Morris Chang, the founder of Taiwan Semiconductor Manufacturing Co. (TSMC), has cautioned companies against laying off workers if there is a chance they will need to rehire them within a year. He argued that many executives overlook the real costs involved in such decisions.
Hidden Costs of Layoffs
Speaking about his experience leading the world's largest contract chipmaker, Chang said layoffs often create expenses that go beyond salary savings. His comments come at a time when many technology companies are cutting jobs while increasing investments in artificial intelligence.
Chang highlighted the 'hidden maths' behind layoffs, which includes severance costs, training expenses, and the long-term impact on employee trust. 'If in a year you have to hire people back, you shouldn't lay off,' he said.
Separation and Training Expenses
According to Chang, separation costs alone can be significant. 'The separation expense is usually heavy. About half a year. And it takes at least half a year to train a person,' he explained. He argued that when those costs are combined, companies may gain little from layoffs if they later need to rebuild the workforce.
Lessons from the 2009 Financial Crisis
Chang's remarks are based on TSMC's experience during the global financial crisis in 2009. At that time, the company laid off around 700 employees based on performance ratings. The move later sparked criticism and protests, including demonstrations outside Chang's home.
Chang said the decision raised questions about fairness because performance ratings are often subjective. 'People would not respect us if we lay off by performance ratings,' he said. He explained that performance reviews are conducted by individual supervisors, making the process open to differing judgments.
He noted that hundreds of supervisors were responsible for the ratings used to identify workers for layoffs. According to Chang, that made it difficult for employees to view the process as fully objective. He further said that TSMC eventually brought back many of the workers who had been laid off.
Rebuilding Trust
The experience taught Chang that layoffs can damage employee trust and corporate reputation. He advised companies to think carefully before reducing headcount during downturns, emphasizing that the long-term costs often outweigh short-term savings.
