Ok Googlers! What will you do about layoffs?
A lot has been said about the manner and motivation of Google’s Layoff on Jan 20, 2023. I will not comment on the manner because it is impossible to come up with a winning argument on that dimension.
However I have lots to say about the motivation along with a plausible next step for what employees at stable companies like Google can do about innovating on corporate structures that emphasize long-term thinking. The post is anchored on Google due to my affinity to the company. The core narrative applies to almost any big company with stable profits. So this post could have been titled: Alexa/Jarvis/Bing: What to do about layoffs
Read on or click here to listen to it in your preferred podcast app. Or here is a tl-dr-ish Twitter thread.
This post is part 1 of a 2 part series. Think of this part as the narrative for an OK2Define gate review. (OK2Define review is a Google practice to get permission for using your colleagues’ bandwidth in fleshing out a new effort. Sort of a big-company process replacing the “Let’s lunch at Charlies” of yore). The second part is titled: Here’s a moonshot: Make Google Employee Owned
Expectations around a layoff
The answer to avoiding layoffs is buried in understanding the expectations of key players involved. So let’s understand the four canonical personas and their expectations around a layoff. In real life, people and orgs fall across more than one of these personas, of course.
Persona 1: The Family. View: Oppose layoffs.
Primary reasoning: Google has $188B in current assets and $90B in annual profits. The Family can’t make sense of a layoff that breaks Google’s brand promise as an employer while potentially saving just $5B annually. Anyways, this saving is barely enough to cover all the fines Google pays around the world.
Persona 2: The Cynics. View: Apathy towards layoffs.
Primary reasoning: Tiktok videos, the terrace scene in HBO’s Silicon Valley, and the meme that a Google job is a passive income strategy. The Cynics think that Google employees are overpaid along with unnecessarily big perks. So, no need to feel sorry for the laid off Googlers.
Persona 3: The Pragmatists. View: Support layoffs.
Primary reasoning: W̶i̶n̶t̶e̶r̶ Recession is coming. Google over-hired during the dramatic growth period. But it can no longer afford to continue poorly performing efforts, redundancies, and speculative projects.
Persona 4: The Investors. View: Demand layoffs.
Primary reasoning: Self-interest. The Investors believe that Google can make the same amount of money with far fewer people. In fact, they assert that Google is foolish to overpay employees when Google’s peers can get by with paying much less. If Google continues doing this, then there is less money left for the Investors. And guess what — maximizing value for the Investors is enshrined in law, governance, and finance. It is the basis for all rules of the game.
My views on these personas’ expectations
Now let me critique the expectations of these personas, in order to understand their underlying intent.
Persona 1: The Family. Good intent, but what they seek is against the rules of the game. This persona has the biggest unmet need.
Within the rules of the game, it doesn’t matter that metrics such as Google’s revenue per employee and profit per employee have remained stable. Also, any long-term downside of layoffs is just conjecture at this time. The necessity of layoffs is conjecture too, but it’s conjecture from people who own the decision.
Persona 2: The Cynics. Their views don’t matter because often these personas are bystanders. I’d still opine because sometimes these personas can manifest as other personas.
A large component of Googlers’ compensation is performance-based. Though the multiplier curves may have flattened over time by raising bonuses even at lower performance while trimming bonus for higher performance.. The cost of perks plausibly cancels out any direct or opportunity costs of attrition and hiring. Some perks improve creativity and productivity by decluttering minds to focus on being productive.
Persona 3: The Pragmatist. Not bad intent. But demonstrating a trader’s mentality.
For the Pragmatist, the best-case scenario is that the savings from layoffs kick in from 2024 onwards once there is indeed a recession. Wait — isn’t that the worst-case scenario? Depends on perspective. Now that layoffs have been done, it will be deemed a good decision only if there is a 2+ year recession soon. Otherwise, Google may need to ramp up hiring again, making layoffs seem like a bad decision. Yes — Google’s current growth narrative is filled with cognitive dissonance at multiple levels. — we will come back to this later in the post.
Or perhaps, the layoff decision was ultimately driven less by strategy and more by operational simplicity. The Google culture sometimes manifests into activism styled meddling. This was frequently on display at every TGIF’s Q&A, with questions asked in a condescending tone or trivial gripes such as not getting a ~$500 Christmas gift. Or, consider confidentiality, where the culture has devolved so much that leaks have become a default at Google. So a layoff may have seemed like an operationally easier path than dealing with Googlers who would have probably revolted against any reallocation of resources.
Persona 4: The Investor. Rules are stacked in their favor.
For most investors, everything reduces down to numbers on a spreadsheet. They like to see the shortest path to making money. If you ask investors what product a company should build, they’d recommend an automated money printer. Not a search engine that ultimately functions like a money printer and needs ongoing improvement & upkeep. They’ve given money to builders for a reason rather than building businesses themselves. But the rules of the game are in the favor of the Investors.
