Even companies that had once prided themselves on not laying off employees now seem a lot more open to the possibility.
Zoho founder and CEO Sridhar Vembu has told employees that the company will not be giving its usual annual pay increase this year, citing a sharp rise in AI-related costs and a tough business environment for software companies.
In a post, Vembu said the outlook for the software industry is uncertain, and that AI has pushed up costs dramatically on two fronts — a four-fold increase in server prices that Zoho needs for its data centers, and rapidly rising AI usage expenses that the company is now trying to rein in. He added that a challenging geopolitical backdrop has compounded the pressure.
As a result, Zoho has trimmed its marketing budget and informed employees that it cannot offer the usual pay hike this year. Vembu said he has personally apologized to employees for not being able to avoid this.
Despite the cost pressures, Vembu said Zoho will work hard to avoid mass layoffs, even as he acknowledged that the broader outlook for software jobs remains grim. He noted that the company has not grown its headcount in 18 months — a sharp shift for a company that was hiring thousands of employees a year as recently as a few years ago.
Vembu said most employees understand the situation the company is in, and thanked them for their patience. He described Zoho as being in the middle of “reinventing” itself, adding that the next three to five years will determine how that reinvention plays out, and asked for support from his audience during this period.
This isn’t the first time Vembu has spoken candidly about layoffs in the tech industry. He has previously been vocal about his opposition to job cuts at profitable companies, having criticized Freshworks sharply for laying off employees despite the company not being in financial distress. Zoho itself has long prided itself on a no-layoffs stance, with Vembu earlier saying he would rather take a hit to profits than cut jobs.
The pay freeze comes at a time when the software industry globally is grappling with surging AI infrastructure costs even as AI-driven efficiency gains and automation put pressure on traditional engineering headcount. Zoho’s decision to hold off on pay hikes, rather than cut jobs outright, reflects an attempt to balance these pressures without abandoning the no-layoffs philosophy the company has built its reputation on — even as Vembu concedes that doing so may get harder if conditions in the broader software job market continue to worsen.