Stripe Takes Steps To Prune Workforce

By Jeff Kauflin and Alex Konrad

As the economy slows, more tech companies have been showing employees the door. Now some senior leaders at Silicon Valley fintech giant Stripe, which in early 2021 was valued by private investors at $95 billion, have asked managers to start giving lower ratings on performance reviews, current and former employees say. That move could lead to more people being fired or feeling pressured to quit and comes at a time when tech businesses, particularly Stripe’s payments and ecommerce peers, have been struggling.

Potential cuts, which Stripe wouldn’t have to disclose as layoffs because they would be performance-based, could affect hundreds of workers at the dual Dublin- and San Francisco-headquartered company, which has more than 8,000 employees. The pressure to lower ratings follows months of anxious speculation among workers after Stripe added a new question, asking whether a manager would rehire someone, to its performance reviews this past summer. Forbes spoke to ten former and current Stripe employees for this story; all asked to remain anonymous. In interviews and in comments online, workers say Stripe’s recent moves have exacerbated a lack of “psychological safety” at the hard-charging private company, leaving some afraid to speak up or express dissenting opinions.

“One of Stripe’s operating principles is to obsess over talent,” a Stripe spokesperson said in a statement. “Good times and abundant hiring can make performance management less conspicuous, but we’ve worked hard on this front in the past in order to sustain the talent bar that we benefit from today—and we will continue to do so.” Beyond this statement, Stripe declined to answer any specific questions.

In late June, as a last-minute addition to its mid-year performance reviews, Stripe managers in departments ranging from engineering to marketing were asked to rate their employees on whether they would rehire them. The multiple-choice answers ranged from phrases like “yes, they’re among the best I’ve ever worked with” to “probably wouldn’t rehire” and “definitely wouldn’t rehire.” The new question is a variation on a ranking metric Stripe and other tech companies have often used in reviews regarding whether employees are meeting expectations, where the bottom two responses are “partially meets expectations” and “does not meet expectations.”

In July, according to multiple employees, a number of Stripe’s senior “operating group” leaders, some of whom oversee hundreds of people, started telling engineering managers that the company was going to get stricter on performance reviews.

Historically, according to employee sources, Stripe had an informal goal of rating about 10% to 15% of staff as “partially meets expectations” or “does not meet expectations,” a designation that can often lead to more performance scrutiny and eventually dismissal. But that standard hadn’t been strictly enforced, they say. Now the operating group leaders were saying they wanted to get closer to hitting that 10% to 15% target. The senior leaders never used the term “layoffs,” but it was clear that the shift would lead to departures, multiple employees say.

Afterward, tougher standards were put in place, employees claim. Some senior leaders made downward adjustments to scores submitted by lower-level managers. One former staffer says this summer was the first time he saw a manager rate two people on a small team in the bottom two options for potential. Multiple employees say they have never seen performance management be so aggressive at Stripe.

It seems like the company is trying to cut costs without being transparent, current and former employees say. “They didn’t really explain what was happening and why … they were trying to sugarcoat it by calling it performance management,” one says, adding, “they were trying to let go of a target amount of people.” Says another: “If you’re going to do something, just tell people. Give them the real reasons.”

Morale seems to have fallen in 2022. On the anonymous review site Glassdoor, employee ratings for Stripe averaged about 4.1 out of 5 early this year, but in the most recent 25 reviews published from early September through mid-October, the average rating is 3.0, with more than one in three employees rating Stripe with just one or two stars.

Some current and former Stripe staffers worry about the effects that tougher performance management could have on underrepresented minorities and women at the company. For example, if a manager doesn’t have enough low performers to meet a 10% to 15% target, he or she may need to pick other people on the team to fill that gap, and managers’ inherent biases for favoring those who look or sound like them could come into play. (Stripe doesn’t report diversity statistics, but former employees say it’s likely in line with other tech companies, where women often make up 20% to 30% of technical roles, and black employees make up 5% or fewer of such positions.)

Stripe isn’t alone in apparently using higher standards and tougher performance reviews to shrink staff as the economy has cooled. Some tech companies, such as Meta, have said explicitly they’re doing so, while others are reportedly quietly employing the tactic.

The potential talent crackdown at Stripe, the most valuable private company on the Forbes’ Fintech 50 list, follows a period of rapid hiring at the company, cofounded by Irish-born brothers Patrick and John Collison in 2010. In recent years, Stripe has opened international offices in cities like Amsterdam, Bangalore and Singapore and expanded its product line from its core payments software to a range of products including tax processing and company formation. It has also made a number of acquisitions. Stripe reached nearly $2.5 billion in net revenue in 2021, Forbes reported in a May profile, with hundreds of millions in profit on an Ebitda basis, according to two sources.

But as close partner and investor Shopify laid off about 1,000 employees, or 10% of its workforce, in July, and another fintech darling, Robinhood, let go of 23% of staff in August, Stripe has faced its own challenges. Earlier this year, investors including Fidelity and T. Rowe Price marked down their shares in Stripe by as much as 64% from last year’s high. In July, Stripe reportedly slashed its own internal valuation, used to help determine equity-based compensation packages for workers, by 28% to $74 billion. And in August, TechCrunch reported the company had laid off about 50 people from one of its acquired businesses, TaxJar.

Current and former employees say the company likely over-hired during the pandemic. Covid-19 drove a surge in online payments and revenue for Stripe. The company then had the tricky task of trying to forecast growth in an ever-changing environment, and since it takes time for employees to get trained and become productive, companies often hire today for productivity they’ll need in six months. This year, as ecommerce expansion slowed, Stripe’s earlier growth projections may have proved inaccurate, a former employee says, causing it to be left with more people than it needed.

Some former employees also noted that Stripe’s culture has always been one of turnover due to the high expectations set by the Collisons, and that the company historically prided itself on delivering results while deliberately understaffed in its early years. But more recently, its goal of trying to make sure employees aren’t complacent has resulted in people feeling “actively uncomfortable,” one former employee says. Increasingly, employees feel that “small mistakes could sink someone’s chances of a promotion or a higher rating,” another believes.

According to multiple employees, many at Stripe feel there’s a lack of “psychological safety” where people don’t feel comfortable opposing leaders. Psychologist Amy Edmondson defines psychological safety as “a sense of confidence that the team will not embarrass, reject or punish someone for speaking up,” and research done by Google
GOOG
has indicated that it can lead to more effective teams.

The tightening standards on performance reviews have also increased feelings of inadequacy, according to another employee. “It literally makes people question if they’re good enough to be software engineers.”