This November '22 letter [1] from TCI has even more details.
Their argument sounds quite compelling, to be honest:
As detailed in Alphabet's Schedule 14A filing, median compensation totaled $295,884 in 2021. An analysis by S&P Global illustrates that median compensation at Alphabet was 67% higher than at Microsoft and 153% higher than the 20 largest listed technology companies in the US. There is no justification for this enormous disparity.
We acknowledge that Alphabet employs some of the most talented and brightest computer scientists and engineers, but these represent only a fraction of the employee base. Many employees are performing general sales, marketing and administrative jobs, who should be compensated in-line with other technology companies.
> There is no justification for this enormous disparity.
I dunno that the Google vs Microsoft comparison _is_ compelling. Isn't the question not "how much do the employees cost" but "are they worth what they cost"? This is not my area, but it seems like measuring _profit_ per employee gets a crude measurement of whether in aggregate those employees are generating more value than their comp.
Grabbing stale numbers from yahoo finance,
MSFT: 221,000 employees, Net Income to common $69.79B => $3,157,918.55 / person
GOOG: 186,779 employees, Net Income to common $66.99B => $3,586,591.64 / person
I.e. even with their higher comp, google employees as a group are generating similar but higher profit per person. And if the median compensation is ~$300k, then on most of them it seems like Alphabet is still doing extremely well? Is this not the right way to look at this?
What this pretty clearly demonstrates to me at least, is that executives and shareholders are stealing 90% of the value each employee creates, as both companies median per employee compensation is around $300k, yet they each produce 10X that amount in profit. Sounds like the employees are actually criminally underpaid. But of course the hedge fund billionaire will say they're getting too much, as heaven forbid some people enjoying comfortable middle class lives prevent a billionaire from getting that third mega-yacht.
I think you are very close to the central point of this debate. Whose value is it to begin with? Current cultural norms point to 100% of the value belonging to shareholders and them deciding how much of that to share with employees and execs in form of salaries, bonuses and stocks. If the employees are not happy with a proposal, then they are happy to go find more generous shareholders.
Yes, if I buy a piece of software for my business for $100, I expect it to save me at least $100, or I shouldn't have bought that software. But I am not a piece of software... While I may employ another person for a set price and expect a reduction in the cost of doing business, or even a return, the fact remains, all that differentiates me from the other person is the luck that I was born in my shoes, not theirs.
A good cultural shift may be to re-align assumptions that personal advantages are due to factors we individually control, and think hard about how we would prefer the other party acted were the tables turned.
An ocean full of yachts is pretty worthless if no one offers them a port.
maybe the tricky part is that hard work and initiative mean different things to different people
for me, it's a bit hyperbolic, but just in case I wake up in someone else's body tomorrow, my hard work and personal initiative will mean that at least whoever got my body has a decent shot at life. hope I landed in someone who felt likewise
a roundabout way of saying "if we all believed that we would wake up in a different body tomorrow, I bet we would all be a lot nicer to each other", but maybe more realistically, I suppose a mutual feeling like that would at least manifest into people being more pleasant overall, even if it is incredibly unlikely that you'll actually physically switch bodies
It isn't stealing. There was an exchange of value, labor for salary, that was agreed upon.
I came across an excellent phrase not but an hour ago (italics mine):
"The political mobilization of envy has led to legal restrictions on productive groups, preferential policies for those unable to compete with them, mass expulsions, confiscations, and mob violence..." [1]
The prevalence of the idea that "shareholders are stealing" seems like an example of "the political mobilization of envy."
[1] Race and Culture: A World View, by Thomas Sowell - (He was talking about the Tamils in Sri Lanka, the Germans in Russia... throughout history, not just current events.)
That seems ahistorical. "Shareholders are stealing" is a modern idiomatic expression of the rightful ownership of surplus value, which is an analysis going back to the 1770s at least.
You can have different perspectives or ideological relationships to this concept, even make an argument for the role envy could play in this expression of it. But there is literally centuries of analysis of this you should catch up on before you try to simplify it so completely.
That's why we need a finely balanced solution. Humanity tried giving workers total control (USSR) and it was a disaster. We also tried giving workers somewhat less control but still more leverage (socialist policies in India until 90's) and that wasn't much success either. For now, various social contracts within a narrow range of what US does and say, what Sweden does, seem to be working well.
In what alternate universe did the USSR gave workers total control? Maybe before Lenin used the German cash to take Russia out of WW1, do you mean during these months?
The gall of calling Stalin a defender of the workers, this is hilarious.
