The Street's Stealth Layoffs

Today's New York Times ran an article entitled "For Wall Street Workers, Ax Falls Quietly," highlighting several large banks' handling of layoffs in the wake of the credit crisis. As the title suggests, many bankers have been kept in the dark about their futures, not knowing if or when they'll be the next escorted to the door. The cuts have been so quiet that they've been referred to as "stealth layoffs."

Since last fall, when massive layoffs began to be announced, banks such as Citi, Goldman Sachs and Merrill Lynch have reduced headcount in several waves, handing out a few thousand pink slips one month, then a couple thousand more a few months later. For example, in late 2007, Citi said 17,000 employees would lose their jobs; in January 2008, the bank said 4,200 more would be cut; this past April, another 8,700 Citi bankers were ushered out.

Insiders quoted by the Times say this tactic has been detrimental to employee morale, suggesting that a one-time announcement of all layoffs would be better for morale (assuming the extent of the layoffs is known beforehand). But would Citi announcing 30,000 cuts all at once really be better for morale?

Morale was hammered back when the tech bubble burst in 2002, and those layoffs came in larger waves. I remember one bank that, overnight, went from having some of the happiest insiders on Wall Street to some of the unhappiest (as evidenced in Vault's annual Finance Survey and Gold surveys). Other banks were hit hard, too.

It seems that massive layoffs will likely always hurt morale, irrespective of whether they're announced all at once or released a few thousand at a time, kept on the down low or sent in large blasts that can be seen coming miles away.

Perhaps the only way to truly minimize the affects of layoffs on morale is to minimize the layoffs themselves.

To that end, the Times points out that banks generally pay 50 percent of their revenue to employees as salaries and bonuses, and that in 2007, that number jumped to 70 percent "even as business began to dry up.”

This is not unlike what happened in the months leading to the bubble bursting. Banks overhired and overpaid, and now they're paying for it again. In dollars and cents as well as morale.