Inside the Layoffs at Klarna
The FinTech company valued at $45B laid off 10% of its staff. How did it happen, and what can other companies learn from this execution?
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Now, on to todayâs post:
Late last month, midday, Monday, May 23rd, employees at Klarna were growing increasingly nervous. In the early hours of the morning in Europe, an all-hands meeting had appeared on the calendars of all ~7,500 employees. Attendance was mandatory. A few minutes later, this invite vanished.
Employees I have talked to told me they felt something was not right; this kind of notification simply disappearing had never happened before.
Two hours later, the same meeting reappeared, with mandatory attendance at 4pm in Sweden, 10am on the US East Coast. Employees told me that dread and speculation spread fast, with people unsure if it was bad news or just business as usual.
The mandatory meeting turned out to be very bad news. In a pre-recorded video message, Klarna CEO Sebastian Siemiatkowski announced Klarna would lay off employees. On the call, he didnât mention numbers, only that âthe vast majority will not be impactedâ and that those impacted would receive emails soon.
After the meeting ended, an article was posted on one of the main Klarna Slack channels; it was published by Techcrunch and went live during the video call. Most employees learned from this article that Klarna was laying off 10% of staff, about 700 people.
In the two weeks after the layoffs, I talked with more than 30 current and former Klarna employees to understand how the layoff was executed, how it has impacted people, with an emphasis on those working in tech like software engineers and engineering managers.
This article walks through how the layoffs happened, takes a pulse of how people are feeling and reflects on the âgoodâ and âbadâ of these layoffs which other companies can learn from.
A recurring theme of this round of layoffs was poor internal communication. Employees tell me that struggles with internal communication started much earlier, and a major internal event in 2020 whose consequences continue to be felt today.
1. The pay cut of 2020 which became permanent
Itâs May 2020 and Klarna has reported fantastic quarterly results for the first quarter of the year. May is around the time when pay rises and promotions are usually awarded.
However, the date of raises and promotions just keeps being pushed back, with leadership saying theyâre being cautious because of the potential impact of COVID-19 on the business.
Fast forward to summer and Q2 results are out. The numbers are also fantastic. However, thereâs still no news of raises. The majority of employees in Sweden start their summer vacation; with many going away for up to a month.
Out of the blue â and while many employees are on holidays â everyone receives an email that needs action within a week. The email is along the lines of âAll raises going forward will be paid not in cash, but in stock (RSUs). You need to sign this form within 7 days, else you will not get any stock awarded.â The email closes by telling people to discuss questions with their managers.
People now scramble to understand whatâs going on, many of them interrupting their vacation. They get in touch with managers â also on vacation â who likewise have no idea what is happening.
Employees told me that at this point the mood was close to a riot, with people assuming Klarna was walking back on pay rises and trying to trick them into not getting RSUs either, by sending these emails right when everyone was away.
The companyâs leadership had quite the confusion to clear up. During the following weeks they explained that not issuing cash raises and bonuses was a precaution, in case COVID-19 did hurt business.
Starting from the summer of 2020, employees did not get cash bonuses and most never got cash pay rises; it was all awarded in RSUs going forward. Leadership communicated this as they wanted everyone to own a piece of the company. The difference is how most private startups award cash and shares for employees as bonuses.
For cash raises, the setup was nuanced. For some people, when they were awarded a raise, it was in the form of RSUs, up to a limit dictated by the given level. So, if someone had a âlimitâ of 5% of their total compensation to be in RSUs, then this person got a 6% raise; 5% in RSUs and 1% in cash. For other people, they got raises as half-and-half in RSUs and cash, until they reached their RSU âlimitâ.
Employees I talked with understood they took a hit for the company to be able to operate with stability, and to avoid potential layoffs. But these layoffs have now happened anyway, despite the cash savings made since mid-2020.
Employees told me this panic-inducing internal communications mix-up over bonuses and managers not having clarity â despite employees being told to talk with them â was typical of the company. As an employee summarized:
âI loved working at Klarna for plenty of reasons, but internal communications were always a mess, and one that did not get better over time.â
2. The road from a $45B valuation to layoffs
Klarna was on a fundraising and growth spree during 2021. In March, the company raised $1B on a $31B valuation. Just three months later in June, the company raised another $639M at a $45.6B valuation. The firm doubled down on hiring, product development and launching new initiatives.
Winning in the US became an increased focus from early 2021. The company bought a Superbowl advertisement in February 2021, and started a hiring spree for US employees, claiming explosive growth in the US. In a June 2021 article, CEO Sebastian Siemiatkowski confirmed Klarna was using part of the newly raised capital for this growth. Some employees I talked with later shared how they thought that overspending on the US â with too little to show for it â was something that might have contributed to the later layoffs.
Klarnaâs âSuper Appâ was an area getting lots of investment in 2021. This investment was a step away from the core offering of the handling of payments. The vision of this app was to create an experience where people could do all their shopping within a Klarna super-app.
However, this super app never launched as planned. Internally, confusion arose when it emerged the super app would use scraped data from customers who were already partners of Klarna. The super app efforts are still progressing slower than originally planned, and some employees think the company is spending too much on this area for too little return.
Cost cutting exercises started to become more common in 2022. Some teams were asked to look into lowering vendor costs this year. An example of lowering vendor costs was how Klarna decommissioned data platform Splunk during one of these exercises. People I talked with did not think this was unusual, or something to worry about too much.
There were plenty of reasons for employees to believe Klarna was doing well. The company completed its acquisition of PriceRunner in 2022, paying $124M, of which 40% was in cash. The acquisition was ongoing when Klarna mandated cost-cutting across the board. This did not sit well with some employees, and there were questions asked on Klarnaâs internal Slack channel about why the company was acquiring PriceRunner if it needed to cut costs.
