Sack staff and pay them less, billionaire investor tells Google CEO in blistering letter

Google has far too many employees, and they’re too highly paid, according to a billionaire major investor who called on the parent company Alphabet to ride the torrid wave of tech layoffs gripping the industry and “aggressively” slash staff numbers.

TCI hedge fund owner Christopher Hohn has written a blistering public letter to Alphabet’s CEO Sundar Pichai urging management to take “aggressive” action in slashing costs in a “new era of slower revenue growth” just like Meta, Amazon and Microsoft have.

Hohn, who has more than $6 billion worth of shares in Alphabet, continues “cost discipline is now required as revenue growth is slowing”, adding pointedly that “cost growth above revenue growth is a sign of poor financial discipline”.

“In Q3 2022, total expenses grew 18% year-over-year while revenues grew only 6%,” he wrote.

The first thing the company should do to slash costs? Start sacking people, Hohn continues, as the “headcount is too high”, pointing out that, at a 20% per annum growth rate, Alphabet’s workforce has doubled since 2017 to reach 187,000.

“The company has too many employees and the cost per employee is too high,” Hohn stated plainly.

“Our conversations with former executives of Alphabet suggest that the business could be operated more effectively with significantly fewer employees.”

And once you’re done with the blood-letting, the billionaire continues, pay everyone less. Alphabet offers employees “some of the highest salaries in Silicon Valley”, Hohn points out, with a median compensation of US$295,884, or about $437,000.

That’s 67% higher than Alphabet’s rival Microsoft and 153% higher than the 20 largest technology companies in the US, according to an analysis from S&P Global that Hohn goes on to cite.

“There is no justification for this enormous disparity,” he said.

“Many employees are performing general sales, marketing and administration jobs, who should be compensated in line with other technology companies.”

Interestingly, Hohn says Google should stop trying to diversify into other industries, including the self-driving car experiment Waymo which hopes to beat Tesla in the race to mainstream autonomous vehicles.

“Unfortunately, enthusiasm for self-driving cars has collapsed and competitors have exited the market,” said Hohn.

“Ford and Volkswagen recently decided to shut down their self-driving car venture. Waymo has not justified its excessive investment and its losses should be reduced dramatically.”

The year of tech layoffs

It comes amid a torrid year for the tech industry worldwide. Last week, Meta cut 11,000 of its 87,000 staff in the first round of redundancies in the company’s history, sacking about one in eight staff across Facebook, Instagram and WhatsApp.

CEO Mark Zuckerberg admitted he had overestimated the growth trajectory of his company during the pandemic and hadn’t foreseen the economic downtown, with several countries hurtling towards a probable recession in 2023.

“At the start of COVID-19, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended,” Zuckerberg said.

“I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected.”

This week rumours swelled that Amazon was sacking 10,000 staff in corporate and technology roles, which would be the largest-ever staff layoff round at the company.

There have also been widespread layoffs this year at Klarna, Airtasker, Linktree, Shopify, and several more, with many citing the same reasons as the tech titans — pandemic slowdown and too-aggressive expansion.

Legal costs mounting

It comes after the Australian Federal Court in August ordered Google to pay $60 million for breaching consumer law by telling Android users that the Local History function was the only place where one’s location could be toggled on or off.

In actuality, the Web & App Activity function also enabled Google to collect, store and use personally identifiable location data when it was turned on. It was turned on by default.

Australian Competition and Consumer Commission chair Gina Cass-Gottlieb slammed Google for being reckless with people’s personal information, with estimates that 1.3 million Australians may have been affected by the breach.

“This significant penalty imposed by the court today sends a strong message to digital platforms and other businesses, large and small, that they must not mislead consumers about how their data is being collected and used,” Cass-Gottlieb said.

“Personal location data is sensitive and important to some consumers, and some of the users who saw the representations may have made different choices about the collection, storage and use of their location data if the misleading representations had not been made by Google.”

Meanwhile, Google has been ordered to fork out $585 million in the US after it was caught tracking user locations — even when the location tracking had been turned off — in what the US authorities say is the biggest multi-state privacy settlement in history.

Google had assured users that pausing its Location History function would stop location tracking, but it was still storing location data when people opened the Maps app and used the search function.

But Google claimed it had solved the location tracking issue some years back.

“Consistent with improvements we’ve made in recent years, we have settled this investigation, which was based on outdated product policies that we changed years ago,” spokesperson Jose Castaneda said in a statement.

The company has since released new transparency tools, including auto-delete controls that allow users to either delete data or only keep three, 18 or 36 months’ worth on file.

Maps’ new incognito mode, much like the browser equivalent, allows users to use the app without their search history being saved.