I wish someone ran an analysis on how much billionaire fund managers get paid and how many of them can be removed without hurting investor returns. Well — I digress.
One thing everyone likes: A growing stock price
Everyone likes it when the stock price goes up. Well with the exception of short-sellers — which is just 0.55% of the Google float at the time of this writing. So they’re not a persona in our target audience.
I clearly like it when the Google stock price goes up. Heck, many Googlers get 50%+ of their comp in the form of Google stock.
So we can assume that the last several decades of stock price growth has made fortunes for most Google employees.
However the Investors are the top persona with rules of the game in their favor. Another key party, the Board, has a fiduciary responsibility to do what Investors like. So the Board also likes growth in Google stock price. They view it as the truest of any metric to gauge how well they’re serving their fiduciaries. They’ve even embedded this metric deeply into exec compensation, essentially making stock price growth an OKR with a priority of P0.
Collectively, the 5 named Google execs performance driven compensation stands at around $200M+. The primary criteria to evaluate their performance is percentile ranking of Google’s stock returns as compared to the S&P 100.
I’m certainly not at a paygrade to judge if a 2 year timeframe for evaluating this performance is adequately long (Lol — paygrade! I have always hated that word).
Execs are likely good at heart but even better at achieving set goals
It is by virtue of these execs’ astute decision making that the Google stock price grew 36x in the 18 years since its IPO.
As Google goes through its lifecycle, execs are using every toolset possible to perform on their P0 OKR. Here’s how those tools (and some tricks) stack up.
Fundamental Tool: Execs first drove revenue and earnings growth to make Google’s stock a multibagger. During this time, they made many, sometimes duplicative, bets with an asymmetry in cost vs returns. Sometimes, execs were too cautious to avoid rocking the boat by doing something unknowingly that will stop the money from rolling in. This led to accumulation of cultural debt and team allocation baggage.
Fair Tool: Since 2015, Google has continuously ramped up the share repurchase program. They efficiently returned $119B in profits back to investors through buybacks while raising the valuation for those who remain invested.
Cheap tricks: The 1:20 stock split is a means to qualify for entry into indices that would require funds to buy the Google stock to mirror the index. This added demand pressure can sometimes grow the stock price purely from supply and demand dynamics
Dirty tricks: The market has been demanding Layoffs. So why not — especially when there is enough air-cover from layoffs among Google’s peer group. The cognitive dissonance is — if Google is a long-term growth story, then why bother with layoffs? If it is not a long-term growth story, then are these layoffs enough to save Google? An early Google Director used to joke: “Google does not make money. Google collects money”. I guess, Google now agrees that it can collect this money with fewer people. Ultimately what matters is that layoffs can boost the stock price in the short-term.
Non-goals: There is no obvious metric that tracks execs performance on intangible assets such as Google’s trust and credibility as an employer. So execs maintained this trust and credibility until this optionality started to not be worth the cost to maintain it.
All this time execs have been working hard towards pursuing the top goals that the board set for them.
So what can Googlers do?
I’m not proposing collective bargaining here as an effective solution. Especially in an industry like Google where even without such collective bargaining the quality of life is quite good.
Instead, Google employees could use their dual role as shareholders besides being employees. Remember all of that stock based compensation? Google’s spend on stock based compensation from 2009 to 2021 would have been equivalent to owning ~10% of Google (ignoring the tax portion that is settled in cash).
For context, TCI Fund barely owns 0.5% of Google. Yes — the TCI whose billionaire fund manager wrote an open letter to Google asking for 20% layoffs i.e. ~40k employees.
So the stock based compensation data serves as a backtesting signal indicating plausibility of innovating on the corporate structure. Yes — there are many more nuances to it. Remember this post is like an OK2Define review. More on the corporate structures in my next post: Here’s a moonshot: Make Google Employee Owned.
My next post in this series will be on using the current rules of the game to help employees gain influence
Last year, I left Google to build a startup that creates a special bond between SMB owners and their employees. So I named the startup Zolidar. The name is inspired by Solidary or Jodidar (our etymology).
Zolidar is building SaaS and copilot tools to ease adoption of shared ownership.
There are many variations of innovative corporate structures that can be applied to stable and mature companies too. Recently, OpenAI and Patagonia adopted a highly customized variation of a corporate structure where the end goal is to become a non-profit.
In my next blog post, I will go into some of these frameworks and how they apply to Google. But before that I need you to fill a quick survey to help frame the next post.
Care about fixing corporate structures? Then please fill this 1 minute survey for my next post.
Made it this far? Continue to read why Employee-Ownership is the answer.
My next post, titled: Here’s a moonshot: Make Google Employee Owned. The post continues to dive deeper on what made Google successful and how those attributes have stopped being effective. I end the post in the why & how of Google under employee-ownership.
Just for context, a company is generally considered to be employee-owned if 30%+ of company ownership is spread across 50%+ of employee base. Continue reading my next post or leave a comment on this one. I read and respond to every comment.
