Silicon Valleys most celebrated CEOs conspired to drive down 100,000 tech engineers wages
By Mark Ames, written on
In early 2005, as demand for Silicon Valley engineers began booming, Apple's Steve Jobs sealed a secret and illegal pact with Google's Eric Schmidt to artificially push their workers wages lower by agreeing not to recruit each other's employees, sharing wage scale information, and punishing violators. On February 27, 2005, Bill Campbell, a member of Apple's board of directors and senior advisor to Google, emailed Jobs to confirm that Eric Schmidt "got directly involved and firmly stopped all efforts to recruit anyone from Apple."
Later that year, Schmidt instructed his Sr VP for Business Operation Shona Brown to keep the pact a secret and only share information "verbally, since I don't want to create a paper trail over which we can be sued later?"
These secret conversations and agreements between some of the biggest names in Silicon Valley were first exposed in a Department of Justice antitrust investigation launched by the Obama Administration in 2010. That DOJ suit became the basis of a class action lawsuit filed on behalf of over 100,000 tech employees whose wages were artificially lowered — an estimated $9 billioneffectively stolen by the high-flying companies from their workers to pad company earnings — in the second half of the 2000s. Last week, the 9th Circuit Court of Appeals denied attempts by Apple, Google, Intel, and Adobe to have the lawsuit tossed, and gave final approval for the class action suit to go forward. A jury trial date has been set for May 27 in San Jose, before US District Court judge Lucy Koh, who presided over the Samsung-Apple patent suit.
In a related but separate investigation and ongoing suit, eBay and its former CEO Meg Whitman, now CEO of HP, are being sued by both the federal government and the state of California for arranging a similar, secret wage-theft agreement with Intuit (and possibly Google as well) during the same period.
The secret wage-theft agreements between Apple, Google, Intel, Adobe, Intuit, and Pixar (now owned by Disney) are described in court papers obtained by PandoDaily as "an overarching conspiracy" in violation of the Sherman Antitrust Act and the Clayton Antitrust Act, and at times it reads like something lifted straight out of the robber baron era that produced those laws. Today's inequality crisis is America's worst on record since statistics were first recorded a hundred years ago — the only comparison would be to the era of the railroad tycoons in the late 19th century.
Shortly after sealing the pact with Google, Jobs strong-armed Adobe into joining after he complained to CEO Bruce Chizen that Adobe was recruiting Apple's employees. Chizen sheepishly responded that he thought only a small class of employees were off-limits:
I thought we agreed not to recruit any senior level employees.... I would propose we keep it that way. Open to discuss. It would be good to agree.
Jobs responded by threatening war:
OK, I'll tell our recruiters they are free to approach any Adobe employee who is not a Sr. Director or VP. Am I understanding your position correctly?
Adobe's Chizen immediately backed down:
I'd rather agree NOT to actively solicit any employee from either company.....If you are in agreement, I will let my folks know.
The next day, Chizen let his folks — Adobe's VP of Human Resources — know that "we are not to solicit ANY Apple employees, and visa versa." Chizen was worried that if he didn't agree, Jobs would make Adobe pay:
if I tell Steve [Jobs] it's open season (other than senior managers), he will deliberately poach Adobe just to prove a point. Knowing Steve, he will go after some of our top Mac talent...and he will do it in a way in which they will be enticed to come (extraordinary packages and Steve wooing).
Indeed Jobs even threatened war against Google early 2005 before their "gentlemen's agreement," telling Sergey Brin to back off recruiting Apple's Safari team:
if you [Brin] hire a single one of these people that means war.
Brin immediately advised Google's Executive Management Team to halt all recruiting of Apple employees until an agreement was discussed.
In the geopolitics of Silicon Valley tech power, Adobe was no match for a corporate superpower like Apple. Inequality of the sort we're experiencing today affects everyone in ways we haven't even thought of — whether it's Jobs bullying slightly lesser executives into joining an illegal wage-theft pact, or the tens of thousands of workers whose wages were artificially lowered, transferred into higher corporate earnings, and higher compensations for those already richest and most powerful to begin with.