The value “generated” actually belongs to the consumers who are forced to pay (doesn’t matter whether directly or indirectly) exuberant prices to a monopoly.
Which is precisely what Google is.
There were many other search engines at one point. Consumers en masse decided to favor Google. Same for email or map or browser providers. Google just has better products from the lens of an average Joe.
Same with smartphones - plethora of choice and yet people are willing to pay through their noses to get iPhones.
It’s a business, not a co-op. The shareholders are risking capital and can lose it all. The employees get paid so long as they work there regardless of performance (in fact, they get bonuses based on performance and stock options, etc, to get a piece of the pie without risking any capital)
The math is incorrect. It's / 10 on that number, so each employee is bringing in ~$358,659 net income. Meaning Google are getting about $60k per employee. That actually doesn't seem too bad to me
Yes the math is incorrect which jsnell pointed out below.
But this is still net income (i.e. all costs, including salaries, have already been subtracted), so google really is getting ~$360k per employee. I was off by 10x, you were off by 6x. Google is getting a pretty good value per head, but not as extraordinary as I thought.
I think there's two lenses here, both of which can yield insights.
I was trying to comment at the level of "even accepting that the goal is to make money for shareholders, what's actually good for shareholders?". Even adopting the value system of investors, if Google can hire more employees of the caliber they have, their track record seems to say they will find valuable opportunities to pursue with those employees. More is probably still more.
If we pick up the lens of "what other kind of good can be pursued given this kind of surplus", yes there's maybe a Marxist view that owners are stealing the value of these workers. But IDK that the fair and just scenario would be these employees making $3M/yr instead. Rather, I think if there's any "theft", it's from the rest of the world. Google could keep the same team, and the same product families, and just charge less / show fewer ads, and the company would still be very successful in absolute measures.
Either you are the company at the top of the range hiring the best talent possible across the board or you settle for the median and continue on with ~5% growth per year. Mediocrity works well for large corps like UnitedHealthcare, Walmart, and even Microsoft. Hedge Funds seem to want to move Alphabet to that more predictable pattern which makes sense for stability but is disappointing technologically.
> Hedge Funds seem to want to move Alphabet to that more predictable pattern
Or the hedge funds feel like this has already happened due to their massive size and bloated management. Maybe they think that Google is beyond the point of meaningful growth in new areas (relative to their ad revenue), so they should start operating like a boring corporation instead of throwing insane salaries at everyone like magic beans that will sprout into new areas of growth.
This isn't necessarily hedge funds pushing for Google to change into something they aren't. Maybe they're just pushing for Google to accept the reality of the situation they put themselves in.
I don't necessarily agree with that perspective, but I don't think it's totally unreasonable.
Does it make sense if your business is technology? Feels like Google apps are more and more buggy, they'll stagnate if they can't make quality software people want to use.
Of course there is a justification for the disparity. Google has a higher standard for the talent of it's engineers than MS and definitely over the rest of the industry. This gives Google a large competitive advantage as they can respond better to threats and because they can deny some top talent to competitors.
You can make a good argument that Google isn't making good use of this talent, which is a result of management problems with Google we all know about. And as it is, Google is as profitable as it ever was, so there is no urgency in firing people, either. The obvious good long term play is to fix the organizational issues to be able to make better use of existing talent.
Chris Hohn knows this, of course. He just wants Google to buy back more stocks so he can sell his Google position. His interest isn't the long term well-being of the company, his interest is a predictable short term peak in valuation. Chaining short term profits is how these funds get outsized returns and it's how they can make any argument to their investors that they are at all better than a leveraged long position in the general market.
> His interest isn't the long term well-being of the company, his interest is a predictable short term peak in valuation. Chaining short term profits is how these funds get outsized returns
That's a plausible theory. Except the letter I linked to starts like this:
TCI has been a significant shareholder of Alphabet since 2017. We currently own shares valued at more than $6 billion, reflecting our strong conviction in Alphabet's future.
I'm sure that's the way they want to spin it. However, TCI is down around 20%, and it's pretty clear that they intend to juice Google in the short term to make good on their recent losses.
I'm sure they have had a significant share in Google, but this share is a much bigger proportion in recent times of their portfolio. By any common wisdom they should be diversifying anyways.
For most of the five year period, Alphabet has been giving them magnificent returns, peaking at 200% gross. Only now it has been hit with the economic downturn, so it makes sense that all of a sudden they are trying to sell and get out.
> Google has a higher standard for the talent of it's engineers than MS and definitely over the rest of the industry
I think this is a completely uncontroversial statement, but I like poking at uncontroversial statements like this. How would you go about validating it?
