What Elon Musk could learn from Stripe about properly conducting layoffs after chaotic Twitter culling
Layoffs continue to rip through the tech sector, with Stripe, Lyft, and Twitter announcing staff cuts in the last week. The differences in how those layoffs have unfolded provide a unique look into how employers should—and shouldn’t—treat employees.
Twitter’s layoff fiasco has dominated news coverage. The company, now helmed by Elon Musk, emailed employees late Thursday, informing them in a convoluted memo that those being let go would be notified through their personal email accounts. Several employees reported losing access to their Slack and work email accounts well before receiving the memo, and prominent lawyers have questioned if Musk gave proper forewarning as required by law.
The manner in which Twitter laid off staffers has prompted outcry from employees and platform users alike, who decried the callous and rushed layoffs. What’s more, the staff cuts, which gutted half of Twitter’s 7,500-employee workforce, came just two weeks after the social platform’s HR team denied reports that mass layoffs were on the horizon.
“Today’s move by Elon Musk to mass-fire 50% of Twitter’s employees, including many San Franciscans, is deeply concerning, particularly after Musk fired the executives responsible for enhancing user safety on the platform,” Scott Wiener, state senator for San Francisco, where Twitter is headquartered, said in response to the layoffs on Friday. “While companies periodically engage in layoffs to acknowledge economic realities, firing a full half of employees goes well beyond that.”
The abrupt termination has left scores of workers unsure of their next move or the full slate of benefits they can access post-employment. As of Friday, employees had not received official severance paperwork detailing severance pay. Some reported receiving differing explanations of what they would receive beyond severance, including company stock or a pro-rated bonus. The company reportedly informed laid-off employees in their termination notice that they would receive detailed paperwork within the next week.
Stripe’s layoff memo—penned by its cofounders and brothers Patrick and John Collison, but sent from Patrick—stands in stark contrast to Twitter’s and provides a useful example of how to center affected employees in layoff announcements, take ownership for financial woes and leadership missteps, and provide remaining and terminated staffers with a path forward.
“There is probably no execution of this type of communication that feels quote-unquote correct,” says Aaron Mitchell Finegold, chief marketing officer at Kingsley Gate Partners, an executive search consulting firm. “But I think [Stripe] took a very thoughtful, employee-first approach, and its message is unambiguous and clear. That leaves stakeholders, whether affected employees, nonaffected employees, or external readers, with a very positive impression about the company and [its] fundamentals.”
From the outset, Stripe CEO Patrick took a tone of accountability. “For those of you leaving: We’re very sorry to be taking this step, and John and I are fully responsible for the decisions leading up to it,” he wrote in the memo sent to employees Thursday. Patrick acknowledged that the company grew too quickly during the pandemic’s e-commerce boom, leading to layoffs affecting 14% of its staff.
Patrick also addressed how the company will handle employee departures, including severance, health care coverage, and career and immigration support.
Julia Christenson, U.S. chair of employee experience at Edelman, says it’s especially important to lead with empathy and proactively share next steps related to severance and benefits when conducting layoffs. “This memo includes a detailed plan on how those being laid off will continue to receive support,” she notes.
While the standard for companies is to offer one to two weeks of severance, Patrick will provide at least 14 weeks—just over three months—of severance pay. The fintech company will also pay out unused PTO for all affected employees and send 2022 bonuses to all staffers.
Employees whose immigration status will be affected by layoffs will have “extensive dedicated support,” per the memo. Such support is vital in the tech sector, Finegold says, because many U.S. companies rely on foreign talent.
However, not all memos are perfect, and there are a few areas where Stripe could have dug in deeper.
Layoffs can create unease among remaining employees, uncertain about the company’s future. Though Patrick admitted that remaining employees would experience “bumpiness over the next few days,” Finegold says he could also have offered infrastructure to field employee questions and acknowledge concerns like increased workloads.