Over the next two years, as the tech industry entered another frothing bubble, the secret wage-theft pact which began with Apple, Google and Pixar expanded to include Intuit and Intel. The secret agreements were based on relationships, and those relationships were forged in Silicon Valley's incestuous boards of directors, which in the past has been recognized mostly as a problem for shareholders and corporate governance advocates, rather than for the tens of thousands of employees whose wages and lives are viscerally affected by their clubby backroom deals. Intel CEO Paul Otellini joined Google's board of directors in 2004, a part-time gig that netted Otellini $23 million in 2007, with tens of millions more in Google stock options still in his name — which worked out to $464,000 per Google board event if you only counted the stock options Otellini cashed out — dwarfing what Otellini made off his Intel stock options, despite spending most of his career with the company.
Meanwhile, Eric Schmidt served on Apple's board of directors until 2009, when a DoJ antitrust investigation pushed him to resign. Intuit's chairman at the time, Bill Campbell, also served on Apple's board of directors, and as official advisor — "consigliere" — to Google chief Eric Schmidt, until he resigned from Google in 2010. Campbell, a celebrated figure ("a quasi-religious force for good in Silicon Valley") played a key behind-the-scenes role connecting the various CEOs into the wage-theft pact. Steve Jobs, who took regular Sunday walks with Campbell near their Palo Alto homes, valued Campbell for his ability "to get A and B work out of people," gushing that the conduit at the center of the $9 billion wage theft suit, "loves people, and he loves growing people."
Indeed. Eric Schmidt has been, if anything, even more profuse in his praise of Campbell. Schmidt credits Campbell for structuring Google when Schmidt was brought on board in 2001:
His contribution to Google — it is literally not possible to overstate. He essentially architected the organizational structure.
Court documents show it was Campbell who first brought together Jobs and Schmidt to form the core of the Silicon Valley wage-theft pact. And Campbell's name appears as the early conduit bringing Intel into the pact with Google:
Bill Campbell (Chairman of Intuit Board of Directors, Co-Lead Director of Apple, and advisor to Google) was also involved in the Google-Intel agreement, as reflected in an email exchange from 2006 in which Bill Campbell agreed with Jonathan Rosenberg (Google Advisor to the Office of CEO and former Senior Vice President of Product Management) that Google should call [Intel CEO] Paul Otellini before making an offer to an Intel employee, regardless of whether the Intel employee first approached Google.
Getting Google on board with the wage-theft pact was the key for Apple from the start — articles in the tech press in 2005 pointed at Google's recruitment drive and incentives were the key reason why tech wages soared that year, at the highest rate in well over a decade.
Campbell helped bring in Google, Intel, and, in 2006, Campbell saw to it that Intuit — the company he chaired — also joined the pact.
From the peaks of Silicon Valley, Campbell's interpersonal skills were magicaland awe-inspiring, a crucial factor in creating so much unimaginable wealth for their companies and themselves. Jobs said of Campbell:
There is something deeply human about him.
And Schmidt swooned:
He is my closest confidant...because he is the definition of trust.
Things — and people — look very different when you're down in the Valley. In the nearly 100-page court opinion issued last October by Judge Koh granting class status to the lawsuit, Campbell comes off as anything but mystical and "deeply human." He comes off as a scheming consigliere carrying out some of the drearier tasks that the oligarchs he served were constitutionally not so capable of arranging without him.
But the realities of inequality and capitalism invariably lead to mysticism of this sort, a natural human response to the dreary realities of concentrating so much wealth and power in the hands of a dozen interlocking board members at the expense of 100,000 employees, and so many other negative knock-off effects on the politics and culture of the world they dominate.
One of the more telling elements to this lawsuit is the role played by "Star Wars" creator George Lucas, who emerges as the Obi-Wan Kenobi of the wage-theft scheme. It's almost too perfectly symbolic that Lucas — the symbiosis of Baby Boomer New Age mysticism, Left Coast power, political infantilism, and dreary 19th century labor exploitation — should be responsible for dreaming up the wage theft scheme back in the mid-1980s, when Lucas sold the computer animation division of Lucasfilm, Pixar, to Steve Jobs.
As Pixar went independent in 1986, Lucas explained his philosophy about how competition for computer engineers violated his sense of normalcy — and profit margins. According to court documents:
George Lucas believed that companies should not compete against each other for employees, because '[i]t's not normal industrial competitive situation.' As George Lucas explained, 'I always — the rule we had, or the rule that I put down for everybody,' was that 'we cannot get into a bidding war with other companies because we don't have the margins for that sort of thing.'
