Will Facebook / Meta do engineering layoffs?

Part of this article was originally published in The Scoop #27, for subscribers of The Pragmatic Engineer Newsletter last week. I decided to publish this section for everyone to read after the Business Insider article claiming that 15% of Facebook employees - 12,000 people - may lose their jobs started to spread within the media. The Business Insider article was not specific to software engineers but still spread heavily within tech circles. Before un-paywalling this section, there has not been anything publicly accessible that delivers information about the software engineering side of things.

I rarely un-paywall analysis pieces, but seeing how much fear one article can cause - even for software engineers at Meta - which article fails to mention more nuanced dynamics and does no analysis of the situation, I made an exception to making relevant parts public.

This article covers:

  1. Worries about ‘quiet layoffs.’ A few days ago, Business Insider reported that Meta is doing “quiet layoffs,” which could mean as much as 15% of employees being let go. I talked with engineering managers at Meta to find out how much truth they see in this claim. They told me the numbers are incorrect, and shared more details. Exclusive.
  2. Will Meta do layoffs? This is the question on everyone’s mind who I talked with at Meta. I outline possible options and give my opinion on the likelihood of layoffs in the coming months. Analysis.

1. Worries about ‘quiet layoffs.’

On Tuesday 4 October, in the article, “Facebook is conducting ‘quiet layoffs’”, reporter Kali Hays wrote in Business Insider:

“Meta (...) is undergoing ‘quiet layoffs’ through shifting performance expectations that could affect as much as 15% of the company's workforce, several employees told Insider.

Executives told directors across the company that they should select at least 15% of their teams to be labeled as "needs support" in an internal review process, one of the people who spoke with Insider said.”

The reference to 15% of staff being labeled as “needs support,” was repeated on the anonymous social network Blind. It got my attention because it would be unusual for the company to do this so abruptly – at least within engineering. So, I followed up with current engineering managers-and-above personnel within the company.

The 15% “needs support” claim is not accurate for several engineering organizations. Here is what I have confirmed, though:

1. There is a new performance review process happening. From this year, Meta is moving to a 1-year performance process, as I detail in Inside Facebook’s engineering culture:

“Performance reviews are referred to as PSC (performance summary cycle.) Starting from 2022, they run once a year. Up until 2021, performance reviews ran every 6 months.

A more lightweight performance review cycle runs every 3 months. This used to be called the midpoint-check-in. This is now called quarterly check-in or “touchpoint”. The goal of this check-in is to prevent surprises during the performance review.”

In 2022, the first such quarterly review or touchpoint was April. There is a touch point happening right now at the beginning of October. So yes, the performance review process is new for 2022, but it’s only new because it’s different from the previous one, which was biannual (every 6 months.)

2. The “touch point” system is being ironed out. A manager I talked with confirmed the “touch point” system is being worked out on the hoof. This also explains why some engineers were surprised to learn a new “touch point” was due in a few weeks from today.

It’s normal with a new performance system for it to take some time for everyone to get all the details. I know this all too well; at Uber, changes in performance review and promotion systems were frequent. Every change led to some confusion and miscommunication between HR, managers and employees.

3. There has always been a “needs review” target for engineering organizations and this hasn’t changed. Talking with a tenured senior manager, they shared there has always been an organization-wide target for “needs review,” of around 10%. They said the target has not been moved. In their words, “performance review is business as usual.” Other engineering managers also shared that the 10% target has not changed.

Note, I have only talked within engineering. It could well be that some organizations have been set a higher target, as Business Insider reported that higher figure.

Increasing or decreasing the target for the “bottom bucket” during calibrations is one of the most common tactics for controlling attrition. As an engineering manager, I’ve observed this tool being used both to reduce attrition in a market where holding on to employees is key, and to increase it when the business wants to encourage attrition.

An example of playing with this target comes from Amazon. In 2015, the New York Times published an in-depth report on the internal dynamics within Amazon, detailing the often cruel processes of firing people, writing:

“Losers leave or are fired in annual cullings of the staff — “purposeful Darwinism,” one former Amazon human resources director said.”

The article resulted in negative press coverage for Amazon. I was told by former employees that the company reduced its annual “unregretted attrition” target (URA) from 6% to zero, that year. The next year, however, to the surprise of managers and directors, the new target was set at 12%, to make up for the previous year. Read more about Amazon’s performance improvement plan culture (PIP) and URAs in Inside Amazon’s engineering culture.

2. Will Meta do engineering layoffs?

The elephant in the room, when I talk with current Meta employees, is layoffs. More specifically, will there be layoffs in engineering? During my conversations, few bring this up early, but when we get to it, the speculation starts. And it always ends in the same conclusion:

It’s all down to what Zuck decides.

Managers tell me it’s clear the strategic decision – and whether layoffs happen – will be made by Zuck. And the engineers I talked with came to the same conclusion.

So, let me attempt to put myself in the shoes of C-level personnel at Meta, and those of Zuck himself, and answer the question of whether the company needs to do layoffs. To do so, let’s go back to our financial data about Facebook’s revenue and profit, and add in one more dimension: the cost of the engineering organization.

In public reports, there is no line item for “engineering organization spend.” However, most of software engineering is considered as research and development (R&D) spend, as opposed to selling and general admin expenses. So, we can use R&D spend as an indicator of engineering spend. Let’s review how this spend has changed over the past 10 years:

Meta’s revenue, profits and R&D spend the past 10 years. Note that the 2022 values are marked as the trailing 12 months’ revenues.
Meta’s revenue, profits and R&D spend the past 10 years. Note that the 2022 values are marked as the trailing 12 months’ revenues.

