In 2025, American corporate leaders are increasingly resorting to performance-based layoffs as a means to enhance productivity. High-profile CEOs like Mark Zuckerberg, Elon Musk, and Microsoft's leadership have initiated sweeping cuts targeting so-called low performers. While these actions aim to foster accountability and excellence, historical and psychological evidence suggests that such measures often backfire, leading to lower morale, increased turnover, and diminished innovation. This approach may yield short-term gains but ultimately undermines long-term success.

Historical Context: From Taylorism to Modern-Day Cuts

The roots of performance-driven layoffs can be traced back to the early 20th century when Frederick Taylor introduced scientific management. Taylor’s methods emphasized strict supervision and high productivity standards, resulting in widespread dissatisfaction and strikes. By the mid-20th century, companies began adopting more humane management practices, focusing on employee well-being and motivation. However, with globalization in the 1980s, fear-based management resurfaced, epitomized by Jack Welch’s “rank and yank” system at General Electric.

This philosophy, which aimed to weed out underperformers, created a toxic work environment where employees competed against each other rather than collaborating. Microsoft’s stack ranking system is a prime example, leading to internal strife and stifled innovation. The company’s market cap plummeted, and it took abandoning this practice for Microsoft to regain its footing. Research consistently shows that while fear can boost immediate productivity, it compromises quality, creativity, and long-term performance.

Psychological Impact: Fear vs. Motivation

Organizational psychologists argue that fear-driven management strategies lead to unintended negative consequences. Employees, preoccupied with job security, tend to focus narrowly on self-preservation rather than innovation. Studies reveal that heightened pressure results in rushed work filled with errors, reduced creativity, and a decline in cognitive functioning. Sandra Sucher from Harvard Business School emphasizes that fear does not inspire better performance; instead, it drives top talent away and hampers recruitment efforts.

Contrary to popular belief, instilling fear in employees harms profitability, especially in R&D-intensive industries like tech. Companies like Meta and Microsoft, under current leadership, risk repeating past mistakes by adopting counterproductive practices. Adam Grant from Wharton School underscores the importance of distinguishing between being demanding and demeaning. Effective management involves setting high expectations, providing support, and offering constructive feedback. Ultimately, the CEOs employing outdated fear tactics may themselves be the low performers in need of reevaluation.