Even senior management at China’s biggest internet company are not guaranteed life-long employment, the so-called “iron rice bowl” in Chinese.
Take Tencent Holdings, the No. 1 Hong Kong-listed company by market capitalization, is reported to have axed 10% of its middle to senior management since the end of last year as part of a group restructuring exercise.
The Shenzhen-based internet giant, which reported its first profit decline last year with an unexciting share performance, did not offer comment on the layoffs, although there might be more details to be disclosed as the company will report its annual results on Wednesday.
It will be the first major restructuring of Tencent, which was set up in 1999 as a humble company and is now a conglomerate worth HK$3.5 trillion (US$446 billion) with its fingers in games, WeChat and almost everything online.
Laying off people is not uncommon for corporates who want to deliver the maximum return to shareholders. Former General Electric honcho Jack Welch, for example, regularly cut 10% of his staff every year because he believed top performances only came from the top 20%.
But what caused Tencent to finally axe staff is somewhat interesting. According to a mainland report, chairman Pony Ma Huateng asked in a regular meeting how many of the 2,000 senior management were below 30.
After hearing the answer was fewer than 10, he was shocked and quickly decided to promote young talent in a bid to refresh its managerial ranks and maintain dynamism within the company.
In his 20th anniversary speech, he said: “We will ensure that at least one in five promotions each year go to younger talent.” As of the end of last June, Tencent had 48,684 employees, up 20% from a year ago.
In a town hall meeting last November, Tencent President Martin Lau Chi-ping said a certain percentage of managers would need to stand down.
He said: “Tencent cannot make managerial roles lifelong positions. If you are competent, you will be promoted soon, but when you are tired, you have to move down.”
JD.com, a Tencent associate and the country’s second-largest e-commerce services provider, also said last month it would lay off 10% of its management at vice-president level and above in 2019, using the “rank and yank” approach.
Like Tencent, Alibaba Group and Baidu also revamped their management ranks as they enter their third decade of operations to explore how they can maintain their competitive edge as a new crop of challengers emerge such as short video and news app operator ByteDance and group buying site Pinduoduo.