Is something like acceptance ratio sufficient? I would think not for a few reasons: you could reject 9 out of 10 applicants automatically and voila, low acceptance ratio. Plus, this data probably isn't even available.
So this is a statement that few people would bat an eye at, but is it provable? Or is it just a thing that we believe because we believe it.
I don't know. The quality and reliability of Google's products have been on a steady decline for years. One of the largest HN threads of all time is about the decline of Google's search product. Stadia failed because of mismanagement. Google doesn't appear to innovate a lot these days.
This is mostly due to incentive and mismanagement issues at the Senior level at Google, instead of engineering deficiencies in the median Googler. Google's search is getting worse for users because it's getting better at making profit, and Stadia is failing because of mismanagement as you say, not engineering quality which was by all accounts excellent.
You have to love the cold calculating thought process of fund managers. That statement basically translates to "Your engineers are better than everyone else and can keep their salary, but your other employees are grossly overpaid".
Past the shock of the statement though, that's likely true. Recruiters at Google aren't 63% better than recruiters elsewhere, if anything their job is easier because engineers want to work at Google so they always drown in resume.
A company like Google with a strong reputation and generous compensation can attract the best sales/recruiting/marketing professionals. There is no reason to think that these people are not at the top of their fields. Even within a company having your top sales people make 63% above the average is common. There is no reason to think that this trend should not hold across firms.
> There is no reason to think that these people are not at the top of their fields.
I'd flip that statement around though, people are at the top of their fields when they outperform competitors. If Google's sales team is paid 63% more than Microsoft's (and likely 100% more than Amazon's) then their sales numbers should justify that. Yet GCP is behind Azure and AWS.
Your employees aren't great because they have a great salary. They have a great salary because they are great. If the financials don't confirm that idea (i.e. your sales numbers are not higher than your competitors) then your team is not great. Pretending otherwise means you are just drinking the kool-aid of "everyone working here is nice, good and competent" and that just opens the door to a lot of abuse.
To be clear I'm not arguing against high wages, justifying layoffs or anything like that, but I take issue with the idea of that recruiters at Google are making 63% above Microsoft and 150% against other tech companies because they recruit really well.
This isn't because of the sales team. It's because of the flawed leadership strategy that was App Engine. They squandered precious years attempting to build a walled garden for cloud and GCP has been having to play catch up ever since.
Not necessarily disagreeing with you, but I wouldn't say "drowning in resumes" makes a recruiter's job easier... it may actually be harder, since they have to sift through all the applications to figure out who's really qualified.
Is this counting stock vesting? Because that's what's expected if you compensate people partly in 4y stock grants and they go up a bunch before vesting.
How much compensation their workers received in 2021 depended heavily on what had recently happened to Google's stock, which was up ~2x. It could easily have not done that, in which case compensation would be lower. This makes 2021 a weird year, and comp was already going to be much lower in 2022 and 2023.
If I'm reading this correctly, it seems they are saying Google has overpaid its employees, particularly those whose market competitiveness does not match their salary.
I find it hard to feel sad about anyone working in Silicon Valley, not after two decades of Silicon Valley decadence.
Yeah, that's an important point. Anyone who doesn't like this can write to Sundar and he will probably pay no attention, which is a bit less attention than he pays to TCI, but not much.
Shouldn't Google response be something like: "If you feel that you know better than the company management how to compensate our employees, we are wrong choice for your investment. You should invest in the other 20 largest listed tech companies instead."
I wonder if laws requiring salary ranges on job listings will inadvertently depress wage growth, since companies will be more able to aim for the middle. I know large companies already have some of this data, but having it out in the open might enable it more.
Google's in California, so it doesn't have non-competes like Microsoft or NY hedge funds. The question for Google isn't "what are they worth to us," it's "what is it worth to keep them from going to Microsoft."
Given that the mean salary at google is probably driven by people making 7 or 8 figures, I’m going to suggest that laying off 10,000 people will not change that one bit
As detailed in Alphabet's Schedule 14A filing, median compensation totaled $295,884 in 2021. An analysis by S&P Global illustrates that median compensation at Alphabet was 67% higher than at Microsoft and 153% higher than the 20 largest listed technology companies in the US. There is no justification for this enormous disparity.
Is that a super accurate description, though? Out of all the people whose pay could be described as "coming from Alphabet", only a fraction are actually Alphabet employees. Most are third-class citizen contractors who certainly do not get paid 300K a year.
Their argument sounds quite compelling, to be honest:
[1] https://www.tcifund.com/files/corporateengageement/alphabet/...