Changes to Google's employee appraisal system stir layoff fears

After several major technology companies announced layoffs due to macroeconomic headwinds in the last few months, Google is now under the spotlight as news reports this week predict that the company will cut at least 10,000 jobs.

The forecasts are based on a report from the Information, which said that under the Google Reviews and Development (GRAD) program, launched earlier this year, managers have been told to allocate a low performer rating to at least 6% of employees compared to 2% under the old performance review process.

Some industry watchers are predicting that the reported move to increase the number of employees ranked as low performers presages layoffs of those employees.

Google's total number of full-time employees, at the end of the September quarter, stood at 186,779, a 24.5% year-on-year increase. Six percent of Google's current headcount would be about 11,000 people.

Google has not announced layoffs, and declined to comment on the specifics of the Information report. The company does, however, maintain that GRAD was launched to help employee development.

"Earlier this year, we launched Googler Reviews and Development (GRAD) to help employee development, coaching, learning and career progression throughout the year. The new system helps establish clear expectations and provide employees with regular feedback," according to a statement from Google.

GRAD was announced in May by CEO Sundar Pichai after almost 47% of its employees voted against the lengthy older review process, which took place twice a year.

Under GRAD, a manager is expected to hold a "support check-in" meeting before providing a low performance rating or rating below "significant impact," according to a source who spoke on condition of anonymity.

The meetings provide an opportunity for the employees to make adjustments in their work in order to meet their goals, according to the source, who added that a vast majority of staff at the company is expected to have a rating above or at par with "significant impact," based on five-point rating scale.

Nevertheless, CNBC reports that the company's employees are feeling jittery about the new performance review process because appraisals under the system come at a time when the company is looking to cut operating expenses. Lower performance ratings have already started rolling out for some employees, according to the report.

Googlers received bad news in July when the company first announced that it was putting in place a hiring freeze and followed it up with a program, dubbed Simplicity Sprint, to boost staff efficiency and productivity. While announcing the program, CEO Sundar Pichai not only alluded to macroeconomic uncertainty but had also said that the company productivity was nowhere close to where it should be based on headcount.

These changes were announced after Alphabet, Google's parent company, reported weaker than expected revenue consecutively for the last two quarters.

Google revenue growth slows

Subsequently, for the third quarter, ended in September, the company continued to show a slowdown in overall revenue growth and again posted lower than expected numbers. While Google Cloud revenue grew 38% year-on-year to $6.9 billion, giving the company much needed support, overall revenue growth slowed to 6% as ad revenue slumped.

Further, top executives, during an earnings call with analysts, said that growth in headcount accounted for a majority of the company's operating expense for the quarter.  The company had added a total of 12,765 people in the quarter ended September, with the inclusion of 2,600 Mandiant employees who joined the cloud division.

For the quarter ending December, the company said it expects to slow hiring to less than what it had hired in the third quarter and add only critical roles focused on top engineering and technology talent.

Meanwhile, layoffs by Meta, Amazon, Microsoft, Salesforce and Oracle, are not likely boosting employee confidence.

Facing slow revenue growth due to inflation, fears of recession and other macroeconomic conditions, large technology companies who are yet to cut jobs are now contemplating doing so, said JP Gownder, principal analyst at Forrester. "They want to set up finances for success in 2023," Gownder said.

Ultimately, if Google does enact layoffs, the GRAD system suggests that staff cuts will at least be made on a rational, targeted basis, compared to the chaotic and draconian firings at Twitter, where new owner CEO Elon Musk axed half the staff shortly after taking the reins of the social media giant.