In May 2019, Uber was on the upswing. The ride-hailing company was about to go public and its IPO was valued at more than $120 billion. However, in advance of its IPO on May 9 of the same year, the company reduced its value to $75 billion and on the first day of trading, the company’s share price fell by more than 9 percent.
At the same time, the company’s research and development teams have taken on ambitious projects, many of which have given employees a headache.
“We talked about products like Uber Chopper and Uber Submarine. “At a certain point, it just sounds crazy,” former Uber employee Maddy Nguyen, now co-founder and CEO of recruiting software company Talentdrop, told Al Jazeera. “This is such a disruptive business in its core product that is pumping up all the money. Then all the money goes into research and development for crazy ideas, because that’s what investors need, so to speak. That makes no sense.”
“The interests of the company and investors really don’t always align, and companies come under pressure to do things that just don’t really make sense for employees or founders,” Nyguyen added.
Such moves are often taken to satisfy a concept known as shareholder superiority, experts say. A 2019 paper from the Harvard Law School Forum on Corporate Governance states, “A company’s board of directors owes its ‘fiduciary duties’ solely to shareholders, which means that the board of directors is accountable solely to shareholders for its decisions.”
In other words, companies have a legal obligation to their shareholders to make the best financial decisions. In turn, executives make decisions to maximize shareholder returns, including by increasing the stock price, to almost everyone else involved – the workers, the consumers, and the product itself.
investors first
Public companies put their shareholders first when making decisions, even if that means developing products that unsettle their own employees and expose them to the risk of downsizing.
That may mean embarking on ambitious projects that will enable hypergrowth — a risky move that has proven in the tech industry over the past few months to be a recipe for an industry-wide implosion.
Several companies, including Meta, Tesla and even fashion brands Kate Spade and Co and more recently Adidas, have been sued by their own investors for allegedly failing to meet those commitments.
“The investors own the company. They have to have a duty to them first, that’s their legal duty,” Nguyen added.
The call to put shareholders first is notoriously a rallying cry for both progressive Democrats and far-right Tea Party Republicans. Layoffs in the middle are just one trigger for bad public relations.
Innovation is an important way for companies to reassure their shareholders without having to resort to downsizing. In the case of Uber, the abundance of new products hasn’t alleviated the problems.
Uber’s share price fell more than 90 percent on the first day of trading [File: Richard Drew/` Photo]Even before the pandemic, stocks collapsed. Within months, Uber began layoffs and by October 2019 had laid off more than 1,000 people. As with most companies, layoffs piled up at Uber as the company’s stock plummeted at the height of the COVID-19 pandemic in 2020.
While 2021 was a good year for the company, that success was short-lived. Uber laid off 6,700 employees last year.
In January, CEO Dara Khosrowshahi said at the World Economic Forum that there would be no company-wide layoffs. Less than a week later, the ride-sharing company announced it would cut its Uber Freight division’s workforce by 3 percent, or 150 jobs.
Since the announcement of the job cuts in January, the share price has risen by more than 50 percent.
Layoffs, share buybacks, a “masterpiece”
Uber is far from the only one. Meta was indeed the corporate leader in the recent wave of layoffs.
Facebook’s parent company went too deep into its Metaverse effort, which was doomed from the start, according to a Morning Consult poll, because 68 percent of adults simply weren’t interested in Meta’s virtual reality push.
In the first quarter of 2022, the company reported that it had lost users for the first time ever. In the following quarter, the company reported its first decline in sales.
While Meta argues otherwise, it’s sending a message to other big tech companies: Laying off tens of thousands of employees is fine and potentially good for the stock. On the day the social media giant announced it would lay off 11,000 employees, its shares rose 5 percent.
Meta was committed to its legal responsibilities to shareholders. In short, it’s C-suite’s way of saying, “I’m sorry, I wish there was something I could do, but my hands are tied.”
That’s exactly what happened at Salesforce. After a tumultuous 2022, the company conducted share buybacks in advance of job cuts and laid off 8,000 employees in January.
Meta has been at the forefront of corporate layoffs in the recent wave of layoffs [File: Eric Risberg/` Photo]CEO Marc Benioff quoted the economic prospects in a letter to employees at the time: “The environment remains challenging and our customers are taking a more measured approach to their purchasing decisions.” Against this background, we made the very difficult decision to reduce our workforce by around 10 percent ‘ Benioff wrote. Echoing a statement from other tech CEOs at the time, he added, “We hired too many people, which has led to this economic downturn that we’re facing now, and I take responsibility for that.”
Then came March 1 — the day the San Francisco-based enterprise software giant released its quarterly earnings report.
The company announced it would double its share buyback program to $20 billion from the $10 billion announced last August. From an investor perspective, it was outstanding. Dan Ives, senior analyst at Wedbush, called it a “masterpiece.”
Benioff then made the rounds on the financial news programs and answered friendly questions from the moderators. In a 15-minute interview, the editor-in-chief and host didn’t even mention the layoffs.
Salesforce may be one of the larger companies making cuts as it promises excellent profits, but it’s far from the only company.
In recent weeks, Ottawa, Canada-based e-commerce platform Shopify announced it was cutting 2,300 jobs, or 20 percent of its workforce, while reporting better-than-expected quarterly earnings. Just days earlier, San Francisco-based tech giant Unity Software cut 600 jobs after reporting 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 reduced 8 percent of its workforce. About a month earlier, IBM had introduced a similar strategy.
CEOs like Bennioff often blame macroeconomic conditions as a reason for layoffs in their letters to employees. Amazon CEO Andy Jassy said in a letter to employees announcing layoffs, “This year’s balance sheet was more challenging given the uncertain economy.”
The technology industry is mostly affected by layoffs. According to a new report by employment agency Challenger, Gray and Christmas, tech accounted for 34 percent of all layoffs in 2023. This means that around 114,000 people are unemployed.
Amazon has the highest salary ratio of CEOs to average employees in the S&P 500 [File: Sandy Huffaker/Reuters]Senior executives are themselves financially incentivized to drive this framework forward.
Company executive salary and share price
Executive pay is largely tied to the company’s stock price. For example, Amazon CEO Andy Jassy’s cash compensation totals $175,000, while his equity, which consists primarily of stock awards, is nearly $212 million.
Under Jassy’s leadership, the company experienced the largest wave of layoffs in the e-commerce giant’s nearly three-decade history.
Amazon officials did not confirm the details of Jassy’s compensation package, but said it rewards executives with so-called “restricted stock unit awards,” and these have long vesting periods that could be more than five years.
According to statistics from the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), the largest union federation, Jassy earns 6,474 times more than the company’s average employee. Amazon has the highest CEO-to-average employee salary ratio of any company in the S&P 500.
The average worker at Amazon makes $32,855 per year — just over $2,000 above the state poverty line for a four-person household. It also means the average employee at the Seattle-based e-commerce giant is paid so low that they’re eligible for some public assistance programs.
Amazon officials told Al Jazeera that the positions affected were part of the company’s workforce and would not confirm the average pay of those laid off. Due to the large workforce, the company only reports salaries annually and the statistics provided are not a fully accurate representation.
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