Late last year, when the fate of the reflation trade and the price of oil was still unclear, Exxon made the only decision that it could in order to preserve its dividend: it announced that it would cut 14,000 jobs worldwide by 2022, or about 20% of its workforce, and it would extend reductions well beyond that original time frame. The cost savings would go to fund the one thing the once world's largest corporation was best known for - its generous dividend, which at one point last year yielded about 10% (it has since shrunk to 5.6%).
Fast forward to today when the price of oil is at a three year high, the Exxon dividend is not only safe but according to BofA will be hiked, and the company is the target of multiple activist campaigns, with many pressing for it to refocus away from its long-term strategy of "dividend at any cost" and instead to embrace the virtue signaling ESG insanity that has gripped so many on Wall Street. And yet, despite all these favorable factors, Exxon is now unleashing another major reduction in force (i.e. mass layoff), with Bloomberg reporting that the oil giant is preparing to reduce headcount at its U.S. offices by between 5% and 10% annually for the next three to five years by using its performance-evaluation system to eliminate low performers.
In a novel spin on mass layoffs, the cuts will target the lowest-rated employees relative to peers, and for that reason will not be characterized as layoffs. While such workers are typically put on a so-called performance improvement plan, many are expected to eventually leave on their own. This year’s evaluation is happening now but affected employees have not yet been notified, the people said.
Bloomberg emphasizes that this latest plan is separate from last year's announcement of 14,000 job cuts - meaning that in the near future the company may cut up to 30% of its existing workforce - and comes at a tumultuous time for Exxon, which is still grappling with the fallout from last month’s annual meeting, when shareholders rebuffed top management and replaced a quarter of the company’s board over climate and financial concerns.
Sensing that the hammer is about to fall, several high-profile traders have also left in the last few weeks although these appear to be voluntary resignations and "there’s no suggestion the trading departures were related to the review program" which will mostly affect white-collar jobs in areas such as engineering, finance and project management,
In order to preserve the dividend, Exxon has gone to great lengths to trim cash burn, and in addition to mass layoffs, other cost-cutting initiatives have included suspending bonuses and halting employee-contribution matches to 401k savings plans as the pandemic crushed demand for crude, saddling the company with a record annual loss.
Needless to say, with oil at $75 a barrel, or where it was in late 2018, Exxon’s financial position has been substantially improved, even so the supermajor has some way to go to pay down debts accumulated during 2020’s market collapse, with Bloomberg noting that "a smaller and more efficient workforce is key to further improvements."
Exxon achieved $3 billion of annual “structural cost reductions” in 2020 and will continue to make savings through 2023, Chief Executive Officer Darren Woods said at the annual meeting in May.
“We’ve got additional work to continue to take advantage of the new organization and find opportunities to reduce our costs,” Woods said.
Translation: many more layoffs are coming.