Translated, Lucas' wage-reduction agreement meant that Lucasfilm and Pixar agreed to a) never cold call each other's employees; b) notify each other if making an offer to an employee of the other company, even if that employee applied for the job on his or her own without being recruited; c) any offer made would be "final" so as to avoid a costly bidding war that would drive up not just the employee's salary, but also drive up the pay scale of every other employee in the firm.
Jobs held to this agreement, and used it as the basis two decades later to suppress employee costs just as fierce competition was driving up tech engineers' wages.
The companies argued that the non-recruitment agreements had nothing to do with driving down wages. But the court ruled that there was "extensive documentary evidence" that the pacts were designed specifically to push down wages, and that they succeeded in doing so. The evidence includes software tools used by the companies to keep tabs on pay scales to ensure that within job "families" or titles, pay remained equitable within a margin of variation, and that as competition and recruitment boiled over in 2005, emails between executives and human resources departments complained about the pressure on wages caused by recruiters cold calling their employees, and bidding wars for key engineers.
Google, like the others, used a "salary algorithm" to ensure salaries remained within a tight band across like jobs. Although tech companies like to claim that talent and hard work are rewarded, in private, Google's "People Ops" department kept overall compensation essentially equitable by making sure that lower-paid employees who performed well got higher salary increases than higher-paid employees who also performed well.
As Intel's director of Compensation and Benefits bluntly summed up the Silicon Valley culture's official cant versus its actual practices,
While we pay lip service to meritocracy, we really believe more in treating everyone the same within broad bands.
The companies in the pact shared their salary data with each other in order to coordinate and keep down wages — something unimaginable had the firms not agreed to not compete for each other's employees. And they fired their own recruiters on just a phone call from a pact member CEO.
In 2007, when Jobs learned that Google tried recruiting one of Apple's employees, he forwarded the message to Eric Schmidt with a personal comment attached: "I would be very pleased if your recruiting department would stop doing this."
Within an hour, Google made a "public example" by "terminating" the recruiter in such a manner as to "(hopefully) prevent future occurrences."
Likewise, when Intel CEO Paul Otellini heard that Google was recruiting their tech staff, he sent a message to Eric Schmidt: "Eric, can you pls help here???"
The next day, Schmidt wrote back to Otellini: "If we find that a recruiter called into Intel, we will terminate the recruiter."
One of the reasons why non-recruitment works so well in artificially lowering workers' wages is that it deprives employees of information about the job market, particularly one as competitive and overheating as Silicon Valley's in the mid-2000s. As the companies' own internal documents and statements showed, they generally considered cold-calling recruitment of "passive" talent — workers not necessarily looking for a job until enticed by a recruiter — to be the most important means of hiring the best employees.
Just before joining the wage-theft pact with Apple, Google's human resources executives are quoted sounding the alarm that they needed to "dramatically increase the engineering hiring rate" and that would require "drain[ing] competitors to accomplish this rate of hiring." One CEO who noticed Google's hiring spree was eBay CEO Meg Whitman, who in early 2005 called Eric Schmidt to complain, "Google is the talk of the Valley because [you] are driving up salaries across the board." Around this time, eBay entered an illegal wage-theft non-solicitation scheme of its own with Bill Campbell's Intuit, which is still being tried in ongoing federal and California state suits.
Google placed the highest premium on "passive" talent that they cold-called because "passively sourced candidates offer[ed] the highest yield," according to court documents. The reason is like the old Groucho Marx joke about not wanting to belong to a club that would let you join it — workers actively seeking a new employer were assumed to have something wrong with them; workers who weren't looking were assumed to be the kind of good happy talented workers that company poachers would want on their team.
For all of the high-minded talk of post-industrial technotopia and Silicon Valley as worker's paradise, what we see here in stark ugly detail is how the same old world scams and rules are still operative.
Roughly a century ago, men like William Randolph Hearst, Joseph Pulitzer and Henry Luce dominated the media landscape. These moguls built their publishing empires and used them to intimidate rivals, espouse favored causes and settle scores.
Today, members of a new Gilded Age are again in control of many of the country’s most venerable media outlets. Only now, it is tech entrepreneurs, casino magnates and hedge fund billionaires who are seizing control of the press, simply by writing a check.
