A quick guide to layoff calculus
First, not many people are familiar with how layoffs are performed – now I don’t have all of the answers for every company here, but generally speaking – here’s what happens in the larger companies that have a dedicated HR team…
- Managers have “a list” that is essentially stacked ranked
- They give that list to their manager
- That manager adjust the lists and combines it with the lists from other managers
- This process continues as the lists are merged and sent up the chain of command
HR or “People teams”, as a non-biased third party comes in with their formula that leverages some data they have from finance. HR uses a formula, because that removes bias from the layoff equation (as long as the formula is unbiased, but that’s a topic for another day). A layoff formula might have these variables and weights:
| Variable | Weight |
|---|---|
| Location Is the person colocated with their team? Some companies believe this is important for performance and productivity. 4 = Remote, 3 timezones or more away 3 = Remote, 2 timezones or more away 2 = Sometimes visits office 1 = In office 3+ times a week | 10% |
| Performance What have been the last two performance ratings for this employee? Companies have a bias for performance (even if performance reviews are biased and inaccurate). This is part of the McKinsey 9-box model since the company uses this to judge/rank performance. 4 = Last two ratings have not met expectations 3 = One of last two ratings have not met expectations 2 = Both of the last ratings have met expectations 1 = One of the last ratings have exceeded expectations | 20% |
| Productivity Some companies track overall productivity for employees either by tracking statistics on their work on “spyware” on their computer. 4 = Employee is not productive during the workday 3 = Employee is productive 50% of the workday 2 = Employee is productive 75% of the workday 1 = Employee is productive 90%+ of the workday | 20% |
| Salary If the company is looking to cut budget, you can expect this to be part of the calculus. This is where senior people who have been with the company will be analyzed. This is also where employees based in higher cost areas might be targeted more than others. 4 = High Salary (over $350,000 total compensation) 3 = Medium Salary (over $250,000) 2 = Average Salary (over $150,000) 1 = Below Average (under $150,000) | 20% |
| Progression Has the employee been stagnate in their level for a long time? If someone is at the same level for 5 years, this could indicate a productivity problem and a lack of performance and potential (from the McKinsey 9-box). 4 = No promotion in 10+ years 3 = No promo in 8 years 2 = No promo in 4 years 1 = No promo in < 4 years | 10% |
| Cost Center or Profit Center Is your team making the company money (Profit Center) or part of Operational Cost (Cost Center). Companies looking to save money will likely cut more teams that are a Cost Center instead of a Profit Center. 4 = Cost center 1 = Profit center | 10% |
| Team/Product/Org Investment Does the company plan to invest in this team or area in the next year? If not, it’s likely they will look to make cuts here. 4 = Product/Org/Team needs to shrink 3 = Some investment likely, need to keep product running 2 = Investment needed 1 = Must invest | 10% |
⭐️ Now is a good time to read this other article on the the failure of using a 9-box for software engineers since we’ll be using the table, and the bias that it creates, for the next section. ⭐️
The 9-box plays into career progression and performance assessments
From what I’ve seen, most companies will use a 3 point scale on each axes for Potential and Performance where Low is 1 and High is 3. To avoid any ties and to clearly articulate value, you might see a prioritized 9-box like this:
| 7 Enigma | 8 Growth Employee | 9 Future Leader |
| 4 Dilemma | 5 Core Employee | 6 High Impact Performer |
| 1 Under Performer | 2 Effective | 3 Trusted Professional |
This might play a factor as part of stack ranking, bonus assessments, and overall performance management so it’s important for you to understand how leadership will use this mental model.
