Vol 16- Epic v Riot: A Tale of Two Layoffs

Well, 2024 has certainly started out with a bang - though unfortunately this bang is the seemingly endless parade of companies announcing layoffs.

And unfortunately, the video game industry seems to be one of the largest ones being hit, and as a gamer, video game business enthusiast and business strategist, the one common theme is that many leaders in many of these companies do not know how to manage organizations.

You can't just have a good product, you have to know how to scale, develop workforce, implement strong org design and champion your employees - skills that many top executives seem to be missing - and when those things don't work, there is also a way to do large structural changes with decency.

Companies, especially larger ones, have come a long way to understanding this and I've seen many be far more generous in their offerings when doing a reduction in force. While there is never a "right way" to do layoffs, there is a right way to treat your employees with dignity.

We have a curious case study here from two companies in the same industry, with the same amount of people who both had the unfortunate experience of conducting a layoff of similar sizes within a small time frame from each other.

In Q4 of 2023 Unreal Engine and Fortnite creator , Epic Games, announced a sudden 16% reduction in force, and in Q1 of 2024, Riot Games, creator of League of Legends also announced a reduction of 11%

As someone who ironically interviewed for a role in both of these companies within the same week, I thought it would be interesting to compare how these similar sized studios handled these actions and decisions and see what lessons we can learn - especially as I talked about my own personal experience with one of them.

Press

• CEO of Epic, Tim Sweeney, had achieved some notoriety for challenging all of the tech layoffs in 2022, even so much as issuing a challenge about the health of his own company on an older tweet. Current/former employees all reinforce that he was adamant that "Epic does not do layoffs" and as such met a great deal of criticism upon the announcement.
• Both companies posted a letter onto their site with a standard PR updates informing the public of their decisions and walking through the reasons, offerings and next steps.
• One small nuance is that Epic's page is titled "Layoffs at Epic". Riot is titled "An Important Update about Riot's Future".
• Both referenced the unfortunate events and acknowledged that it was a tough decision, but curiously enough was the pronoun choices and framing of accountability.
• EPIC: "Epic folks around the world have been making ongoing efforts to reduce costs...But we still ended up far short of financial sustainability. We concluded that layoffs are the only way....we will stabilize our finances....Saying goodbye to people who have helped build Epic is a terrible experience for all"
• RIOT: "As CEO, I’m accountable for the changes we’re making and where we’re headed in the future...Unfortunately, this involves making changes in the area where we invest the most — our headcount. ...I want to be super clear about something: this is absolutely the last thing we ever wanted to do. A decision like this has a massive impact on people’s lives and on the culture of Riot."

Transition to Package

Both announcements than move on to the most critical information to those being impacted. What are the offerings and what is going to happen next?

EPIC: "The only consolation is that we're adequately funded to support laid off employees: we’re offering a severance package...

My thoughts on this are mixed, I cringed at "The only consolation..." if the attempt was to make those impacted feel better, I can't imagine it landed. After spending an entire year telling people there would be no layoffs, and considering the cash reserves were between $3B - $4B by best figures in 2023, indicating that you can afford to help the employees that you are impacting isn't the "win" I think it was intended to be as you throw them into the worst time to job hunt.

Let's compare that to Riot

RIOT: "There is no perfect way to do a layoff, but our guiding principle is to do our very best to make sure we’re treating Rioters with respect and grace. We want those who are leaving us to feel supported in this difficult moment."

Standard PR messaging, but this does feel and ring sincere to me - but let's see what the actual offerings were.

Finance and Benefit Offerings

1. Salary Continuance

EPIC: All employees receive 6 months of severance regardless of tenure.

RIOT: All employee receive at least 6 months of severance with additional calculations for tenure*.

• For the US - these are both pretty good offerings, especially given that October and January are terrible months to conduct layoffs.

*I have to note that both of these are not technically "6 months of severance" but are instead a mixture of both a WARN period penalty and severance. Riot acknowledged that, Epic did not.

