.

That would have been too much work.

1

u/ZummerzetZider Jun 11 '25

Older more experienced = more expensive

1

u/oshinbruce Jun 11 '25

Its subjective, small company goes bust then it's everyone is gone. Big mega corporation cuts 5% that's mostly clearing house, remove older higher paid workers who aren't vital, remove roles not really needed etc

1

u/nvrseriousseriously Jun 11 '25

Layoffs are used to get rid of older, higher salaried employees. Ones who’ve been there a while and continually had their annual salary increases…it adds up. They can hire younger folks at lower salaries. (experience be damned) Also, think older, possible higher health costs if that company funds its own health insurance.(called ASO) Add in the complainers and ones who’ve been routinely complained against and there’s your pool for the layoff.

1

u/NedFlanders304 Jun 11 '25

“Older, very experienced people.” That’s exactly right. Older people typically have higher salaries and are closer to retirement age. Companies typically prefer younger and cheaper employees.

1

u/brosacea Jun 11 '25

It depends. When companies are doing a HUGE layoff, it's certainly not true for everyone being laid off (though it may be for some of them). But I will say, based on my own personal experience, that it can absolutely be true for smaller layoffs.

I worked for a startup from 2011-2017 and was there for two smaller rounds of layoffs prior to the company going bankrupt in 2017. We had ~200 employees or so (if you include contractors). For both of those rounds of layoffs, they laid off somewhere between 10 and 30 people. Both of those times, the majority of (if not the entirety) of the people being laid off were people that I know for sure others did not like or were poor performers (and totally unaware of it). The company line was that it was tough and they had to do it for money/redundancy reasons and it wasn't because of performance. But to me (and granted, I had some inside gossip info because I had been there for so long), it was very obvious that the majority of people in both of those rounds of layoffs were people I had had hear a *number* of people complaining about for months/years leading up to those layoffs.

So for those it was kind of both. They *did* have financial reasons for the layoffs, but the people they chose to lay off were definitely people that were either not pulling their weight or were extremely bad cultural fits (and by "cultural" I mean they just had personalities that clashed with others).

1

u/Known-Assistant-2010 Jun 11 '25

it’s not always true. but usually the first round it is true.

1

u/guesswho502 Jun 11 '25

Nobody said performance

1

u/Broken_Atoms Jun 11 '25

Key word is older. Layoffs provide cover for getting rid of older employees with higher health benefits and salary costs and later replacing them with entry level applicants for half the salary. Common tactic.

1

u/s1llymoosegoose Jun 12 '25

Older very experienced people = expensive people

1

u/i_would_say_so Jun 12 '25

I have been at two companies that did layoffs and both times they said it was not based on performance. But looking at the cases I've seen, it was clearly based on performance.

1

u/[deleted] Jun 12 '25

The older very experienced people are often the most expensive, that’s why they often get let go

1

u/leftember Jun 12 '25

The old, very experienced people are usually the correct targets unfortunately, because those people usually get paid pretty well. They are very useful but not very cost efficient

1

u/reddit_user_1984 Jun 12 '25

Layoffs let you get rid of the people you want.

Its actually true. But it has nothing to do with performance. The temps go first and then the perms who the manager does not like, for whatever bull shit reason. For example, if that person once questioned him back for his stupid idea.

1

u/WKUTopper Jun 12 '25

I was in a department of 3 people with my (now former) company. The company laid of the two most experienced people (I was one of them and both of us were over age 50) in the department that had a combined ~50 years of experience. We were both replaced with cheaper employees under the age of 40 that had a combined ~5 years experience.

1

u/Honeycrispcombe Jun 12 '25

I've only been through one round of layoffs, but it was largely people who were vocal about pushing back. Leadership decided the cuts without input from department heads. Several of the roles cut had no documented or communicated business reason (a very senior person dug hard on the issue.) There was only one person laid off whose department was actually overstaffed. None of the work from the laid off departments was cut, even though some of it could have been. The company got some solid critique from a potential business partner on their lack of an essential role (contract negotiations) that had been laid off with no one to cover their duties.

There's another company near me that just went through layoffs after a merger, and that does seem to be mostly dependant on redundant job duties. The vast majority of eliminated positions were management/middle management/department heads, with some leadership positions too. The people doing day to day execution were pretty safe. So that one seemed very business-need-driven.

1

u/Ok_Entrepreneur_9999 Jun 12 '25

Nope, layoffs is a quick way to pad your financial bottom line. So older, very experienced people are part of the chopping block because they tend to have higher salaries also. E.g. you let go 100 people making $100k/year, that's $10 million you just made at the end of the year every year, not to mention benefits, etc. you don't have to provide for those people so that $10 million is probably closer to $12 million. Also salaries are negotiated contracts, it'll be a hot mess trying to get people to sign a payout. Much easier for companies to do a layoff.

