Last Friday, when I reported that a small team of about 30 people at Yahoo had lost their jobs, I hinted that “more substantial layoffs are around the corner.” In fact, we had it on good information that the board was set to meet two days before the next earnings announcement on Jan. 29 to decide whether or not to lay off 10 to 20 percent of the workforce (i.e., at least 1,400 people).
But before we could write that bigger story, Henry Blodget scooped us. (Damn you, Blodget!). And now it is all over the New York Times, Wall Street Journal, and San Francisco Chronicle. I guess the lesson here is never hold a story more than a few hours.
But as I read the newspaper accounts, I definitely get the sense that there is some damage control going on, with all the newspapers uniformly reporting that the layoffs will number in the “hundreds” instead of the 1,000-plus we understood to be on the table. The truth is, nobody really knows. Unless that Jan. 27 board meeting has been moved up, the final decision has not been made yet. It could be 500 or 1,500 or more. That 1,500 figure, btw, comes to about 10 percent.
Nobody likes layoffs. But if you are going to bother, you might as well make it financially meaningful in Wall Street’s eyes. Doing some quick back-of-the-envelope calculations, let’s assume for arguments sake that each terminated employee costs an average of $100,000 in salary and benefits. Then cutting 500 people would only save Yahoo $50 million, whereas cutting 1,500 would bring $150 million to its bottom line. To put that into perspective, Yahoo’s entire net income in the third quarter was $150 million.
That’s the sort of equation Jerry Yang has to work with. He no doubt would like to save as many jobs as possible. But if he wants to please Wall Street and get his stock up (and ultimately boost employee morale), he can’t be seen to be taking half measures. The risk of cutting too little is to sacrifice those “few hundred” jobs in vain, with both the stock and morale continuing to plummet afterwards. The risk of cutting too much is to go beyond the bloat and hamper future growth. It is not an easy choice for Yang & Co.