Hacker News Reader

Comment by 542458 | Hacker News Reader

This doesn’t really make sense to me from a game theory POV. As a company, laying off productive employees of my own has an insignificant impact on the total sector’s compensation, but reduces my output and therefore profitability. Why would I do it? If I think there’s some big sector-wide conspiracy to unnecessarily cause layoffs to depress wages, my dominant strategy is to not participate - I still gain the full benefits (since my own participation has only a trivial impact on the outcome), but without hurting my own output.

View on HN

> Why would I do it?

Because the investors want you to [1]. Companies are using this as an excuse to cut unprofitable projects (e.g., Alexa). They over-hired before interest rates went up, when borrowing money was essentially free.

> This doesn’t really make sense to me from a game theory POV

Assume company leadership only cares about short-term stock price, and recompute your game theory POV. The outcome is exactly what's happening right now.

[1] https://www.ndtv.com/world-news/google-layoffs-investor-told...

> Because the investors want you to [1]

Investors don't actually have any market power unless the company in question is doing a stock issue. For example, AMZN doesn't get any extra operating capital no matter how much of their stock any investor buys or sells on the open market. The only way "investors" can control a publicly traded company that isn't dependent on issuing new stock is by depressing the executive comp package's value. From that follows an obvious lesson on corporate governance. The fact that that obvious lesson isn't followed is proof enough that the system doesn't work exactly as advertised.

> The only way "investors" can control a publicly traded company that isn't dependent on issuing new stock is by depressing the executive comp package's value.

Or, y'know, if the Board — which is always composed of shareholders, who are, in public companies, expected to hold the stock value as their primary interest over the internal interests of the company, whether or not they're also officers of the company — operates by firing-and-replacing the CEO whenever the CEO does something the market responds sufficiently-negatively to. Or just makes it clear to the CEO that that's what will happen. (This is, in principle, where the infamous hypothetical "duty to shareholders" is supposed to come from. It's not a law; it's the market's ability to transitively fire the CEO through a share-price-incentivized Board.)

At least in the case of Google and Facebook, the owners have a different class of stock that has enough voting power that they cannot be fired by outside shareholders.

In public companies, majority (rather than plurality) shareholders who are also the officers of the company (i.e. where the CEO doesn't have to listen to the Board, because the CEO "is" the Board for all intents and purposes) are the exception, not the norm. Most companies have sold off an internal controlling interest by the time they go public. And, if they survive in the market, most other companies that kept an internal controlling interest initially, end up selling it off once all the founders leave or retire. (In fact, insofar as you can think of a retired founder as now having the interests of an external shareholder, the process is almost a tautology.)

For the relevant example, Nintendo's shareholdership — https://www.nintendo.co.jp/ir/en/stock/information/index.htm... — is composed of "47.43% Foreign Institutions and Individuals" (this category usually meaning "foreign investors"), and "31.07% Japanese Financial Institutions" (i.e. domestic investors.) So, (more than) 78.5% of Nintendo is externally owned. These are not voting shares, but that doesn't matter; they're a majority of shares, so they're controlling shares in practice: even if you can't vote, you can still do a coordinated dump of the company's stock to signal your displeasure. Thus, the institutional shareholders with these shares drive board allocation in a game-theoretic sense, rather than a legal sense.

That's why you see some very mysterious people (https://www.nintendo.co.jp/corporate/en/officer/index.html) on Nintendo's Board, specifically on an "Audit and Supervisory Committee" (a.k.a. "the actual Board; composed of people we didn't pick and don't really want here, but were strong-armed into taking by threats to do things to our share price; who can veto any decision made by the rest of the Board.") These are either large individual shareholders, or are "ambassadors" for the interests of institutional shareholders, or both.

Takuya Yoshimura is "Vice President at Mizuho Securities" — pretty clear why he's there. Asa Shinkawa works for an M&A company. Masao Yamazaki, retired Japanese railway tycoon, is likely there as a representative of his friends' institutional interests (and maybe the interests of some, er, "groups" in Japan); while Katsuhiro Umeyama, accounting-firm CEO, is there in a more formal (but not formalized) capacity to put a literal external auditor / comptroller lens on Nintendo's spending on behalf of whichever companies think that's needed.

Make no mistake — these people on this "Audit and Supervisory Committee" can get a Nintendo CEO or "President" fired, if they don't like their last-quarter decisions and resulting stock performance. That's pretty much all they can do; but in theory it's enough to steer the company, as they can just keep rolling the dice until they get a President whose policies happen to already align with theirs.

For companies with high levels of share-based compensation, share price is the denominator for converting grant values to shares, meaning the share price does affect the share pool consumption from any given grant.

First, the article you linked is talking about an investors who called for layoffs but the company didn't respond with layoffs. So it completely undermines your point.

Most importantly, the investors have minority stakes in many of these cases. Facebook, Google, etc. And how do you explain non publicly traded companies like Stripe?

Cheap debt and high margins fueled waste. It's as simple as that.

Stripe still has investors. And those investors have leverage over the corp-officers.

Cheap money did fuel waste. Investors want to reduce the burn.

