The Children’s Investment Fund Management CEO Christopher Hohn called for Google parent company, Alphabet, to reduce its headcount by another 25,000 workers, referencing excessive median salaries and breakneck growth in payrolls.
The British investor’s letter comes days after Alphabet CEO Sundar Pichai informed the company that some 12,000 positions would be eliminated as a result of macroeconomic turmoil and the need to manage costs, affecting roughly 6% of the company’s workforce of nearly 187,000. Hohn said that a headcount of 150,000 would be more appropriate since Alphabet has “more than doubled” payrolls in only five years, requiring a total headcount reduction of 20%.
“I am encouraged to see that you are now taking some action to right size Alphabet’s cost base and understand that it is never an easy decision to let people go,” Hohn told Pichai. “Ultimately management will need to go further.”
Shares for Alphabet have declined 24% over the past year, exceeding 9% decreases in the S&P 500 and 18% decreases in the technology-heavy NASDAQ Composite. The Children’s Investment Fund Management held more than $6 billion in shares as of two months ago.
Hohn added that management should “take the opportunity to address excessive employee compensation.” Median pay at the technology company is now $300,000, nearly seven times the national average, and occurs as “competition for talent in the technology industry has fallen significantly.” Pichai announced on Monday that top executives will now receive lower bonuses, according to a report from the Wall Street Journal.
Another letter sent by Hohn at the end of last year observed that costs for many core offerings had soared relative to revenues. Google Search witnessed expenses increase 18% year-over-year even as revenues grew 6%.
“Cost discipline is now required as revenue growth is slowing. Cost growth above revenue growth is a sign of poor financial discipline,” Hohn continued. “In a new era of slower revenue growth, aggressive cost management is essential.”
The letters come as several technology companies reduce headcount to restore lower cost structures. Microsoft CEO Satya Nadella revealed last week that the company would dismiss some 10,000 employees, while Amazon CEO Andy Jassy unveiled a total headcount reduction of 18,000 employees. More than 46,000 workers have been discharged from prominent American technology companies in the first month of 2023, according to a report from Crunchbase, even after firms in the sector dismissed 107,000 positions last year.
Hohn is one of several investors to call for widespread dismissals in the sector. Altimeter Capital Management CEO Brad Gerstner recently pressed Meta CEO Mark Zuckerberg to reform the company’s hiring practices and focus on core competencies, noting that headcount had tripled in four years. The social media company would later dismiss 13% of its employees.
“It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to Uber could achieve similar levels of revenue with far fewer people,” he said. “I would take it a step further and argue that these incredible companies would run even better and more efficiently without the layers and lethargy that comes with this extreme rate of employee expansion.”