2. Bonus

EPIC: Bonuses were not included though they pay in a more frequent cadence than annual

RIOT: All impacted employees received a guaranteed 100% target bonus regardless of performance or tenure

• Riot's generosity here is admirable, bonuses are not usually paid out in a RIF, though it depends on timing in my experience.

3. Equity

EPIC: Options that were vested were allowed to be kept and the exercise period was extended to two years to action.

RIOT: They use RSUs, so employees get the whole amount vs the delta. All vested shares can be kept and several potential buyback or liquidation events can be accessed.

• Options are always worse than RSUs and I believe anyone hired post 2017 will not see any value to Epic offering unless there is a significant upturn as the shares are very much underwater.

4. Benefits

EPIC: Generous all-paid health care plan continued for 6 months through COBRA.

RIOT: Participants provided additional pay to cover all health benefits equal to the length of severance rounded up.

RIOT: An additional $1,000 to be given that would normally be covered by "Play and Wellness Fund"

• I can't tell if the additional pay covers the full cost of the benefits, if so that is great, especially if they are increasing it beyond 6 months to match the severance and the additional $1K is a nice touch.

5. 401k/Retirement

EPIC: Granted full vesting of employer contribution

RIOT: Nothing mentioned in press release

• From my experience, the full granting of the employer contribution is generous - though some of that generosity was offset by the first portion of the severance (approximately 8 weeks) being immediately paid, removing the opportunity of employees to update their 401k% prior to.
• I hope Riot has a 401k, but nothing was mentioned.

Practical Offerings and Communication

6. Career Support

EPIC: 6 Months of Career and Job Search Placement Services

RIOT: 6 Months of Career and Job Search Placement Services

• This has become a pretty standard offering, unfortunately most outplacement services are career coach mills. Tons of their resume, job search and compensation advice is really outdated or urban myths.
• I personally felt bad for my "career coach" as I redlined all of her bad advice and had a call with her to tell her a lot of the info she had wasn't accurate

7. Technology

EPIC: Employees were told that laptops needed to be returned and sent information to cover shipping costs and there was no possibility of keeping or purchasing laptops. Several impacted employees indicated that there seemed to be a silent understanding that the severance would not be paid until the laptops were returned...which is illegal if true.

Peripherals (headset, mouse, keyboard) could be kept.

RIOT: In the CEO's own words: "A laptop is an essential part of finding new work so after returning work computers, Rioters will have the option to request a laptop from IT if they don't have one at home"

• It is wise to always have 2 laptops, but it is not always possible. My own personal laptop had died the week before the layoff and since I was living in a remote area losing immediate access to the only computer you have can be a bit of a shocker.
• Though no fault of Epics, I was away for the week prior to the layoff due to a heart condition and needed to record my BP several times a day. All of that was on my laptop and I was given zero time to recover it and had lost access an hour after learning my job was eliminated. This is on me of course, but in every layoff I've ever planned, companies realize that people may need to have continued or bridged access for things like this.

8. Access

EPIC: Employees were informed that they would lose immediate access to network rights. Slack was disabled company wide and all impacted employees could not access anything except an intranet page to upload severance paperwork or read an FAQ.

For employees in offices, employees indicated they were given 2 hours and were supplied boxes to pack personal items, say goodbye and finalize paperwork before being escorted out by security.

• This is all true. All questions were routed through a generic email box and many impacted employees indicating were slow to respond and not helpful. I myself had to make 4 requests for my employee file, and STILL haven't heard back from them.

RIOT: I'll let the CEO speak for himself again: "Rather than immediately cut off email access, which is more common in these moments, we will continue to provide access to impacted Rioters for a limited time after notification (this will vary by region). We want to make sure Rioters who are leaving us this week have a bit of time to identify and unwind any personal info or accounts that may be tied to their Riot email addresses"

• As someone who has been a part of WAY too many layoffs and has seen the entire gamut from someone trying to upload a trojan virus to having someone pull a knife to flipped tables and sobbing pleas, I can tell you that the supposed "good" you get by "protecting the company by limiting access" doesn't ever compare to the "bad" you get in treating employees like they are criminals.
• Dylan, CEO of Riot, captures this really well - and when you take away someones job, you take away something all humans want. Closure.
• Immediately disconnecting access, hurrying people out of offices, shutting down laptops remotely so that not even the internet can be used are all great ways to communicate to your employees how little you think of them, while robbing them of the chance to process, grieve and accept in their own time as human beings worthy of trust.

