Alibaba P9 Falls from Grace

Author | Liu Baodan

Editor | Zhang Xiaoling

Alibaba, with its annual salary of 3 million yuan for P9 positions, used to be the ultimate dream for many working professionals. However, Alibaba has now taken the initiative to make adjustments.

On July 13th, Alibaba launched its largest human resources reform in recent years, which directly affects P8 and above executives who used to earn millions of yuan annually. The reform includes the cancellation of the P series, and P8 and above employees will now be appointed by the organization without promotion or demotion based on job levels. Instead, their salaries and bonuses will be determined by business scale and team size.

This means that those who used to earn millions of yuan steadily through promotions may now have their salaries adjusted according to performance fluctuations. Both inside and outside Alibaba, it is widely believed that overall, P8 and above employees will experience a salary reduction.

Over the past two decades, the wealth creation myth of internet giants has inspired many people, leading to continuous talent poaching and fluctuations in housing prices in surrounding areas. However, as the industry growth slows down, this story is becoming a thing of the past, and Alibaba's actions are in line with the current trend.

Alibaba's human resources and organizational system has always been a benchmark for the industry. This adjustment is particularly important because it not only achieves cost reduction and efficiency improvement, but also has the potential to break the limitations of Alibaba's job level system, providing reference for the industry.

Reform

According to Wall Street News, this human resources reform is starting with Taobao and Tmall, which is a rare major adjustment for Alibaba in recent years.

The two most important points are as follows: first, the cancellation of the P series, with P4 to P8 being changed to levels 14 to 28, where every three levels correspond to one P level. The salaries and bonuses of employees at levels 14 to 28 will no longer be solely determined by job levels, and in the future, the separation of job levels and bonuses will be gradually implemented. Second, P8 and above employees will be appointed by the organization, and there will no longer be promotions or demotions based on job levels. Instead, their salaries and bonuses will be determined by business scale and team size.

However, the above adjustments are currently in the stage of soliciting opinions. Taobao and Tmall stated to Wall Street News that the reform is certain and necessary, but the specific plan is still under research.

For many years, Alibaba has had two job level systems: P and M. P represents the professional sequence, including programmers, product managers, and others in this sequence, which is the mainstream in internet companies. From P4 to P12, it corresponds to fresh graduates to department presidents, and P10 and above are vice president level. M represents the management sequence, which has received less attention in the past.

Alibaba's P8 and P9 positions used to represent the high salary glory of the internet industry. It is understood that within Alibaba, the annual salary for P6 positions is between 300,000 and 500,000 yuan, for P7 it is between 700,000 and 1 million yuan, for P8 it is between 1 million and 1.7 million yuan, and for P9 it is generally above 3 million yuan.

This adjustment implies a salary reduction. An insider at Alibaba believes that after the adjustment, some high-level P employees will actually experience a salary reduction. For example, employees who used to be at the P10 level but now have less workload and insufficient performance will not be able to maintain their high salaries as before. "The salary standard for P8 and above has been broken." Founder and General Manager of the Feasibility Research Institute, Jia Chunhui, analyzed that Alibaba has adopted an organizational appointment approach for high-level employees, indicating a more centralized control and a tendency towards conservatism. The decision to determine compensation based on business performance is the right direction. In today's highly competitive market, whether there is a need for so many high-level positions is also uncertain.

On the other hand, changing the P4-P8 levels to levels 14-28 will add more layers and narrow the differences between each level, which will provide better incentives for these employees. Performance scores will only have three levels: 3.7, 3.5, and 3.25, eliminating the 3.5+ and 3.5- levels, making performance evaluation simpler and more efficient.

Furthermore, for P4-P8 employees, those who perform exceptionally well may achieve multiple level promotions within a year, which was unimaginable in the past.

A more direct incentive is bonuses. Alibaba proposes that in the future, levels and bonuses will be gradually separated. This means that theoretically, a P4 employee may receive a P8 bonus. By separating bonuses from levels, the incentive for lower-level employees becomes stronger. "P7 employees can receive P9 salaries. It's also possible," said a source from Alibaba.

