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Inside the Layoffs at Klarna

Late last month, midday, Monday, May 23rd 2022, 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 didn’t mention numbers, only that “the vast majority will not be impacted” 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.

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.

This article was originally sent to subscribers of The Pragmatic Engineer Newsletter - the #1 technology newsletter on Substack, with more than 100,000 readers. If you've not signed up yet, subscribe to get weekly articles like this one in your inbox.

1. The pay cut of 2020 which became permanent

It’s 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 they’re 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, there’s 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 – and while many employees are on holidays – everyone receives an email that needs action within a week. The email is along the lines of “All 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.” The email closes by telling people to discuss questions with their managers.

People now scramble to understand what’s going on, many of them interrupting their vacation. They get in touch with managers – also on vacation – who likewise have no idea what is happening.

Update from Klarna: “All communication to managers included information on the setup of the review and equity component related to this update ahead of time.”

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 company’s 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.

In 2020, employees did not get cash bonuses. From 2021, bonuses and pay rises were a mix of RSU and cash. 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.

In 2020, raises and bonuses were awarded only as RSUs, not in cash. Starting from 2021, the setup is more nuanced. Bonuses are still paid as RSUs. For raises, each level had an RSU target. Until this target had been reached, the raises are split 50:50 between cash and RSU.

For example, take someone with a 5% target, who is awarded an 8% raise. They would get 4% in RSUs, and 4% in cash. Someone awarded a 11% raise would get 5% in RSUs (hitting the limit) and 6% in cash.

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 – despite employees being told to talk with them – was typical of the company. As an employee summarized:

“I loved working at Klarna for plenty of reasons, but internal communications were always a mess, and one that did not get better over time.”

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 – with too little to show for it – was something that might have contributed to the later layoffs.

Klarna’s “Super App” 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 Klarna’s 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 Klarna’s 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 “no.” As a current employee shared:

“The 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 “we are awesome” 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.”

One criticism I heard was how Klarna – and most employees working there – 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:

“We 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).

“Moving forward, we will continue to grow our users, but our focus will be on sustainable growth and driving engagement.”

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, Klarna’s 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, Klarna’s 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 everyone’s 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 – Accountable Leads or Competence Leads, as Klarna calls them – had information about what will happen.

Hearing about layoffs for the first time, some managers tried and failed to argue with the People’s 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:

“Prepare for the common question of “why me?” 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.

Ideally, the answer to “why me” 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 aren’t true.”

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:

“At the beginning of this month, I was actually given a promotion, raised up a level, and given a salary raise.

All 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 what’s coming.

Meanwhile 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.”

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 company’s 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

While the layoffs were underway in the US, people in Europe still had no news. Managers and employees were equally in the dark.

Klarna made a major mistake in not letting the majority of employees know if they were safe from layoffs or not, for a whole night. I exchanged messages with agitated managers and employees throughout the night of 23rd May, and here are some quotes showing their dread:

“What is crazy is the uncertainty right now. I’m a people manager for several people, some of whom are new to business, others junior, and I’m reduced to chatting with my US based colleagues to see if anyone from our part of the business is affected, and speculate if we will have layoffs in our team tomorrow.”
“Morale is very low because almost the entire staff has watched Klarna rise like a rocket and suddenly the confidence is gone in a heartbeat. People are questioning everything, but don’t know anything.”
“I have been in tech for 20 years and I have never seen a more poorly executed round of layoffs. They announced a mandatory meeting and immediately canceled it. Then rescheduled it two hours later. All day we were filled with dread and speculation, only to have it confirmed and then extended while we waited all week for a dreaded email.”
“A lot of people in the company are very young - e.g., everyone is under 30 in my team - and almost all of us relocated. So, there’s just huge worry and uncertainty. The whole situation is a shame because working at Klarna is truly fantastic on a normal day.”
“I have no idea if I need to send out my CV tomorrow to apply for jobs, or if I’ll still have a job. I am updating my CV as we speak.”
“I’m (for now) still a Klarna engineer but that could change tomorrow. I’ve never felt this kind of stress before.”

At 3am, I got this message from a tech employee in Sweden:

“Nobody knows what will happen. We were told that tomorrow, from 8:00 to 9:00 AM Swedish time, those who will be let go will get an email with an invite to a meeting. Only affected ones will get an email. So you can imagine what an awful night this is for all of us.”

It was a bad night of waiting for everyone involved.

