Layoffs used to be something that made a company’s stock tank. But after Block announced layoffs recently, its stock went up. And they weren’t the only ones: Snap did the same thing a few months earlier, as did Meta and Amazon. The common thread? They all cited AI as their reason for cuts.
For CEOs staring down investor pressure, the playbook has become clear: invoke AI, slash headcount, and watch the ticker go up.
I’m a CEO, and I’ve been laid off before. I now advise HR and benefits leaders at Fortune 500 companies as they plan, execute, and move forward after making workforce cuts. Here’s why I’m cautioning fellow executives against jumping on the “AI” layoffs bandwagon without thinking about it from every angle.
Many ‘AI-driven layoffs’ aren’t really about AI
A recent Goldman Sachs survey found that only 11% of clients were reportedly cutting jobs due to AI, while LinkedIn’s hiring data signals that AI isn’t directly leading to the hiring slowdown… yet. Some of the cuts we’re watching this year are mostly about overhiring in 2021 and 2022, a cooling economy, softer consumer demand, and product bets that haven’t paid off. But those reasons don’t sound all that glamorous on an earnings call; AI does.
As Tech investor Terrence Rohan put it plainly in a recent interview: “Pointing to AI makes a better blog post. Or it at least doesn’t make you seem as much the bad guy who just wants to cut people for cost-effectiveness.” It’s hard to tell today where AI is the root cause of layoffs and where it’s basically a nice narrative wrapper.
But here’s the problem: Your layoff story travels further than your stock pop.
Having personally experienced a layoff, I know how painful and disruptive an involuntary exit can be. And, as a CEO who reports to a board every quarter, I still have to make hard calls like any executive. But how you make them and what you say about them is the part that matters.
With that in mind, this is what leaders need to keep in mind when they are faced with communicating these difficult decisions.
Remember what a layoff really means for all your employees
How you explain a layoff matters more than the explanation gets credit for.
For departing employees, remember they haven’t just lost a job and their income. They’ve also lost, in most cases, many other fundamental lifelines: health insurance, life insurance, retirement contributions, disability protections, and more. That’s before you count their daily routine, sense of purpose, and community.
For the remaining employees: They know which teams got cut and what those people were working on. They’re nervous and they’re watching. The story you put in front of the market is directly telling your team what kind of company you are now and in the future. So how you talk about the decision and how you treat their departing colleagues speaks volumes, and directly translates into morale for the weeks and months ahead.
In communicating any cut, the best leaders treat both classes of employees with the seriousness and respect they deserve, not as a transaction that might give them a stock boost.
Your internal and external story should be one and the same
If you told the market the layoff was about AI, and your people know it was about a missed product launch, you’ve just taught your company that leadership says what’s useful, not what’s true. That lesson doesn’t stay contained to one announcement.
With the companies I see handling layoff announcements well, the words on the earnings call match the words in the exit packet. Departing and remaining employees alike see and hear an explanation they can understand and that makes sense to them, no matter how painful. And they also experience and witness a compassionate exit process, because treating them with dignity softens the pain of being on the receiving end of this decision.
Remember: Investor praise ≠ public perception
Most of us can recall a cringe-worthy public layoff gone awry. But when Perplexity’s CEO brushed off the severity of layoffs, the public backlash was swift.
The counterintuitive truth about AI’s rise is that the stakes on brand perception are only on the up and up. As more companies build on the same small set of foundational AI tools, product output is starting to look the same. What you say and how you behave matters more, not less.
While ChatGPT emerged as the dominant force, now Claude is making considerable headway, especially in enterprise sales. The consensus for why this is largely points to how the two position themselves and what they stand for, from Anthropic’s public fight with the Defense Department over model guardrails to OpenAI’s decision to run ads in ChatGPT. Buyers paid attention and they moved their money.
Buzzwords and bandwagons are tempting to jump on, especially when every company is racing to prove it’s “AI-ready,” but they don’t always resonate with customers, employees, and enterprise buyers paying attention to a lot more than your earnings call.
Be honest about what’s really driving these cuts
If your cut is driven by macro conditions, say that. If a product was a total flop, say that. If you overhired during a bullish period, say that. The reality is, layoffs are a regular thing for any corporation, and none of those reasons are disqualifying.
To Terrence Rohan’s point: saying it’s just AI may make you feel like less of the bad guy, but the effect is actually the opposite. What erodes trust is dressing up legitimate reasons in a scapegoat explanation because the market prefers that version.
If AI is genuinely part of your cut, be specific about it
It’s very possible, even likely, that AI plays some role in the cuts you’re making. But there’s rarely a time when it’s defensible to make your people feel replaceable.
There’s a real difference between saying “we’ve invested heavily into AI and are restructuring around that shift” and “we’re replacing 400 human support roles with a trained model.” Most companies are doing the former but signalling it’s the latter. That’s where the trust breaks down.
AI will reshape a lot of work over the next decade, and as the market absorbs it we’ll see more layoffs legitimately tied to it. That’s why it’s even more critical to be honest, clear, and specific now. For better or worse, most of us in leadership will have many more of these moments for quarters and years to come.
If you make a habit of dressing up normal business decisions with a glitzier costume, sooner or later it will come back to bite you. How you talk about making cuts is the part that people actually remember, long after your stock is back to normal. And in the meantime, the people inside your company are listening.