Google’s parent company, Alphabet Inc, was told it needed to make aggressive cost-cutting moves after receiving a letter from activist hedge fund TCI Fund Management.
The London-based hedge fund, TCI, is owned by billionaire Christopher Hohn who wrote a letter to Alphabet’s CEO Sundar Pichai on Tuesday requesting the company make swift decisions to reduce its financial output.
“This growth is excessive, both in relation to historic headcount growth and what the business requires,” Hohn said in the letter. “Our conversations with former executives of Alphabet suggest that the business could be operated more effectively with significantly fewer employees.”
Alphabet Inc’s staff numbers have increased at a rate of 20 per cent annually, almost doubling in growth to a staggering 187,000 employees since 2017, and it has one of the highest salaries in Silicon Valley.
The letter also notes that Alphabet Inc’s 14A filing showed staff’s median compensation was $US295,884 ($410,746) in 2021, making it 67 per cent higher than Microsoft and “153 per cent higher than the 20 largest listed technology companies in the US.” The median salary for the top 20 technology companies hovers around $US117,000 ($162,419) while Microsoft offers an annual salary of $US177,858 ($246,902). The letter argued against these numbers, saying, “There is no justification for this enormous disparity.”
Alphabet has also been told to eliminate costly long-term bets such as the self-driving car project Waymo, with the letter saying Alphabet’s outside bets cumulatively generated only $US3 ($4) billion but incurred a substantial loss of $US20 ($28) billion over the last five years.
TCI falls just outside Alphabet’s top 20 largest shareholders, according to CNBC’s David Faber.
Alphabet Inc did not immediately respond to Gizmodo’s request for comment.
The company is one of the only outliers to so far refrain from cutting back on employees as other tech companies including Meta and Twitter have both made moves to significantly reduce their staff numbers.
“We acknowledge that Alphabet employs some of the most talented and brightest computer scientists,” the letter said, “but these represent only a fraction of the employee base.” However, for Alphabet’s nonengineering staff, the letter said their compensation should fall “in line with other technology companies.”
The news comes as Facebook’s parent company Meta laid off about 11,000 employees, Twitter reduced its staff by 3,700 jobs, and The New York Times reported Amazon plans to lay off 10,000 employees, marking what some are calling the end of Silicon Valley’s golden era.
“This party couldn’t go on forever,” Margaret O’Mara, a professor at the University of Washington and author of The Code: Silicon Valley and the Remaking of America told The Guardian. “In many ways, we are just going back to normal after a huge run-up during which everything became supersized.”
There have been more than 121,000 layoffs across 789 tech companies in 2022 according to layoffs.fyi, a site that tracks job cuts across the tech industry. The numbers have jumped from 3,625 layoffs in February of this year to 25,563 within the first half of November.
O’Mara told The Guardian that inflation has played a role when it comes to layoffs in the tech industry, saying the low-interest rates in the past bolstered the tech boom, allowing companies like Uber and Airbnb to thrive.
However, despite the sudden uptick in layoffs and cost-cutting efforts, O’Mara told the outlet she does not believe this will be the end of the Silicon Valley tech industry. “The Bay Area and San Francisco has a resilient pull and distinctive qualities that are hard to replicate elsewhere,” she said.
“There is a reason people come there to live – they want to be there. The industry obituary has been written prematurely a few times,” she added. “It may be the end of an era for Silicon Valley, but it is unlikely to be the end of Silicon Valley.”