Really, all options obliterate morale.

Laying off people who you rank as "low end" on the acceptable performance scale, might mean you kill structurally important bricks that were not optimizing for being higher than "high enough" on that scale, and cannibalizes people working on anything valuable long-term but hard to justify to management short-term.

Laying off high performers means people don't want their head to be poking up, so they sabotage their own visibility to try being "good enough", while also killing people's motivations.

Laying off randomly kills people's morale directly worst of all, because that implies there's nothing they can do to change the outcome, and impotence is worse, arguably, than anything else for many people.