9. Communication

EPIC: Though many employees could sense there was something happening (executives all locked up in rooms together, green card and immigration approvals were delayed, salary cycle processes were delayed, relocation approvals put on hold, etc) nobody thought it was a layoff based on continual reassurance.

Ironically this had come right after a poorly executed bonus exercise in which many employees thought that the lower bonus calculations were an indication of a layoff to come, and were told that wasn't true.

Many people instead thought there would be another poorly planned purchase, divestures from one of the other struggling purchases, or perhaps a merger or acquisition.

Everyone received a mandatory meeting the night before.

Internal communications like Slack were taken off-line and a meeting (that started a half hour late) was sent to those 900 employees being impacted with an email telling them they were being laid off.

The meeting link led to a one way zoom call where Tim mournfully said that though everyone had tried their best, a layoff was the only recourse and then proceeded to lie and tell everyone that they were all perfect and this wasn't about performance.

Though I wasn't involved in this layoff I have done enough of them to realize the poorly planned rating cycle is what helped make some of these decisions as I recognized a few poor performers, in addition to those who had filed complaints were on the list.

The head of HR than took over while the other 8 executives stayed silent, 4 of which couldn't bother making eye contact. Nobody being informed was allowed to speak, ask questions or interact, only watch.

It was over in about 6 minutes.

Everyone who was in the office had a small period of time to gather their belongings and leave. I'd spoken to several of those impacted and the constant message was "I felt like I was being treated like a criminal".

As a remote employee with less than a year of service, I felt completely off guard and couldn't believe this is what constituted as "leadership". I kept thinking about all of the employees I had to spend weeks talking to after the bad performance cycle who had given 8+ years of service were now being treated in such poor regard.

RIOT: The communication from Dylan provided the choice. People were notified through email but had an opportunity to speak to a leader and/or HR to run through any questions.

While Im not a fan of "layoff by email" - and I believe a lot of companies using this method is based on their fear of being recorded and mocked, the idea of giving people a choice is always a good one.

I've spoken with many Rioters and ex-Rioters who confirmed that of course the mood wasn't happy and there were a lot of mixed feelings, the ideas of being treated like a human being and given the dignity of time to process, technical assistance and a chance to talk to someone live helped make a terrible situation a little less terrible.

Final Thoughts

I have helped organize more than 25 layoffs or so and it's always a brutal process that is fraught with frustration - in many cases these decisions come from the C-level but are cascaded down and given to line managers and HR to execute.

The video game industry is suffering on every level between a spike in sexual harassment complaints, discrimination, retaliation and mismanagement leading to layoffs. I have personally warned people against joining several of the biggest offenders, because in good faith I can't agree with anyone joining an organization that has no problem treating people in this way.

When I compare these two companies in particular, and can acknowledge that this is Epic's "first" - it was also Epic's "worst" - and while the offerings were certainly more generous than many other companies, it was the constant reinforcement to a team of almost 1,000 people that they are nothing more to you than line items, and that all the promises of "good performance" was dishonest as many people have noted their roles were now being recruited for again.

I hope that this industry takes a good long look at itself and starts to make far better decisions that focus more on employees and customers as PEOPLE and not financial line items.

~ Dan

Daniel "DanFromHR" Space is a senior HR business partner who has worked for companies like Spotify, WebMD and Electronic Arts before transitioning to an HR consultant helping companies perform better by understanding how to treat people. His content on social media, namely TikTok and Instagram, have been featured on many publications such as LinkedIn, HRBrew, Protocol, BusinessWeek, DailyDot and Huffington Post where he has amassed almost 300K followers and helped tens of thousands of people understand Corporate America.

You can find tons of material on www.DanFromHR.com or follow him on TikTok