In the days after 9/11, when consumers cut back on travel and the public was still grieving over the terror attacks, scores of companies announced major layoffs. The economy had suffered a shocking hit and businesses had to respond accordingly.
“I have declared a state of emergency at American Airlines,” then-CEO Don Carty said on Sept. 19, 2001. “This declaration is an official recognition that, hard as it may be to accept, our company’s very survival depends on dramatic change to our operations, our schedule, and worst of all, our staffing levels.”
American, one of the region's largest employers, announced 20,000 layoffs.
United matched the number, Continental cut 12,000, and Boeing said it would eliminate 30,000 positions.
As jarring as those numbers were, they’re not as deep as the job cuts recently made at Pioneer Natural Resources — not when calculated as a share of the workforce.
The Irving oil and gas company has eliminated 877 jobs since the beginning of the year, including 300 people who earlier accepted buyouts and 230 who were involuntarily laid off last week. In total, that's 27.6% of Pioneer's workforce.
By comparison, American was laying off 14% of workers in 2001. Boeing was over 15% and Continental, 21%.
American and United had over 100,000 workers in 2001, and Boeing had nearly 200,000. Pioneer began 2019 with 3,177 employees, so hundreds of layoffs — not thousands or tens of thousands — can have a real impact.
Pioneer jettisoned over 1 in 4 workers, a startling number for a successful Fortune 500 company. And unlike American after 9/11, and Citigroup and General Motors after the Great Recession, Pioneer isn't facing a crisis.
Pioneer earned $978 million in profit last year, its highest net income ever. Oil and gas revenue hit nearly $5 billion, twice the total from two years earlier.
For the three months ended in March, Pioneer reported $350 million in profit, twice as much as the same quarter last year.
It's safe to say that Pioneer's "very survival" is not in question today.
What’s lagging is Pioneer’s stock price. It reached $212 a share in May 2018 but closed last week at $147. Cumulative returns for the five years ended in December are negative — and far behind the S&P 500 Index.
Now Pioneer is focused on producing oil and gas solely in the Permian Basin. It sold assets in other shale areas and, as part of the transition to a “pure play” Permian company, wants to cut $100 million in overhead.
“Decisions like these are never easy,” Pioneer said in an email last week. “In this case, they were necessary to both align our cost structure with our business strategy and to create value for our shareholders over the long-term.”
Boosting shareholder value is a perennial goal for publicly traded companies, but it's scant justification for major layoffs. Obviously, it's not on the same level as a calamity like 9/11 or the Great Recession.
In 2008, as the economy tumbled, Citigroup announced 52,000 job cuts, and soon after, General Motors said it would lay off 47,000. Those cuts represented about 14% and 19% of their workforces, respectively.
In 2014, Microsoft cut 18,000 jobs, over 14% of workers, to restructure for the cloud era of computing. Chalk that one up to technological disruption.
In such extreme situations, most employees realize drastic steps are necessary, said outplacement expert Andrew Challenger.
But with Pioneer, the imperative is not clear — and not just because it's posted strong results. Since early 2018, Pioneer has quadrupled the dividend and spent $400 million to buy back shares. It's also building a 10-story, $200 million-plus headquarters in Las Colinas, and expects to move in this year.
"It doesn't feel like there's the sense of urgency that usually comes with such deep cuts — not when they're building glass towers in the sky," said Challenger, vice president of Challenger, Gray & Christmas.
Pioneer is one of the most admired companies in North Texas. In The Dallas Morning News' annual Top 100 Places to Work, Pioneer has been a 10-time winner, placing among the best in every year of the competition. Last year, it also was honored for having the best benefits as voted by employees.
Pioneer cited the newspaper's recognition in its proxy statement last month, writing that maintaining Pioneer's "strong corporate culture" was one of its strategic goals.
Last week's layoffs put that reputation at risk, Challenger said, and not just with future job candidates.
“When cuts are this deep, you have to worry about how it’s going to affect other employees in the organization,” Challenger said.
A year ago, in the Harvard Business Review, two Harvard researchers warned about the potential consequences of such strategies.
"Layoffs are so embedded in business as a short-term solution for lowering costs that managers ignore the fact that they create more problems than they solve," wrote Sandra Sucher and Shalene Gupta.
Problems go beyond losing institutional knowledge and relationships, they wrote: “Even more significant are the blighting effects on survivors.”
They cited a study that showed downsizing led to a major increase in voluntary turnover the next year. Another study reported that remaining employees had sharp declines in performance, job satisfaction and commitment to the organization.
Another Harvard researcher found that a Fortune 500 tech company had a 24% drop in inventions after cutting its staff by 15%.
“Layoffs can cause employees to feel they’ve lost control,” the researchers wrote. “The fate of their peers sends a message that hard work and good performance do not guarantee their jobs.”