The company also announced the opening of a new development center and its intention to hire another 500 employees on May 4th, less than three weeks before the layoffs began. Again, an employee wrote in Klarnaâs internal Slack channel: "Why did we acquire the PriceRunner if there is cost-cutting?"
Performance reviews and promotions happened as planned in May 2022.
But from the inside, it mostly seemed like growth was good and the business was, too.
 A hiring slowdown. Starting in March this year, Klarna gradually rolled out a hiring freeze across some departments. In early May, the company stopped hiring and I talked with several candidates interviewing for software engineering or engineering manager positions, whose applications were put on hold.
Promotions and big spending events still went ahead. In what employees still find odd: the annual review and promotions process happened as scheduled in May 2022, and raises were paid around the 20th May. This raised the question for employees: did leadership really not know 3 weeks out that they would do layoffs?
On the 29th March, Klarna also announced how Smooth week - a major Klarna event with all employees attending - would be held in-person, travel provided by Klarna, and it would be held in an European location. Holding this event signalled that cost saving was not that important; otherwise this event would have not been organized to be in-person.
I asked employees if they noticed warning signs before the layoff. The overwhelming answer was âno.â As a current employee shared:
âThe culture and expression within the company for the last couple of years has been all about success and growth. We pushed hard to expand our recruitment programs and to hire more employees than we engineers thought was needed. The culture of âwe are awesomeâ has dominated most internal communications for the last couple of years, including in 2022. We all believed that we were awesome and would continue growing and winning.â
One criticism I heard was how Klarna â and most employees working there â ignored the change in the market, while the major FinTech players were responding to it. In February 2022, PayPal announced it was no longer focusing on growth. In a memo, PayPal shared:
âWe are shifting our emphasis more towards engagement and towards driving higher value (net new active account-holders). Consumers who are more engaged drive incremental sales for our merchants and they drive growth at much higher margins and ROI (return on investment).
âMoving forward, we will continue to grow our users, but our focus will be on sustainable growth and driving engagement.â
Given the market was already shifting earlier this year, some employees felt Klarna could have hit the brakes sooner, like PayPal did.
3. Layoffs: Day 1
Monday May 23rd was a terrible one for all Klarna employees I talked with. At 10am EST / 4pm in Sweden, Klarnaâs CEO announced the news of the layoff in a pre-recorded video call. The cut would mean 10% of staff being let go via either a follow-up email sent to all staff.
At this time, Klarnaâs internal Slack had 7,539 members, so some quick maths showed around 700 people would be let go.
Layoffs in the US kicked off immediately after the news announcement. Klarna has less tech presence in the US, but some US-based software engineers were to be let go at once.
In the US, those impacted had a call scheduled about an hour after the pre-recorded call. This Google Meet call was led by a Klarna US leader and another person whom employees were not familiar with. The call lasted 2-3 minutes and no questions were allowed. At the end of reciting the script, the leaders said they appreciated everyoneâs time on the call and then logged off.
People to be let go got a calendar invite to talk with HR, some having to wait until the end of day at around 5pm, for this conversation. Meanwhile, none of line managers â Accountable Leads or Competence Leads, as Klarna calls them â had information about what will happen.
Hearing about layoffs for the first time, some managers tried and failed to argue with the Peopleâs Advisory Board and HR to remove people on their team from the redundancies list. I have confirmed a story where a manager tried all day to make this happen, failed to do so and then was laid off, along with most of their team.
In the HR meeting, people got no answers on why they had been laid off, or what the criteria for firing people was. In the article Preparing for Layoffs in Tech, I suggest to those needing to execute layoffs to prepare for this question, ahead of time:
âPrepare for the common question of âwhy me?â People will ask how they were selected to be laid off. Was it performance based? Tenure? Based on job family? Business organization? Know how HR and managers can answer this question.
âIdeally, the answer to âwhy meâ will be that the layoffs are based on the business need for roles, and have nothing to do with performance. However, in practice companies sometimes make performance-based decisions on layoffs. Be clear what you can and cannot share, but never share reasons that arenât true.â
In the US, people laid off had access restricted to all their systems that same day.
During the US layoffs, Klarna HR could not answer how much health insurance people would get. I talked with two employees laid off who assumed their health insurance runs out at the end of the month, but HR could not answer any questions about it.
A few days later, Klarna communicated by providing 2-6 months of coverage, depending on tenure. This setup attracted backlash from both the people let go and current employees. Klarna increased the severance package on 1st June in response to this backlash.
People laid off in the US started posting messages to the #general Slack channel. One of the messages getting the most reactions was from an employee sharing their experience of the layoff:
âAt the beginning of this month, I was actually given a promotion, raised up a level, and given a salary raise.
âAll of a sudden, we have the mandatory meeting with the news that 10% of the company will be laid off. I get an email saying that my position has been affected by these changes and I will have a meeting with HR. Obviously, I realize whatâs coming.âMeanwhile my AL (Accountable Lead) and my CL (Competence Lead) know nothing! Absolutely nothing - no news about this, me, or how it will even impact our team.â
I heard disturbing news about how those laid off in the US did not have their health insurance covered beyond the end of the month, which gave them only 7 days to figure out their insurance situation. This lack of interest in employee benefits shows both a rushed and poorly planned layoff in the US, one that will hurt the companyâs image in this region.
Employees laid off created and started to circulate a Google Sheet spreadsheet with their contact details. As people learned they were laid off, many added their details to this document, which is intended for hiring managers and recruiters to reach out with opportunities. See the spreadsheet here.
4. The night of dread for many Klarna employees
This post is too long to fit in an email. Continue reading online to read:
The night of dread for many Klarna employees
Layoffs: Day 2
Layoffs: Day 3 and the Q&A
Takeaways
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