5. Layoffs: Day 2

It took Klarna until 10:00am Swedish time on Tuesday to provide clarity on what to expect from the rest of the layoffs. This was the time when leadership shared the process of how the layoffs will proceed. They did this through an announcement on Klub, the internal portal for Klarna. The message read:

Process Timeline - Week 21 - Klarnauts should work from home this week:

  • Monday, May 23: individual meetings start in the US with all employees that are impacted.
  • Tuesday, May 24: Individual meetings with employees across all other jurisdictions begin.
  • Calendar invitations go out each morning ahead of meetings taking place that day: Impacted employees will receive a calendar invite titled ‘Meeting regarding your role at Klarna’ from one of your leads in your domain. The invite will be marked ‘private’ and not visible to anyone but meeting participants. Only employees that are impacted will get a meeting invite.
  • Following the meeting with your lead, People Advisory will contact you and follow up on the next steps and what this means for your employment at Klarna.
  • Wednesday, May 25:
  • We are aiming to have all impacted individual conversations complete by Wednesday afternoon. However, there will be some domains where this will take longer.
  • Sebastian and the CXO team will then host a company-wide meeting at 4pm CEST, an invite will be sent out shortly.
  • Subsequently in coming days:
  • Employees who have a new role or teams whose scope has changed will connect with their leads on this as soon as possible after the individual meetings have taken place.
  • Competencies and Domains will host All Hands to bring further clarity on the new organizational structure to those impacted.

How to support colleagues during this uncertain time

We ask one thing - please be kind to each other in this difficult situation by not asking insensitive questions, but rather let your colleagues and friends share their personal news should they want to. This is also not the time to speculate in our open messaging channels about teams and individuals.

By the time the above message went live on Klarna’s internal wiki, individuals were receiving invites for their meeting with HR, indicating they were likely to be laid off. Some teams took to Slack to announce when they were done sending out invites. Here is a message that received hundreds of “thumbs up” and “support” emojis as a response:

“Hi everyone. This is a tough day. I want to inform you that invites have now been sent out to all the [Org name]. No additional people from our domain will receive an invite. Please take care and support each other in these challenging times.”

The way people knew they were “safe” was by not getting an invite in the morning. The reason some org leads announced all invites had been sent out in their domain, was to communicate that anyone without an invite could now relax a bit.

Several long-tenured and respected people were laid off, making people speculate that layoffs in Sweden did not follow the LIFO (last-in-first-out) principle. When conducting mass layoffs, Swedish regulation suggests letting go of the newest staff first. Klarna did not follow this principle, and seemingly randomly laid off people across teams. Those I talked with saw no real pattern. Here’s how an employee summarized their observations:

“There are people who were let go who relocated less than a month ago, as well as people with more than five years’ experience. There is no pattern. The only way I know I am safe is if I did not get an invite.”

By this point, frustration was high enough for several people that they asked their managers if they could volunteer to take a severance package and just leave the company. In all cases – unsurprisingly – this was rejected by managers. Unless someone was on the list, they could not “volunteer” to leave. This is consistent with how the process usually works with layoffs.

Those laid off were read a script by HR in their meeting, with the person delivering the news unable to answer questions. People were told to wait for further instructions that would arrive later that day.

Klarna did not technically lay people off, it offered a mutual separation package with more severance than required by law. As the first people got the packages, it became clear that Klarna offered better terms than they needed to.

The deal Klarna offered to Swedish employees was this:

  • 3 months of garden leave and severance for those at the company less than 3 years
  • 5 months’ severance for those with the company more than 3 years
  • Keep laptop and phone

A Google form was sent to all employees, asking if they had any questions, and was promised to be answered on the Q&A next day. This form gathered more than 500 questions in just a few hours, well above usual engagement rate for all-hands questions.

Some departments held internal Q&As on the day. I talked with a software engineer who shared the contents of one such meeting:

“No C-level leaders were present. Our department leadership apologized that all of us had to go to bed not knowing if we will have a job the next day. They said this approach was the fairest option for all.

Product teams were apparently less impacted by layoffs than the administrative parts.

Leadership prepared this process for the past 2 weeks.

Leadership emphasized that this is not a layoff, but that people are being invited to leave. ​Affected people have 10 days to decide if they take the offer from Klarna.

Direct managers were briefed only in the morning. The reason for this decision was the ongoing concern that people would learn about this event from the Press if it was shared with managers.

The people who were supposed to join Klarna should get more information today. Apparently, some of them will still be hired.

Tomorrow we will have a large Q&A with the whole C-level team.”

6. Layoffs: Day 3 & the Q&A

By Wednesday, most HR conversations were done and people had clarity if they were safe or not, by which I mean in Europe they had been invited to leave Klarna, with 10 days to think about it.

The C-level leaders hosted a Q&A where they gave more context on the layoffs and answered 8 pre-vetted questions of the more than 1,000 which employees submitted. Here is what was shared at this meeting.

The principles of the layoffs:

  1. Minimize the time from the layoffs announcement, to the meeting invite.
  2. Minimize the time from the invite arriving, to the in-person conversation.
  3. Have a person who participated in the layoff decision at this in-person meeting.