The memo could also have addressed how Stripe is adjusting for the short term and avoiding similar mistakes in the future. For example, reassessing its total addressable market before another period of rapid growth and hiring.
Certain parts of the memo were likely kept brief to focus squarely on layoffs. “The authors had to also consider length,” says Finegold. “They probably made deliberate choices to keep the memo brief and digestible, which may include omitting some of these messages.”
While Patrick briefly touched on how the company will reform its business strategy, he said more would be shared in the coming week.
“For the rest of this week, we’ll focus on helping the people who are leaving Stripe,” he wrote in the memo’s closing remarks. “Next week we’ll reset, recalibrate, and move forward.”
Read Stripe and Twitter’s full layoff memos below:
As shared earlier today, Twitter is conducting a workforce reduction to help improve the health of the company. These decisions are never easy, and it is with regret that we write to inform you that your role at Twitter has been impacted.
Today is your last working day at the company, however, you will remain employed by Twitter and will receive compensation and benefits through your separation date of February 2, 2023.
During this time, you will be on a Non-Working Notice period and your access to Twitter systems will be deactivated. While you are not expected to work during the Non-Working Notice period, you are still required to comply with all company policies, including the Employee Playbook and Code of Conduct.
Within a week, you will receive details of your severance offer, financial resources extending beyond your Non-Working Notice period. At that time you will also receive a Separation Agreement and Release of Claims and other offboarding information, such as how to return your Twitter materials (computer, badge, etc.).
Attached is an FAQ which aims to address a number of questions you may have. If your questions are not answered in the FAQ, you can reach out via [redacted]@twitter.com.
We remain grateful for all that you have done for Twitter throughout your tenure and wish you only the best in your next chapter.
Today we’re announcing the hardest change we have had to make at Stripe to date. We’re reducing the size of our team by around 14% and saying goodbye to many talented Stripes in the process. If you are among those impacted, you will receive a notification email within the next 15 minutes. For those of you leaving: We’re very sorry to be taking this step, and John and I are fully responsible for the decisions leading up to it.
We’ll set out more detail later in this email. But first, we want to share some broader context.
The world around us
At the outset of the pandemic in 2020, the world rotated overnight toward e-commerce. We witnessed significantly higher growth rates over the course of 2020 and 2021 compared to what we had seen previously. As an organization, we transitioned into a new operating mode, and both our revenue and payment volume have since grown more than 3x.
The world is now shifting again. We are facing stubborn inflation, energy shocks, higher interest rates, reduced investment budgets, and sparser startup funding. (Tech company earnings last week provided lots of examples of changing circumstances.) On Tuesday, a former Treasury secretary said that the U.S. faces “as complex a set of macroeconomic challenges as at any time in 75 years,” and many parts of the developed world appear to be headed for recession. We think that 2022 represents the beginning of a different economic climate.
Our business is fundamentally well-positioned to weather harsh circumstances. We provide an important foundation to our customers, and Stripe is not a discretionary service that customers turn off if budget is squeezed. However, we do need to match the pace of our investments with the realities around us. Doing right by our users and our shareholders (including you) means embracing reality as it is.
Today, that means building differently for leaner times. We have always taken pride in being a capital efficient business and we think this attribute is important to preserve. To adapt ourselves appropriately for the world we’re headed into, we need to reduce our costs.
How we’re handling departures
Around 14% of people at Stripe will be leaving the company. We, the founders, made this decision. We overhired for the world we’re in (more on that below), and it pains us to be unable to deliver the experience that we hoped that those impacted would have at Stripe.
There’s no good way to do a layoff, but we’re going to do our best to treat everyone leaving as respectfully as possible and to do whatever we can to help. Some of the core details include:
- Severance pay. We will pay 14 weeks of severance for all departing employees, and more for those with longer tenure. That is, those departing will be paid until at least February 21st 2023.
- Bonus. We will pay our 2022 annual bonus for all departing employees, regardless of their departure date. (It will be prorated for people hired in 2022.)