In the most recent transaction, Marc Benioff, the founder of the software company Salesforce, bought Time magazine on Sunday for $190 million in cash.
With the deal, Mr. Benioff joined an elite club of relatively new press barons that includes the Amazon founder Jeff Bezos, who owns The Washington Post; Laurene Powell Jobs, the widow of the Apple co-founder Steve Jobs and the head of the Emerson Collective, who acquired a majority stake in The Atlantic; and Michael R. Bloomberg, who owns Businessweek and Bloomberg News. At a moment when many print publications are struggling to survive, the largess of a wealthy owner can seem like a godsend. But there are also fresh concerns, some based on recent experience, that these individuals are assuming an unhealthy amount of influence. “Even good billionaires need to have less of a role in our public life,” said Anand Giridharadas, author of “Winners Take All,” a new book about the global elite. “They are buying up the free press, which is meant to hold them accountable.”
Beyond the marquee names, local billionaires now own the daily newspapers in Minneapolis, Las Vegas, Los Angeles and Boston. Smaller outlets — including The Village Voice, The New Republic and Gothamist — were also bought by wealthy individuals in recent years.
And all of this is happening as the business model for print and online journalism remains precarious at best.
“We have a new era, particularly in the last few years, of billionaire owners from the new economy who are intrigued by this old dilemma,” said Tom Rosenstiel, executive director of the American Press Institute, a journalism advocacy group.In some cases, these new owners succeed in revitalizing the publications they acquire, injecting them with new energy and freeing them from the pressures of short-term profits, while preserving editorial independence. By all accounts, Mr. Bezos has refrained from meddling in the news or the editorial operations of The Washington Post, where the newsroom has grown significantly under his ownership. Ms. Jobs has earned similarly high marks for her work at The Atlantic over the last year. Businessweek was reinvigorated under Mr. Bloomberg’s ownership. The new owner of The Los Angeles Times, Patrick Soon-Shiong, is investing in the paper, and has pledged to allow it to operate with editorial independence. And in Minnesota, a local businessman, Glen Taylor, has drawn praise for his ownership of The Minneapolis Star Tribune, which he bought for about $100 million in 2014. “Jobs and Bezos and presumably Benioff, these people are doing good work,” said Craig Newmark, the founder of Craigslist, who recently donated $20 million to the CUNY Graduate School of Journalism. “Anything that helps independent journalism is a good thing.”
But just as often, it seems, the new owners of newspapers and magazines can sap newsroom morale, or quickly discover that they have little tolerance for financial losses, or unions. After Chris Hughes, a co-founder of Facebook, bought The New Republic six years ago and tried to remake it — leading to the exodus of many longtime members of its staff — he eventually sold it.Image
Peter D. Barbey, the heir to a retail fortune who bought The Village Voice in 2015 and pledged to support it, recently closed it.
And last year, Joe Ricketts, the billionaire founder of TD Ameritrade, shut down Gothamist and DNAinfo after its writers voted to unionize.
“Being owned by a local billionaire is not necessarily an act of charity,” Mr. Rosenstiel said. “There are clearly billionaires who are buying up publications because they want to influence political discourse in the country.”
At The Las Vegas Review-Journal, which the casino magnate Sheldon Adelson bought in 2015, reporters and editors have been concerned about what they perceive as his editorial interference.
Even John Henry, who made a fortune with his investment firm and is well regarded as the owner of The Boston Globe, has recently expressed some distaste for the economics of print media.
“The Globe cannot ever seem to meet budgets — on either the revenue side or the expense side — and I am not going to continue that,” he said in an interview with WGBH in July. “This has always been about sustainability rather than sizable, endless, annual losses. That is frustrating and due to a combination of mismanagement and a tough industry.” For much of the 20th century, print publications were largely owned by private companies — often helmed by families like the Scrippses and the Chandlers — that had started a publication in one city and gradually expanded. By the 1970s, consolidation and ample profits from print advertising led many of these companies to go public. But in the late 1990s, advertising on the internet began to chip away at print profits. And in recent years, many once-proud print empires have consolidated, others have been sold for parts, and some papers and magazines are simply going out of business.
Amid this turmoil, the new generation of wealthy buyers has emerged. But while buying a high-wattage publication can deliver an owner a certain amount of status and prestige, it can also invite controversy.
