Tech’s Next Big Idea? A No-Layoffs Pandemic Pledge

(Bloomberg Opinion) -- With lockdown restrictions from the coronavirus pandemic decimating many U.S. businesses and tens of millions filing for unemployment, it’s no surprise Americans are fretting about their job security. To ease this uncertainty, many technology companies have decided to institute a “no-layoff” policy for their employees during these tumultuous times. Not only is this good for workers — but it’s smart business, too.

The list of companies guaranteeing continued employment includes some of the biggest and brightest names in tech. Nvidia Corp. CEO Jensen Huang told employees in an email earlier this month that the chipmaker won’t cut staff due to the Covid-19 pandemic. Instead, it’s pulling forward new salary hikes. Likewise, Cisco Systems Inc. CEO Chuck Robbins told Bloomberg News his employees’ jobs were safe, as did management at ServiceNow, an enterprise software provider that is among the number of tech firms reporting earning this week. PayPal Holdings Inc. also made job-protection vows.

While the industry isn’t alone in extending these kinds of guarantees — several financial companies including Morgan Stanley and Bank of America Corp. have made similar commitments — the number of tech companies doing it is notable. It’s easy to be generous during boon times. But reputations are built during tough times. Promising job security engenders loyalty from one of companies’ most important assets: human capital. Future and current employees will remember how they were treated during this crisis. And by standing firm for their workers, the companies will be able to hire and retain the best talent going forward.

Some executives may consider staff reductions because they are worried about their stock price. This may be a myopic move. Over time, the stock market values companies on their fundamental long-term earnings power, not near-term financial results. Further, any benefits from cost cutting may not make up for the loss in institutional knowledge that can generate more future revenue as well.

Moreover, the companies that safeguard their employees will benefit from increased productivity, too. It’s simply human nature. When people get worried over job security, the culture tends to grow more toxic. Instead of teamwork and collaboration, employees start to focus on internal politics and everything becomes a zero-sum game. Instead of taking smart risks, serving customers and building better products, workers play not to lose. Removing the uncertainty should breed better creativity and performance.

Of course, not every company has the balance sheet strength to make the employment security promise. If a firm doesn’t have financial liquidity, it won’t do anyone any good if the timeline to insolvency gets accelerated by avoiding needed restructuring. Should conditions worsen, it may be necessary for some companies to reverse no layoff pledges. But for companies that can afford to look through the valley and commit to supporting their staff through this difficult period, it can only increase their competitive advantage.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.

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