Example 9-box Scenarios
So now that we have the weighting and the 9-box, let’s try some examples using IDEs as our employee names.
| employee | formula | score | possible story |
|---|---|---|---|
| Eric Clipse | 4 Location: Lives 3 timezones away from core team or manager 4 Performance: Last two reviews have not met expectations 2 Productivity: 75% productive – clickity-clacking 4 Salary: High salary over $350,000 2 Progression: No promo in 2 years 4 Cost/Profit Center: In a cost center 2 Org Future Investment: Some investment needed in the future | 3.2 | Story 1: Senior engineer that has been around for 10 years, and relocated during COVID, since being promoted to very senior level, they have struggled to be productive (see Peter Principle) because they may have been promoted without appropriate considerations or their managers have been biased in previous years to rapidly promote. Story 2: Even though Eric went remote, there was a re-org and now the team is 3 timezones away. |
| Xavier Code | Everything as above, but change from 4 to 2 salary 2 Salary: Average salary over $150,000 | 2.8 | Story 1: Average software engineer position as they came over from another company. Could have been a bad hire through the interview process since they have had 2 reviews that have not met expectations. Story 2: Joined from another company and thought this company and team was great, but the manager and work is not what they thought it would be so they have underperformed. |
| Ned Beans | Everything as Eric Clipse, but change: Location 4->2 since they sometimes visit the office. Performance has met expectations the last 2 reviews, so 4->2 when compared to Eric. Also similar salary to Xavier. 2 Location 2 Performance 2 Salary: Average salary over $150,000 | 2.2 | Came from another company with some experience, average performance and salary. |
| Vince S. Code | 2 Location 2 Performance 4 Salary: High salary over $350,000 4 Progression: No promo in 10 years | 2.8 (Same as Xavier) | Story 1: Has been with this company for a very long time, has been promoted, pretty average reviews, goes into the office sometimes, and has a high salary due to living in a high cost location. Story 2: At one of the most senior levels, they are not interested in being promoted past this role, they love their job and have a good work/life balance. |
To recap, we have the following list where the higher the score, the most likely to be laid off:
- Eric: 3.2
- Xavier: 2.8
- Vince: 2.8
- Ned: 2.2
For the sake of simplicity, let’s say this team is 10 people, and we’ll duplicate these four people assuming that there are similar cases.
- Eric: 3.2
- Xavier 1: 2.8
- Xavier 2: 2.8
- Vince 1: 2.8
- Vince 2: 2.8
- Ned: 2.2
- Ned: 2.2
- Ned: 2.2
- Ned: 2.2
- Ned: 2.2
Now, let’s say a layoff comes – typically this occurs behind closed doors away from front-line managers and their teams to limit knowledge and the amount of damage any employee could do knowing they were going to be terminated – it covers the company from any potential issues, but now leaves front-line managers helpless. HR comes up with a target, 10% – so in our case, Eric having a score of 3.2 would be the one person to leave this team, but let’s add another team to this mix:
| team 1 | team 2 |
|---|---|
| 1. Eric: 3.2 2. Xavier 1: 2.8 3. Xavier 2: 2.8 4. Vince 1: 2.8 5. Vince 2: 2.8 6. Ned 1: 2.2 7. Ned 2: 2.2 8. Ned 3: 2.2 9. Ned 4: 2.2 10. Ned 5: 2.2 | 1. Xavier 1: 2.8 2. Xavier 2: 2.8 3. Vince 1: 2.8 4. Vince 2: 2.8 5. Vince 3: 2.8 6. Ned 1: 2.2 7. Ned 2: 2.2 8. Ned 3: 2.2 9. Ned 4: 2.2 10. Ned 5: 2.2 |
| Another Vince-like person added here – maybe for one of these reasons: 1. Manager is less critical during performance reviews, so this team has fewer people not meeting expectations. 2. Similar to (1): Manager has been managing this team for awhile and is now friends with everyone so performance reviews are less critical. 3. Manager is unaware of what the team is doing so doesn’t provide critical assessment of team and thinks everything is awesome. 4. Team is more colocated than Team 1 |
Now the same layoff hits both teams with a 10% target, with 20 total people, HR would have to select 2 people to be impacted, from before we know Eric would be selected, but now we have 9 people with the same 2.8 score:
- Xavier-like people may not be performing, but are paid average: 2.8 score.
