Salesforce under investor pressure to dump more staff

Promised 10,000 cull unlikely to be enough to satisfy gaggle of activist investors

Job losses at Salesforce appear to be far from over as the CRM specialist sets out its plan to appease a gang of circling activist investors that are influencing its strategy.

In January, Salesforce announced a drastic restructuring plan to cut 10 percent of its workforce at a cost of around $1.4 billion to $2.1 billion. The company's ranks swelled in the early years of the pandemic, rising from 35,000 in 2019 to more than 70,000 last year.

However, pressure from a group of investors looking to squeeze greater returns from the SaaS poster child seemingly shows those already announced job losses could just be the beginning.

According to documents seen by Business Insider, Salesforce has put increasing its margins to more than 30 percent above nearly anything else.

"Our margin growth is more important than revenue growth," the strategy draft said. "With urgency, we change our cost structure by implementing a well-defined transformation program, with Board oversight, focused on execution and accountability to drive solid operating margin improvements and sustainable growth."

Margins are in the crosshairs since activist investors started to exert their influence at Salesforce. Third Point Capital became the fifth activist investor to declare its interest in Salesforce last week following Mason Morfit's ValueAct, Jeff Ubben's Inclusive Capital, Dan Loeb's Third Point LLC, and Elliott Management, which surfaced in January.

Salesforce had already targeted a 25 percent operating margin, up from the 20.4 percent it currently records. However, in a report last year [PDF], financial analyst firm Starboard suggests Salesforce should be targeting adjusted operating margins of 31.7 percent to get it closer to those enjoyed by Oracle (43.3 percent) and Microsoft (46.6 percent).

How could Salesforce achieve these margins? In an analysis, investment bank William Blair said the company's path to greater operating margins would benefit from additional headcount cuts. "Further reductions could drive upside to our margin framework," it said.

In addition to redundancies across the workforce, Salesforce has also parted with a series of senior executives including chief strategy officer Gavbin Patterson, Tableau boss Mark Nelson, Slack founder and CEO Stewart Butterworth, and one-time co-CEO Bret Taylor.

Salesforce is not alone among the generation of internet-ready software companies to emerge in the late 1990s and early 2000s to say they hired too rapidly in recent years and now need to adjust overheads in a economic downturn. Amazon, Microsoft, Meta, and many others are shedding heads.

Google is also under pressure to force through greater changes. Billionaire hedge fund manager Sir Christopher Hohn described the move to lay off 12,000 employees as a "step in the right direction" but added that "ultimately, management will need to go further."

Hohn wants to see Google reduce the payroll by 30,000 in total and urged the board to reduce pay, despite the company still reporting more than $50 billion in net profit last year.

How the industry has changed in a year – switching from one addicted to growth to one that can't resist layoffs. ®