President Trump, displeased with coverage of his administration in The Washington Post, has taken to attacking Amazon on Twitter, even though Mr. Bezos — not Amazon — owns the newspaper.
And Mr. Benioff may find himself facing the ire of Mr. Trump should Time continue publishing tough covers that portray the president in a critical light. (Mr. Benioff has sparred with members of the administration in the past. In 2015, when Vice President Mike Pence was the governor of Indiana, Mr. Benioff threatened to reduce Salesforce’s business there in protest of a state law that critics said discriminated against people who are gay or transgender.)
Walter Isaacson, a former editor of Time, said that for most of his career, he had believed that the best owners for media companies were publicly traded corporations, where there was less of a chance for a wealthy owner to meddle. That changed, he said, during his tenure at Time. “Then I went through the disaster of Time Warner, a company that only cared about short-term stock price and didn’t have a feel for journalism,” he said. Now, Mr. Isaacson said, “I have come to the belief that a sole proprietor, especially a benevolent and public spirited one, is a good thing in troubled times.” Mr. Giridharadas, however, remains skeptical that ultrarich individuals, however public spirited, are the best owners for the free press. “I’m concerned about the powerful having an oligopoly of the media,” he said. “The only amount of power that a billionaire should have over a paper they own is zero.”
Crowd panics, market bubbles, and other unpredictable collective behaviors would not happen if people were smart about these things and just thought through their behavior before they acted. Right? That's the perspective in economics, and even psychology and sociology.
But a UC Davis researcher looked at how people behave in simple reasoning games and found that people are usually driven to "flock," or behave similarly to others in a given situation. Seth Frey, an assistant professor of communication at UC Davis, said this happens "even when people use the fancy reasoning processes that are supposed to make humans so special."
Frey is lead author of an article, "Cognitive mechanisms for human flocking dynamics." The paper appeared in the Journal of Computational Social Science this month.
"The basic idea is that we have this preconception about fads and panics and flocks and herds, that they are driven by our basest animal spirits, and that adding thoughtfulness or education or intelligence would make those things go away," Frey said.
"This paper shows that people who are being thoughtful (specifically people who are doing dizzying 'what you think I think you think I think' reasoning) still get caught up in little flocks, in a way that the game they end up playing is driven less by what seems rational and more by what they think the others think they're going to do."
Each game used in the study is based on a very different way of thinking and should have evoked different varieties of reasoning by players, Frey said. But they did not. The same sophisticated flocking behavior bore out in all three games.
Flocking can be good or bad
Researchers looked at the behavior of hundreds of players, who came from student and online pools, repeated for many rounds of the games over time. They analyzed behavior over high and low payoffs, over multiple populations and with very experienced players, with the well-known "Beauty Contest" game and two they devised for the research, "Mod Game" and "Runway Game," Frey said.
Rules and methods of winning each game varied.
In Beauty Contest, players receive a reward for guessing the number 0-100 whose number is closest to two-thirds the value of the average of all numbers submitted by all players. In the Mod Game, players choose an integer between 1 and 24. Players earn points by choosing a number precisely one above another's number, except that 1 beats 24, such as in Paper-Rock-Scissors, in that every number can get beaten by another. And in the Runway Game, players practice the same one-upmanship of the Mod Game, but they can choose literally any number, -1, a million, pi, anything. These subtle differences lead to big differences in theory, but they don't seem to matter to players, who get caught up in their group mates' flocking no matter what.
Frey explained that flocking, in life, can be good or bad. It can be good for schools of fish, flocking birds, or team cyclists in a race—where in each case group members gain a greater ability to obtain food, be safe or to win. But flocking can be undesirable in a stock market fall or a riot, for instance, where safety, survival or "winning" can be jeopardized.
"...These games show that sophisticated human reasoning processes may be just as likely to drive the complex, often pathological, social dynamics that we usually attribute to reactive, emotional, nondeliberative reasoning," the researchers conclude.
"In other words, human intelligence may as likely increase as decrease the complexity and unpredictability of social and economic outcomes."
More information: Seth Frey et al. Cognitive mechanisms for human flocking dynamics, Journal of Computational Social Science (2018). DOI: 10.1007/s42001-018-0017-x