- Vince-like people have been performing at expectations, but are more senior and have been with the company for a long time: 2.8 score.
When faced with a tie, likely one of two things happen:
- HR uses a stacked rank to determine the next person to be impacted
- Since the scores are the same, one person is selected at random
Both of these sound pretty terrible – a stack ranked list of people comes with a ton of bias since this is usually done by managers, then merged, then ranked, then merged as it goes up the chain.
Random selection isn’t any better either – no one wants their career to be determined by Math.random() when their performance, passion, and drive hasn’t been random. You can see that in either approach, a faceless algorithm will likely decide fate.
So what do you do? Let’s dive in.
1. Hack the 9-box
You want to be in the right && top of the 9-box
| 7 Enigma | 8 Growth Employee | 9 Future Leader |
| 4 Dilemma | 5 Core Employee | 6 High Impact Performer |
| 1 Under Performer | 2 Effective | 3 Trusted Professional |
There are too many variables at play here. In the past I’ve seen:
- Someone who was happy in their role and not interested in being promoted perceived as having less potential
- A team who was doing more mundane work perceived as having higher performance
- Teams who create problems for them to continue to solve appear to be heroes and have higher performance
How can you avoid most of this? Keep your head down and focus on delivering results and value. This will put you at either 3 Trusted Professional or 6 High Impact Performer. Although it might be appealing to target that middle (5) box, if you are consistently seen as someone who has both average performance and average potential, you won’t be rewarded as much and will be average in a stacked ranked list (which we’ve learned above: middle or average 2.8 for Vince and Xavier could create a situation where you’re somewhere in a layoff list).
Here are some other options:
Boost your performance
- Find low hanging fruit that’s being ignored and fix it.
- Look at how your team talks about your victories – are they aligned with business priorities?
- Is the work you’re doing attributed to those victories?
- How can you deliver results above expectations? Can you do something faster? Deliver earlier? Reduce the complexity?
Be consistent with performance. Someone who is productive only when asked, or has sine-wave ebs of productivity is not going to be doing themselves any favors when compared to consistent performers.
Boost your potential
- Come up with interesting and innovative ideas that make sense, are low return on investment and drive the company’s bottom line, even if you don’t think your team can work on it right now. Write it down and publicize it.
- Educate colleagues on what you know, about the company’s products or infrastructure/hardware that it’s built on.
- Educate yourself – take classes, read books about new topics, stay informed of new technologies. I love Tech Radar.
- Find gaps in the work that others do or enhance existing ideas.
- Sign up to do things that no one else wants to do.
- Be a giant supporter of the company, post a lot of positive things on social media, recruit people to join you, give external talks.
Since the 9-box is used during performance management (for companies that have been McKinsey’d), where there’s likely a bell-curve forced ranking applied, you want to understand where the people on your team might fall and ensure you’re doing something to get you uniquely into one of these boxes.
| 7 Enigma | 8 Growth Employee 1 person max | 9 Future Leader 1 person max |
| 4 Dilemma | 5 Core Employee 3 people max | 6 High Impact Performer 1 person max |
| 1 Under Performer 1 person min | 2 Effective | 3 Trusted Professional |
2. Be closer to your team
It sounds weird, but if HR is using location as one of the weights (likely because your company has some sort of return to office policy), you should try to be closer to your team. The farther away you are – the more you will be scrutinized and the more you’ll need to focus on being present and performant.
If you’re a remote employee, you should make sure you over-emphasize:
- Constant communication – use chat and documents constantly. Make it a point to communicate something valuable every day to be visible.
- Purposeful meeting time – setup time with people, you won’t run into them in the halls of the office, so you need to think more about who you need to spend synchronous time with.
- Use async communication to your advantage – record demo videos, videos that ask questions and gather input, educational content. You don’t need a meeting to contribute value. Be concise in your messages – don’t create noise and don’t create work for others.