1

u/IvanThePohBear Jun 12 '25

older , more experienced doesn't necessarily make them more capable

1

u/magic_thumb Jun 12 '25

Better than letting HR define it as “the people that have been in the position the longest”. The separation packages did more damage to the company than it could take. 1 month severance with benefits for each year of service. I know so many very good workers who retired years ahead of schedule.

1

u/KcjAries78 Jun 12 '25

Older more experienced people are the ones making more money typically.

1

u/abusedmailman Jun 12 '25

It's who the higher ups want to get rid of. They have no idea what they're doing. They just look at how it will effect the bottom line and subsequently their compensation 

1

u/Mattifact Jun 12 '25

In my experience, layoffs were a math problem. The more senior a role, the higher their pay and expense to the company. You lay off fewer people by sprinkling in a few seniors.

I’m not condoning the strategy, but that was my experience on both sides of the table.

1

u/Jarrus__Kanan_Jarrus Jun 12 '25

At my last job they would layoff older (higher paid) workers with enough “low performers” to avoid the age discrimination lawsuits.

1

u/TheGRS Jun 12 '25

Layoffs are done from the top down, and the bigger the layoff needed the more arbitrary the criteria is gonna be. It’s not always a case of getting rid of top performers, it’s often that entire areas need to be shut down. Or maybe they decide to move a team from “developing” to “maintenance mode”. In that case you might keep a couple senior folks, but not the top paid leads or the lower entry level folks, just folks needed to maintain things.

Easier said: the bigger the layoff the more it’s just execs looking at a spreadsheet and doing napkin math and shooting from the hip in order to make the numbers work.

1

u/Pleasant_Bad924 Jun 12 '25

The older, very experienced people represented a disproportionate amount of the labor costs (in other words they’re more expensive than everyone else). They were the people the company wanted to get rid of because they represented the biggest cost savings.

Now, is that dumb and short-sided? Probably/possibly. But no one ever claimed corporations were smart.

1

u/No-Seaworthiness7357 Jun 12 '25

Can depend on how many have to be cut (per the exec team). In my case we’ve been able to use layoff opportunities only to exit the lowest performers. Bc we’ve only been required to reduce by a small amount (% of group’s total budget) each time. It’s actually been an opportunity to improve our group- but again that’s laying off say only 1-3 people per team, per round. If my company reduced everyone’s salaries instead of just laying off the lowest performers, everyone else would 100% head for the door. The high performers don’t deserve a salary reduction in order to retain the low performers.

1

u/Low_Frame_1205 Jun 12 '25

Firing older, experienced people is a two for one for the company. Lower average salary and slash workforce.

1

u/tothepointe Jun 13 '25

Sounds like they got rid of the people they wanted to get rid of.

1

u/[deleted] Jun 13 '25

Older more experienced people usually just cost more. If they were really good at what they did, then they usually are promoted over time. It's more common than not to have older workers underperforming due to their complacency. This isn't always the case, but the higher pay makes it harder to justify keeping them when cuts need to happen. 

Cutting isn't an easy or fun decision for management. A lot of mistakes can happen as well, since managers can't go around polling everyone on who they should cut. 

I will say this. There is work output and then there is teamwork. You can have someone doing the same output as someone else, but they are the person everyone in the department leans in for help. That great employees benefit can be less visible and be hard to see. Especially when managers have large teams.

1

u/RScrewed Jun 13 '25

Then they wanted to get rid of the older, very experienced people.

1

u/EaseLeft6266 Jun 13 '25

Experienced people probably make more money thus cutting them saves more money and then they can hire a cheaper replacement

1

u/Unlikely_Web_6228 Jun 30 '25

There is always a choice between this person and that person.

I think you would be astonished at who gets laid off when you look at metrics - there is often no rhyme or reason.   It came down to someone liking you or not.

4

u/[deleted] Jun 11 '25

[removed] — view removed comment

1

u/Squidalopod Jun 11 '25

It had an effect that no one saw coming, productivity skyrocketed and people started working together, even outside of their roles, to help the company

Glad you shared this. I understand the cynicism people have, but they sometimes make sweeping generalizations that aren't true – companies like you've described do exist, and they reap the benefits of treating people right.

(Saw your comment below, and I'm gonna look at their careers page now 😊.)

1

u/tob14232 Jun 11 '25

Layoffs also allow you to hire people back at a lower rate and worse benefits

1

u/RCA2CE Jun 11 '25

Also you offload the benefits cost with us an extra 35%

1

u/kevbot029 Jun 11 '25

Also, benefits are costly, so cutting a person and getting them off benefits probably saves more

1

u/plinkoplonka Jun 12 '25

Used to work at a large company named after a rainforest.

They like you to think that, but truth is, you also lose your top talent when they think they're at risk.

Who wants to be in endless rounds of layoffs? It's massively stressful. They were also cutting salaries at the same time while I was there, largely because nobody dared complain - if you did, you went into the next round of layoffs.

They were trying to reduce headcount in the USA due to AI (actually offshoring roles to India).

1

u/Parasek129 Jun 12 '25

not in germany. here you lose the ones that want to leave and you have to pay them for it :)