- PTO. We’ll pay for all unused PTO time (including in regions where that’s not legally required).
- Health care. We’ll pay the cash equivalent of 6 months of existing health care premiums or health care continuation.
- RSU vesting. We’ll accelerate everyone who has already reached their one-year vesting cliff to the February 2023 vesting date (or longer, depending on departure date). For those who haven’t reached their vesting cliffs, we’ll waive the cliff.
- Career support. We’ll cover career support, and do our best to connect departing employees with other companies. We’re also creating a new tier of extra large Stripe discounts for anyone who decides to start a new business now or in the future.
- Immigration support. We know that this situation is particularly tough if you’re a visa holder. We have extensive dedicated support lined up for those of you here on visas (you’ll receive an email setting up a consultation within a few hours), and we’ll be supporting transitions to non-employment visas wherever we can.
Most importantly, while this is definitely not the separation we would have wanted or imagined when we were making hiring decisions, we want everyone that is leaving to know that we care about you as former colleagues and appreciate everything you’ve done for Stripe. In our minds, you are valued alumni. (In service of that, we’re creating alumni.stripe.com email addresses for everyone departing, and we’re going to roll this out to all former employees in the months ahead.)
We are going to set up a live, 1-1 conversation between each departing employee and a Stripe manager over the course of the next day. If you are in an impacted group, look out for a calendar invitation.
For those not affected, there’ll be some bumpiness over the next few days as we navigate a lot of change at once. We ask that you help us do right by Stripe’s users and the departing Stripes.
Our message to other employers is that there are many truly terrific colleagues departing who can and will do great things elsewhere. Talented people come to Stripe because they’re attracted to hard infrastructure problems and complex challenges. Today doesn’t change that, and they would be fantastic additions at almost any other company.
In making these changes, you might reasonably wonder whether Stripe’s leadership made some errors of judgment. We’d go further than that. In our view, we made two very consequential mistakes, and we want to highlight them here since they’re important.
- We were much too optimistic about the internet economy’s near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown.
- We grew operating costs too quickly. Buoyed by the success we’re seeing in some of our new product areas, we allowed coordination costs to grow and operational inefficiencies to seep in.
We are going to correct these mistakes. So, in addition to the headcount changes described above (which will return us to our February headcount of almost 7,000 people), we are firmly reining in all other sources of cost. The world is hard to predict right now, but we expect that these changes will set us up for robust cash flow generation in the quarters ahead.
We are not applying these headcount changes evenly across the organization. For example, our Recruiting organization will be disproportionately affected since we’ll hire fewer people next year. If you want to see how your organization is impacted, Home will be up-to-date by 7am PT.
We’ll describe what this means for our company strategy soon. Nothing in it is going to radically change, but we’re going to make some important edits that make sense for the world that we’re headed into, and tighten up our prioritization substantially. Expect to hear more on this over the next week.
While the changes today are painful, we feel very good about the prospects for innovative businesses and about Stripe’s position in the internet economy. The data we see is consistent with this encouraging picture: we signed a remarkable 75% more new customers in Q3 2022 than Q3 2021, our competitive win rates are getting even better, our growth rates remain very strong, and on Tuesday we set a new record for total daily transaction volume processed. Our smaller users (many of whom are just “big customers that aren’t yet big”) are, in aggregate, growing extremely quickly, showing that plenty of technology S curves remain in the early innings and that our customers remain impressively resilient in the face of the broader global challenges.
People join Stripe because they want to grow the internet economy and boost entrepreneurship around the world. Times of economic stress make it even more important that we find innovative ways to help our users grow and adapt their businesses. Today is a sad day for everyone as we say goodbye to a number of talented colleagues. But we’re ready for a pitched effort ahead, and we’re putting Stripe on the right footing to face it.
For the rest of this week, we’ll focus on helping the people who are leaving Stripe. Next week we’ll reset, recalibrate, and move forward.
Patrick and John
Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews, and investigations.