The leadership team felt they executed the layoffs in the right and quickest way, given they had to juggle several time zones around the world. They chose 4pm CEST for the layoffs announcement so no Klarna employee would get the news in the middle of the night, regardless of which office they worked in.

The leadership team admitted the timing of the meetings was a tradeoff. They thought it would be better if people received the invite on the day of the meeting, and not before and acknowledged it was a hard time for everyone involved.

Leadership then talked about layoffs in Sweden. They shared that if they would have done layoffs the “standard” way, it would have meant about 6 months of uncertainty until a decision was reached and people would be let go, based on tenure. The C-level felt that would have not been the right decision, even though going through the standard process would have been cheaper for the company, as there would have been no severance pay if they had followed that process.

The C-level said they saw these layoffs as the ‘final’ round and did not forecast more to follow. The leadership team mentioned they were sad to see rumors about future layoffs. Honestly, this was an odd comment to make, given it’s a natural assumption for people to make after an out-of-the-blue layoff.

Leadership blamed macroeconomic factors for the layoffs. They mentioned the economic downturn and how the global economy is trending downwards.

Klarna’s CEO then took a dab at unions. In the past day, the interest in joining a union in Sweden had skyrocketed among Klarna employees, as they learned that unions offer some layoff protections. The CEO said employees at Klarna are superstars, and superstars don’t want unions negotiating for them.

Swedish companies must negotiate with unions before layoffs. However, this was not the case at Klarna, nor is it the case at most Swedish tech companies. Klarna does not have a collective bargaining agreement (called “kollektivavtal” in Swedish) in place. This means that Klarna as an employer is not forced to negotiate layoffs with a union. Instead, Klarna is entitled to negotiate directly with each affected employee, which they are doing.

I can imagine the spike of interest in unions is not good news for Klarna’s leadership, as with a strong union and a collective bargaining agreement in place, any future layoff will be more difficult to execute.

Talking with employees, those not interested in unions started to look into how these organizations work, and how they can join. There’s few better adverts for unions than a CEO condemning them, while wielding the ax on people’s jobs.

I have heard mixed feedback on how helpful this Q&A was for employees. Roughly half of the staff said their confidence in Klarna leadership increased compared to the past few days, and these people said they felt leadership took some accountability for the layoffs.

The other half saw it the opposite way; that leadership showed no empathy and no accountability during the Q&A. This group recalled the negative statements in this Q&A; leadership taking a dab at social media and the Press for what they felt was incorrect reporting, and taking a stab at unions.

Forbes reporter Iain Martin shared more details about this call, and wrote that the CEO voiced his disappointment about ‘unfair and uneducated’ criticism:

“On the Wednesday call Klarna’s billionaire co-founder voiced his disappointment at ‘unfair and uneducated’ criticism of the staffing cuts, which sidestep Sweden’s tough labor laws and unions with buyout offers for the startup’s staff.

Some staff outside Sweden were let go after the call, and others have also received buyout offers. 'Considering the complexity…it disappoints and I must say I would have expected a better climate where 48 hours is an acceptable time limit to have that conversation internally,' says Siemiatkowski, who holds a $3.2 billion stake in Klarna.”

Almost everyone I talked with was disappointed by the performance of CEO Sebastian Siemiatkowski, who sounded bitter and angry about the media backlash and did not hide his feelings during the Q&A.

What most people missed was the leadership taking responsibility for how the company did not prepare for the downturn in time.

Takeaways

If you’re a leader at a company: I suggest you consider the damage a layoff can do to trust. I’ve talked with a variety of people, mostly those not laid off, who used to be huge fans of Klarna and its leaders. The loss of trust in leadership is palpable and surprising to hear and is echoed by almost everyone. The fact so many people not laid off are job searching, should also give pause for thought.

Klarna laid off 10% of its employees. Would it have been better to slow hiring several months ago, and not hire some of the ~700 people who have now been let go?

I am strongly of the view that there are a lot of things every company can do to avoid brutal layoffs. It starts with responsible planning and paying careful attention to the business environment.

I’ll close with my conversation with a software engineer who joined Klarna a few months ago and who used to be full of enthusiasm:

“My manager is great and supportive. However, I already lost my trust in my company, despite not being laid off.

I’m getting so many messages from recruiters - it’s overwhelming. I finally decided to respond and try to find a company that can offer more stability. I don’t need another layoff out of the blue. I have seen no assurance that Klarna would not do this again, unannounced, just as it has done now.”

Read the extended version of the article, which additionally includes:

  • Numbers on how many tech employees and managers were let go
  • US severance package details on the "before" and "after" packages
  • Takeaways for engineering leaders to learn from: the good, the bad, and the "could be good or bad" of this layoff.

Read the extended article here.

Read more advice on preparing for and executing layoffs in a humane way.

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