Unhappy new year: High-tech HR budgets signal 2023 will open with layoffs
Unhappy new year: High-tech HR budgets signal 2023 will open with layoffs
"Companies are waiting until after the holidays, but the big blow will be in the first and second quarters of the year," said Sivan Avihud, founder of Link2USA
The upcoming year will open with a large wave of layoffs at technology companies operating in the U.S. who are simply waiting until after the holidays to announce cutbacks. The wages of the remaining employees will not be cut, but they will not rise at the same rate as recent years either and will not catch up with the rate of inflation, this according to a new survey based on HR budget planning for the next year conducted in over 62 high-tech companies by Sivan Avihud, founder of Link2USA, which deals with human resources management.
"High-tech companies, including Israeli ones, are waiting until the end of the holidays in the U.S. to carry out layoffs that have been decided upon. We saw this here in Israel in October that companies waited until after the Jewish holiday period. Even companies that have already laid off will make another wave of layoffs. They won't be fired before Christmas," Avihud explained. "When you start seeing layoffs at Amazon and Facebook, it becomes legitimate. If the GAMA (Google, Apple, Meta, and Amazon) do it, then smaller companies do not feel that it is unusual. The discourse among the professionals is that the big hit will be in the first and second quarters in the U.S. and it will spill over a little to Israel."
The budgets of the HR departments are determined in the last quarter of the year while planning for the coming year. When building the budget, you look at what happened that year and quantify what is expected next year. The 2022 budget, for example, was set in 2021 and the human resources management budgets were built accordingly, so a lot of money flowed into the market. Towards next year employers are starting to think more about productivity and profitability - putting the business in the center and not the employee. "The budgets moved to be on the business side. For example, many employers wanted to bring the employees back to the office and now that there are layoffs and less stability, many employees are working only in the office," she says.
The market has indeed become an employers' market in the sense that employers have more bargaining power vis-a-vis employees. However, there is still competition for employees and wages are not falling. Next year, only 70% of high-tech workers will receive a salary increase, and even that increase will be small compared to previous years and lower than inflation rates. Usually, managers in companies operating in the U.S. used to raise wages in line with inflation, but this year they consciously choose not to do so because they feel that competition has decreased and it is economically more difficult to commit to wage increases due to the uncertainty in the markets.
For example, companies with 200 to 500 employees plan salary increases of about 5% compared to about 9% in 2022. In companies of this size, only 67% of employees will receive salary increases. The composition of the salary has also changed compared to the current year so that most of the improvement will be in additional cash and not in options or shares, because the employees face higher living costs. Thus, on average, the compensation upgrade package for employees in 2023 will be divided into 73% cash salary increase, 18% cash bonuses and 9% equity (shares or options).
One can also learn from the budgets of the human resources departments that the investment in employees will decrease. In 2022, the budgets of the People's departments were about $10,000-$13,000 in addition to the salary of each employee, but in 2023, the budgets will be reduced by 20-30% and in small companies even by 50%.
And yet, 50% of HR leaders in high-tech companies expect competition for talent in the market, with 46% predicting that they will experience an abandonment of talent in the coming year. The challenge is to compete for the retention and recruitment of talent at a time when salary increases don't decide the competition. Wages are already inflated, and budgets are decreasing, so HR teams are thinking about strengthening plans to invest in the employee.
"We are not in the crisis of 2008 and it is not comparable. There is still competition for workers and there are more jobs than workers. There are psychological elements, it is not a matter of the number of jobs. These companies that were a symbol of success are now laying off and this creates uncertainty. Companies are still recruiting, but employers do put their business needs at the center and not the employee's experience," says Avihud.
Therefore, next year's HR budgets focus more on executive development and less on parties and benefits. In 2023, degrees will no longer be funded and human capital development budgets will focus on the development of managers since a good manager contributes more to the success of the organization. Learning and development budgets are being reduced and many companies are moving to internal organizational development but still see value in coaching and accompanying senior managers.
Activities to promote diversity and inclusion dropped to 12th place in prioritization when last year they were in 3rd place and the budget for these activities has decreased accordingly. Companies are trying to encourage employees to come to the office and therefore they create more experiences in the physical offices.
Another wave of layoffs is expected in the first half of 2023, but the good news is that most consulting companies expect the crisis to be relatively short, not a period of several years, but a correction of several months. "The mindset of company management is 'how will we look on the other side of the correction' and there are also those who say, today I can recruit talent that I might not have been able to recruit a year ago. We are still in a world where there is more demand for workers than supply," she says.