- Volunteer for things – if your commute is from your bedroom to your office, you are saving hours of time that your other colleagues are spending driving into the office. Use that extra time you have by effectively by helping the team.
- Be a meeting superstar – if you’re remote and others are in the office, you have an advantage of taking notes and paying attention to meetings – you have no in-person distractions. Take meeting notes, summarize key points, speak up during meetings to assert your opinion or ask questions. Don’t let in-person people not hear you – speak up, keep speaking up if you aren’t heard.
3. Make sure your product/org has a future
Be selective for the team you join. If your product has a known end-of-life or is consistently losing revenue or costing the company more money than it’s worth – and you might be a “4” in other areas of the layoff calculations – try to find something else. Yes, you may not be as stressed on this team because you’re just keeping the lights on, but that runway is limited (you could also join this team and come up with an amazing idea that turns the ship around).
HR might look at positions that can be eliminated to save cost. If you do jump into a team with a limited future, make sure you’re also reading the room to know when to jump to another team. If your company is publicly traded and the stock continues to decline, that may trigger a layoff, so position yourself well before that happens.
4. Be part of a profit center or a cost center that significantly avoids financial pain
A cost center that provides revenue safety is almost as important as a profit center. Most companies don’t want to leak money if it can be avoided. Here are some example teams that would be cost centers:
- Quality Assurance (QA) Team: Focuses on testing and ensuring the quality of software, incurring costs without directly generating revenue. Any bugs caught before hitting production would avoid a revenue loss. Some bugs can be hilarious though, like the time PayPal accidentally credits man $92 quadrillion.
- DevOps/Site Reliability Engineering/Production Engineering Team: Manages the infrastructure, deployment, and operations of software applications, primarily a cost to ensure smooth operations. Any downtime would incur revenue loss and/or brand impact to the company (see PayPal’s Outage in 2004 or this PayPal Outage from 2015).
- Security Engineering Team: Works on securing software applications and systems, which is a necessary cost but does not directly generate profit. Any public security issue might negatively impact brand (see Roku’s Data Breach) or create a fine for the company (see Equifax Data Breach Settlement). This also includes security bugs like this PayPal SQL Injection Vulnerability.
- Technical Documentation Team: Produces documentation for software products, a necessary support function that incurs costs. This could be a public facing team that works on developer API documentation (see Square’s API docs), for instance or it could be a team that focusing on education of internal employees.
- Internal Tools Development Team: Develops and maintains tools for internal use by other engineering teams. Anything that would be built or maintained by a team inside the company. For example Splunk or other monitoring tools deployed on-prem would likely require a team to maintain it.
On the flip side, here are some teams that would be profit centers:
- Feature Development Team: Develops new features and enhancements for a software product that can directly drive sales and revenue. This is a pretty common team for most companies.
- Custom Software Development Team: Creates custom software solutions for clients, generating revenue through bespoke projects. This might a team that drives sales using the companies product to show how it can be used.
- Product Engineering Team: Builds and maintains the core product(s) of the company, directly contributing to sales and profit. Likely a core feature that is known to make money with small enhancements.
- Platform Engineering Team: Develops and maintains a platform used by external developers or companies, generating revenue through platform usage fees or subscriptions. This is likely a Software-as-a-Service (SaaS) that might drive recurring subscription revenue or a product that charges based on usage (like AWS, Google Cloud, etc.).
5. Be productive
Quite simply: get work done. Use tools and systems effectively, don’t be a hindrance and always add value.
Try to be responsive to messages, don’t forget about commitments – don’t drop the ball too many times.
Wrap Up
As I’ve discussed before, the 9-box model is inherently flawed. Ask around to understand if this model is being used at your company, then ask questions to validate that there are enough checks and balances (discussed in the linked article) to attempt to make the field more fair.
If your organization is using some variant of this system, be sure to check yourself on where you’re at – since the 9-box can be used for many things, and could be foundational when it comes to algorithmic layoff determinations, I hope this empowers you to take hold of your career and make daily choices that help you.