"Alibaba's reform is more about motivating human nature, stimulating activity, and contributing to a wolf-like mentality. Its aim is to break through the ceiling and the limitations of the hierarchical system," Jia Chunhui believes. Alibaba's adjustment direction is not just about reducing salaries; its main purpose is to counter bureaucracy. Salaries are mainly linked to business performance, so as long as you perform well, you can earn more.

Internal sources at Alibaba revealed that the aforementioned reforms are not only targeted at Taobao and Tmall, but will also be implemented in other business groups such as Cainiao and Hema.

Trends

Whether it is fluctuating high-level employee salaries based on performance or stimulating the work efficiency of ordinary employees, these can be seen as aspects of Alibaba's cost reduction and efficiency improvement measures.

Over a month ago, there were rumors in the market that "Alibaba will lay off around 20% of its employees, merge Taobao and Tmall, and cut 25% of its research and development staff." Alibaba responded to this by stating that it was a rumor.

However, the fact is that Alibaba has been downsizing for the past two years. Financial reports show that during the peak period in 2021, Alibaba had 258,600 employees, a decrease of nearly 20,000 compared to the previous year. As of March 31, 2023, Alibaba had a total of 235,200 employees, with a reduction of over 4,500 in the first quarter.

Coincidentally, the period when Alibaba had the most employees was also a period of low per capita revenue. Data from Tonghuashun shows that on September 21, 2021, the per capita revenue of Alibaba employees was 2.77 million, the lowest since 2016. This suggests that Alibaba's overall labor costs may be too high.

During last year's performance conference, Alibaba's Chief Financial Officer, Xu Hong, elaborated on the cost reduction and efficiency improvement strategy. Firstly, projects with unclear long-term value were shut down or transformed. Secondly, on the business side, there were specific cost reduction and efficiency improvement targets and requirements aimed at enhancing overall efficiency. Behind the cost reduction and efficiency improvement, Jack Ma and the Alibaba management are facing an increasingly challenging market environment and competitive landscape.

According to the financial report, Alibaba's quarterly revenue in March was 208.2 billion yuan, with a YoY growth rate of 2%. Over the past three years, its revenue growth rate has dropped significantly from 41% to 2%, especially in the core retail business, which has shown negative growth in the 2023 fiscal year.

The external environment is also becoming more unfavorable. China's e-commerce industry has entered the most intense competition stage, and Alibaba's market share is continuously being eroded. In 2017, Alibaba still had a market share as high as 61.2%. However, by the end of last year, it had dropped by 18.5 percentage points. Pinduoduo, Douyin, and other platforms have taken over the battlefields that Alibaba lost, with their GMV reaching trillions of yuan in a short period of time.

The trend is clear. For Alibaba, facing the new industry ecosystem means both reclaiming lost ground and defending its existing territory. Alibaba must respond, and large-scale cost reduction and efficiency improvement is the most effective method.

During the May performance meeting, the Alibaba management stated that in this quarter, through a series of effective cost reduction and efficiency improvement measures, the adjusted EBITA reached nearly 25.3 billion yuan, a YoY increase of 60%; the adjusted net profit attributable to shareholders was 144 billion yuan, a YoY growth of 0.3%.

Since the beginning of this year, Alibaba has undergone a series of transformations. First, the "One Split into Six" restructuring, followed by Jack Ma's retirement and his return to Alibaba, proposing strategies to revive Taobao and implementing significant reforms to the human resources system, which was expected.

In an ever-changing world, no company can have a secure future. From Jack Ma's return to the restructuring of the Alibaba management, they have already felt the chill and pressure. The employees also need to be reinvigorated because the upcoming e-commerce arena is a cruel battlefield that requires real weapons and tactics.

The high salaries of Alibaba's P9 represent the past era of rapid internet growth. No one knows what kind of script will unfold next, but one thing is certain: only through transformation can survival be ensured.