Let’s take a look at what these numbers looked like, in terms of growth rates versus the previous year:

Changes in Meta’s revenue, profits and R&D spend the past 5 years.
Changes in Meta’s revenue, profits and R&D spend the past 5 years.

It’s clear the issue is that revenue is not growing in 2022, but R&D expenses went up by 20%, which decreases profits. Those R&D expenses increases comprised the hiring sprees of late 2021 and early 2022 at Meta, preparing to invest into the Metaverse.

Now, let’s go back to our graph of profits. The obvious goal Meta leadership will have is to increase profits. So let’s draw this out:

The goal Meta should have: increase profits (net income) in 2023 following a certain 2022 decline.
The goal Meta should have: increase profits (net income) in 2023 following a certain 2022 decline.

So, how will they reach this goal? Well, option one could be to hope for revenue to miraculously increase, and to keep hiring as before. This, of course, would be a foolish strategy. But can we increase profits, even if revenue grows only slightly? Turns out we can: by either keeping R&D costs at bay, or slightly decreasing it:

How to increase profits even if revenue won't grow much? Make sure R&D doesn't grow: and that it slightly decreases.

The sensible strategy is for Meta to not hire more people and let profits catch up to where they were before. And, to be fair, this was exactly what Zuck said during the Q&A on 30 September; that he thinks it’s likely Meta will likely be smaller in 2023 than it was in 2022.

Meta likely doesn’t need to do layoffs, because attrition will take care of itself. We previously covered what is good, average and bad attrition at tech companies. At publicly traded companies, 10-15% annual attrition is average, and it’s safe to assume that without doing anything, Meta would see 5-10% of people leave over a year. Read more about attrition in the deeepdive Good Attrition, Bad Attrition for Software Engineers.

So far, all we’ve seen is the company freezing hiring - including rescinding internships - but nothing beyond this. There is speculation on whether the end-of-year performance process will be used for ‘quiet layoffs’, but I have my doubts about this, as Meta invests heavily in managers and I can’t foresee anything but a backlash, if the company were to force an unreasonable quota on managers.

I expect headcount reallocation and no backfills to be common in the upcoming period. The challenge that Meta faces with stalling growth reminds me of how Microsoft struggled with slowing growth around 2013, when Satya Nadella took over as CEO. Back then, the company managed to do a turnaround without major layoffs, using headcount reallocation as a tool.

Engineers within Meta are used to moving teams, so allocating people to new teams should be easy enough. Heck, the company has already started doing it, for example by shutting down its newsletter product, Bulletin, and redirecting the team to work on its discovery algorithm instead, according to TechCrunch.

CEO Mark Zuckerberg has been remarkably consistent in that the approach is about reducing headcount growth. In July 2022, on the Q3 earnings call, he said:

“Given the continued trends, this is even more of a focus now than it was last quarter. Our plan is to steadily reduce headcount growth over the next year. Many teams are going to shrink so we can shift energy to other areas, and I wanted to give our leaders the ability to decide within their teams where to double down, where to backfill attrition, and where to restructure teams while minimizing thrash to the long term initiatives.”

Just because Meta doesn’t need to do layoffs, doesn’t mean it won’t. As much as I’d like to be able to predict what may or may not happen at the company, there’s plenty of information I don’t have which could influence this decision.

I would repeat that the first round of layoffs at any company has a devastating impact on the culture. So far, everything I see seems to suggest Meta’s leadership wants to avoid layoffs at all costs. Meta was the first company to partially freeze hiring in March of this year, and the moves of not extending return offers to interns in July and rescinding intern offers in October all seem to serve the goal of protecting current employees. Read more about executing layoffs humanely if there's no other choice in the article Preparing for layoffs in tech.

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These were two out of the eight topics covered in last week’s The Scoop. A lot of what I share in The Scoop is exclusive to this publication, meaning it’s not been covered in any other media outlet before and you’re the first to read about it.

The full The Scoop additionally covers:

  1. Meta rescinds intern offers for 2023 in London. In a first for the company, Meta has rescinded offers for what seems like a large group of interns. These interns had been due to start in January 2023 at the London office. What could be behind the rescinding of these offers? Exclusive.
  2. Will FTE offers be rescinded by the company? Rescinding intern offers were worrying enough that a software engineer with an outstanding offer got on the phone with a recruiter at Meta to find out if their full-time position is safe, or it could also be rescinded. The recruiter shared the official stance of the company with this person. Exclusive.
  3. Developers on the Rotational Engineering program are being transitioned out. Meta has a Rotational Engineering program where, after a year of rotating between teams, engineers become E4 software engineers and graduate to join a team. Now, these engineers cannot join any teams and must leave the company. Exclusive.
  4. The mood inside Meta. I talked with half a dozen software engineers and managers to get a sense of how employees feel. Exclusive.
  5. Meta closing an office building in New York City. The company is closing its 225 Park Ave office. Is this a bad sign for the team? I talked with a software engineer based in NYC, and found out it’s not. Exclusive.
  6. Meta’s historic growth challenge. The company’s growth is under more pressure than it has ever been, and in a worse strategic position than Apple, Google, Amazon or Microsoft. Why is this and what can the company do to get out of this situation? Analysis.

Read the full The Scoop here.

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