Salesforce to cut 10% of staff as it reverses pandemic hiring spree

Salesforce has announced plans to cut about 10 per cent of its workforce, making it the latest tech group to reverse a recent hiring binge in the face of slowing demand and growing unrest on Wall Street.

The US software company had nearly 80,000 workers at the end of October, around 6,500 more than in January. But staff numbers surged 30 per cent the year before with the addition of nearly 17,000 employees, as Salesforce joined a race by big tech companies to staff up for what they believed would be a lasting increase in demand for digital services caused by the pandemic.

In a letter to staff on Wednesday, co-founder and chief executive Marc Benioff blamed the retrenchment on worsening business conditions, but admitted to misreading the strength of demand as the Covid-19 crisis eased.

“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” he said.

The sharp reversal follows a wave of deep job cuts at other tech groups in recent months as higher interest rates have dented the soaring stock prices of high-growth companies and brought an investor backlash against inflated spending plans.

Companies that have cut back include Meta, which in November announced plans to axe 11,000 jobs after its earlier unwillingness to rein in expenses provoked anger on Wall Street. Alphabet has also come under pressure from an activist investor to slash expenses after a rapid acceleration in hiring, though it has so far only trimmed costs in a number of marginal operations.

Salesforce said it would close some offices as part of its restructuring plan, which it said was designed to improve operating margins and support its “ongoing commitment to profitable growth”. The 24-year-old company has been the focus of simmering unrest on Wall Street for years over its continued focus on growth at a time when many investors believed it should switch its attention to profits.

The concern broke into the open last year as weakening demand ate into growth and activist hedge fund Starboard Value took an unspecified stake. Starboard attacked the company for what it called “a subpar mix of growth and profitability” and said it had not taken advantage of its position as a market leader to boost profits.

Salesforce’s shares have tumbled 55 per cent from their late 2021 peak, slicing about $170bn from its stock market value. The fall reflects a severe re-rating of many software stocks, which had been among the biggest gainers during the tech stock boom. It also comes as many companies have started to warn of weakening demand.

“The environment remains challenging and our customers are taking a more measured approach to their purchasing decisions,” Benioff said on Wednesday.

The Salesforce chief’s attempt to appease Wall Street comes in the wake of senior executive departures that have left questions over its long-term leadership. Co-chief executive Bret Taylor announced his departure in November, surprising many who had expected him to succeed Benioff as the company’s sole chief executive. Other top executives to depart include chief product officer Tamar Yehoshua and Stewart Butterfield, chief executive of Salesforce-owned messaging service Slack.

Salesforce expects to incur about $1.4bn to $2.1bn in charges associated with its new restructuring plan. About $1bn to $1.4bn of the charges are expected to be related to employee transitions, severance payments, employee benefits and share-based compensations. Exit charges from reducing office space are forecast to be around $450mn to $650mn.

Employees affected by the decision received an email on Wednesday morning informing them of the company’s decision. US employees will receive a minimum of nearly five months of pay, health insurance, career resources and other benefits. Employees outside the US would receive a “similar level of support”, Benioff said.

The employee restructuring is expected to be “substantially” complete by the end of the company’s fiscal 2024 year.