Culture Amp research examines the cost of tech sector lay-offs
As the tech bloodbath deepens, executives are risking long-term damage to employee engagement and confidence, new data shows.
The widespread lay-offs roiling Australia’s start-up sector are risking long-term damage to employee engagement, executives are being warned, with research showing that lay-offs detrimentally affect an employee’s confidence in the company and ultimately the bottom line.
The research, from Melbourne-based Culture Amp based on data from Layoffs.fyi and Culture Amp’s own platform, found that companies can only expect to see a rebound to their pre-lay-off levels of engagement if they engage in hiring following lay-offs.
It then takes between 12 and 18 months for engagement to reach pre-lay-off levels, for those that do hire, according to the study.
The research also found that even for companies that had strong engagement prior to lay-offs, the lay-offs detrimentally affected an employee’s confidence in the company, as well as perceptions of company leaders, engagement and development.
Predictors of company lay-offs were products and services not being as good as competitors, employees’ confidence in a company’s response to Covid-19, and employees believing they were being paid unfairly.
The statistics come amid mounting lay-offs for the local tech sector, with start-ups including Spaceship, Till Payments, YourGrocer and Voly among dozens of companies axing staff as interest rates continue to rise and raising venture capital becomes more challenging. A growing number of loss-making companies have been forced into lay-offs in order to preserve cash.
Investing in culture is positively associated with higher company stock prices and other positive traits, according to Culture Amp CEO Didier Elzinga.
“Cultures are made during times of uncertainty. Being intentional about your culture now – as companies face economic headwinds and budget pressure – is critical,” Mr Elzinga said.
“The insights from our data in looking at the experience from companies in the months after lay-offs can help leaders with the decisions they’re making now.
“Lay-offs may be necessary but make them because you have no other choice – not because you believe this is your time to be tough as a leader and that your team will thank you for it.”
Culture Amp’s research manager, Joel Davies, said it was a common belief among technology executives that, while lay-offs were difficult, it was inevitable that the company would automatically rebound to pre-lay-off levels of engagement.
“Don’t count on it,” he said.
“Engagement is the levels of enthusiasm and connection employees have with the organisation. It’s a measure of how motivated people are to put in discretionary effort for the organisation and a sign of how committed they are. And employee engagement takes a pretty big hit after lay-offs, more so than you might think, and we shouldn’t expect employees who experienced a lay-off to eventually just warm up to the company again.
“As new employees come into an organisation, they tend to experience what we call a honeymoon effect, which means that they tend to be more engaged, have some rose-coloured glasses and that that boosts engagement scores. But what we find when we look at the more tenured employees who were there before the lay-off, their level of engagement doesn’t seem to return to where it was prior to the lay-offs.”
Dr Davies said it was important for executives to understand the trade-off inherent in making lay-offs, given it would probably lead to short-term pain and negative sentiment among workers.
“You’ll need to prioritise employee engagement going forward, it’s not going to magically repair itself,” he said.
“You’ll need to put a lot of effort into listening to the more tenured employees, those that were there prior to the lay-offs, and understanding what they care about and what they need, and prioritising that.
“Employee engagement is a really strong predictor of lots of the metrics that most businesses care about, including turnover, holding onto good people, and share price growth.”
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