Does Your Company (e.g. SpaceX) Lay Off Employees In Bulk? You May Want to Go Elsewhere.

During 2018 SpaceX set records for successful rocket launches in a year, set records for successful landings in a year, successfully launched its Dragon resupply freighter multiple times to the International Space Station, and nearly completed the manned Dragon space capsule. The company is the envy of every other player in the space industry, is profitable, and is purportedly worth about $30 billion–nearly half of Tesla and Solar City combined. So what does President Glynne Shotwell and Chairman Elon Musk do for an encore? Announce a layoff of 10% of its workforce.

What? SpaceX–where the best and brightest engineers, scientists, and fabricators are working diligently long hours to fulfill Musk’s vision of commercial space flight–is going to let go 1 out of 10 every employees? What is this–the Roman legions where they decimate centuries to enforce discipline?

Musk is a notorious believer of shedding under-performing employees periodically by purging them ruthlessly in a sort of zero-based-budgeting philosophy. He did it at PayPal, he did it at Tesla Inc., and now he is doing it at SpaceX. So this is nothing new. Of course “under-performing” in Musk’s definition means anyone who doesn’t either have a 100% function in the organization or performs a function that can be fulfilled cheaper or more efficiently by another current employee or new employee. The upside of this approach is that Musk can stamp out organizational inefficiency and bloated costs sooner rather than later. The downside is that he treats employees like chattel.

So what? Is there some requirement that Musk run his company like some sort of social state? Of course not. But management needs to understand that employees, particularly those that do not have a stake in the company and are only being paid a market salary,  are making sacrifices if working long hours and are working to their utmost to ensure the company succeeds. It is also costly to hire employees, both in terms of ramp-up cost and recruiting cost, so laying them off indiscriminately only serves to lower company profits in the long term.

Wait, you say. Shouldn’t Musk be able to jettison defective employees that will be cheaper to replace even given the high cost of recruitment and ramp-up? Sure. But it should be done individually and continuously during the whole year. Under-performers should be given performance improvement plans and those that cannot reform should be let go with a reasonable severance and re-employment assistance.

The only reason to announce layoffs suddenly and indiscriminately is to instill fear in the organization. The thinking goes that if all employees know that their jobs are never “safe”, they will work even harder and be more obedient. The problem is that indiscriminate layoffs destroy morale, which has a deleterious effect on organizational efficiency and raises operating costs. Thus the only cost benefit is short term. Costs are increased long term, impacting the survivability of the business.

Management has a responsibility to align employees with positions that fully take advantage of their skill set. If such an alignment is not possible, retraining may be necessary. If alignment and retraining are not possible, only then should layoffs be considered.

Yes, a job working for SpaceX is a sweet gig, at least in terms of being on the cutting edge of the space industry. But if you cannot trust management to make both rational and compassionate decisions regarding your long-term employment, maybe it is time to find another employer. Life is short. Find vocational happiness elsewhere.

1/16/2019 Update: More on Jack Welch’s HR practices at General Electric (see similar programs at Goldman Sachs or Intel) with regard to canning the bottom 10% of the workforce every year. Welch popularized the practice during the 1980s and 1990s.

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