Zoho CEO says skipping appraisals was better than troubling customers

Zoho has decided to skip its usual annual salary increases this year rather than lay off employees or raise prices for customers, CEO Mani Vembu has explained. The decision comes as the software industry faces an uncertain business outlook, rising server costs and growing expenses linked to artificial intelligence (AI).Vembu said the company had considered several options before deciding to put appraisals on hold. While the move was difficult, Zoho wanted to protect its workforce and avoid passing higher operating costs on to customers who are already dealing with financial pressures.His explanation follows a recent statement by Zoho founder Sridhar Vembu, who said the company had informed employees that they would not receive their usual pay increases this year. He also warned that the outlook for software jobs remained grim, even as Zoho worked to reinvent its business for the AI era.Zoho CEO says had to skip appraisals to save employees from something elseSridhar has shared the difficult decision we have taken to skip appraisals this year, given the rising costs and uncertain outlook for the software industry. Every software business will be having this discussion and making difficult choices. These are real-world situations where there is no single right answer. The decision depends on what we choose to prioritise. These are also decisions AI cannot make for us. During COVID, we made a similar decision. We offered free licences to customers, even though it meant losing revenue. This time, we had to deal with the sharp increase in server costs. We discussed these options internally. Lay off employees. While layoffs are common across businesses, we felt it wasn't the right choice when our business is still growing. We have over a million customers to support and products to keep improving. Cutting jobs could affect both employees & customers. Instead, we want to reduce costs by focusing on R&D to make our products and infrastructure more efficient. Reduce other expenses. We have decided to cut our marketing spend and are looking at ways to improve efficiency across the business. Increase prices. Customers are already dealing with rising costs and geopolitical uncertainty. So we don't want to add to their burden. We want to first do what is in our control before doing this. Skip appraisal. This was a difficult decision, but we wanted to avoid layoffs and price increases. So we made this tough decision. As a private company, we have to take care of our customers and employees. Publicly listed companies also have shareholder expectations to consider. There is no one right decision in these situations. Ultimately, it comes down to what we choose to prioritise and how we balance the needs of our customers, employees and business for the long term.— Mani Vembu (@MVhandle) October 15, 2026In a post on X, Mani Vembu said there was no single right answer when a business faced difficult financial decisions. What mattered, he explained, was deciding which priorities to protect in the long run. He recalled how Zoho had offered free licences to customers during the Covid-19 pandemic, despite the revenue loss involved. This time, the company is dealing with a sharp rise in server costs, making it necessary to reconsider its spending.One option was to lay off employees. However, Zoho felt this was not the right approach while its business continued to grow. The company has more than a million customers to support and products that need continued development. Cutting jobs could affect both employees and customers, Vembu said. Instead, Zoho plans to focus on making its products and infrastructure more efficient through research and development (R&D). It has also cut marketing expenditure and is examining other areas where it can reduce costs.Increasing prices was another possibility, but the company decided against it for now. With customers already facing rising expenses and geopolitical uncertainty, Zoho did not want to add to their financial burden."Skip appraisal. This was a difficult decision, but we wanted to avoid layoffs and price increases. So we made this tough decision," Mani Vembu wrote.He added that Zoho, as a privately held company, has to balance the needs of its employees, customers and business over the long term. Publicly listed companies, he noted, also have shareholder expectations to consider.AI costs and uncertain outlook put pressure on ZohoSridhar Vembu had earlier explained that the software industry's challenges go beyond slowing or uncertain business prospects. According to him, AI has significantly increased the company's expenses, with server prices rising fourfold and growing AI usage adding to its costs.In his post on X, the Zoho founder also said the company had not increased its employee count for 18 months. Although Zoho wants to avoid mass layoffs, he cautioned that the outlook for software jobs in general was grim."We are in the middle of reinventing ourselves. The next 3-5 years will decide how our reinvention has worked," he wrote, thanking employees who understood the company's situation.Zoho founder Sridhar Vembu has said the company is taking a different approach to AI-driven cost pressures than other software companies. Referring to Airtable’s layoffs, he said Zoho is retraining employees to work on new products and help customers rather than cutting jobs, even as data centre and AI expenses rise."We have chosen a different approach than VC-funded and public companies," Vembu wrote on X, adding that the results would become clearer by 2030.- Ends