You wrote:

    They over-hired before interest rates went up, when borrowing money was essentially free.

I'm confused. As I understand, the wealthiest tech companys do not borrow money. Yes, they all have highly advanced treasuries to manage cashflows (different currencies, etc.), but they do not need to create liabilities (new debt) to run their businesses. They are cashflow positive and highly profitable.

Are you trying to say that as interest rates rise, the consumption part of the economy has slowed, thus profit growth has slowed at Big Tech? If yes, hmm, I half agree to attribute to layoffs. Mostly, I think they are cleaning house. A lot of people are working on projects that have little or no revenue potential. During economic weak periods, it is normal to close those projects.

The big companies have debt, see https://www.microsoft.com/en-us/Investor/earnings/FY-2022-Q1... . It was often cheap for them to raise it in the past and quickly.

There is also another aspect in addition to sister comment: When interest rates are low, institutions with contractually agreed returns (pension funds and such) have to invest in riskier assets (stock, private equity, corporate bonds, riskier state bonds) to reach those targets.

When interest rates are where they should be they can just buy G8 government bonds. This leads to pretty big outflows from the stock and corporate bond markets.

Incidentally I think there is a huge blindspot (intentional or not) for the amount of economic pain this interest rate normalization will cause. After 10 years of negative real interest rates (central bank rate minus inflation) the economy and all its participants have become junkies. The withdrawal from the free money drug will be painful but neccesary.

> Because the investors want you to [1]. Companies are using this as an excuse to cut unprofitable projects

So it’s not a conspiracy to drive the wages down? Who would have thought.

Nnnno, it just means the investors also want to drive wages down. Because to far too many of them, labor is just a cost center.

Plus if others don't follow suit then you're going to have to rehire for more. Being early would be incredibly risky.

The reality is tech had lots of bloat that was sustained by a mix of high profit margins and cheap debt.

There is no big sector-wide conspiracy. A sector-wide conspiracy would be massively illegal. If, however, several companies individually decided a layoff is in their best interest for legitimate reasons (looming recession instead of suppress wages) then there can be the same practical effect without any criminal act.

Groups of people that are coordinating in ways and times others aren't can have a competitive advantage. The game is how to coordinate, and how to establish yourself as a member of the coordinating group, without actually coordinating because that's illegal.

Just saying, it has happened before [1]. Except this time they’d have the perfect cover of “no collusion, the economy is doing bad”. The CEOs of these large companies talk all the time. As do board members. Heck, some even share board members. It’s not that hard at this level to generate collusion that’s hard to prove.

Now I’m not saying this is what’s happened. I’m a big fan of Occam’s razor. But at the same time I wouldn’t dismiss it. Oh and the “massively illegal coordination”? Why don’t you look at what the outcome was of the DOJ prosecution of that case.

[1] https://en.m.wikipedia.org/wiki/High-Tech_Employee_Antitrust...

You don't need a formal conspiracy when interests converge.

https://www.youtube.com/watch?v=VAFd4FdbJxs

> There is no big sector-wide conspiracy. A sector-wide conspiracy would be massively illegal

The logic of this sentence is broken. As a thought exercise:

- There is no stealing, that would be illegal.

- There is no murdering, that would be illegal.

Clearly, something being illegal does not prevent it from existing. Otherwise it would not need to be made illegal in the first place.

Fact is, this has happened before with collusion, so there is no need to hypothesize. It is definitely possible.

It is possible to kill without legally murder. It is possible to have your property taken without someone legally stealing. This is the point I was attempting to make with my rhetoric.

Put in game theory language, the optimal solution for the game includes a group of people cooperating when defecting amongst a population of defectors would be the optimal strategy.

From a communications point of view, players have limited communication channels, and must both explain the game and encourage cooperation without directly doing so. The players have similar cultural backgrounds, having read the same books and having overlapping social circles. When a player announces their agreement to cooperate they used clearly false reasons, implying there is much left unsaid. Maybe the stock bump that happens when a player cooperates is a positive reinforcement signal by people concerned about rising labor costs.

This has been done before

Your logic is somewhat fallacious: specifically, you create a false dichotomy between "there is an illegal sector-wide conspiracy" and "these things could happen across the sector if there were fully legitimate reasons for them to".

You are missing the middle, which is that there is no conspiracy, but that many companies in the sector saw, at around the same time (though possibly influenced by some bellwether I'm unaware of), the opportunity to juice their stock prices with layoffs even though they're making record profits and don't actually expect to be hit by a looming recession.

Employees in large companies have limited output.

You kill a few useless projects and you keep shipping the important stuff.

This is done mainly to please the market. Hire when the market is good, fire when the market is bad.

+ factor in the interest rates

you are assuming those workers were productive (in terms of contribution to the bottom-line) to begin with, which a lot of insiders tend to disagree with.

I don’t think dropping the lowest 10% of developers is hurting your output. It might even raise it.

This has baked into it the incredibly naïve (and generally accepted to be incorrect) assumption that layoffs are performance-based. There are plenty of examples of FAANG and other companies laying off folks with 15, 20, 30 years of incredibly specialized and presumably valuable experience but with a compensation price tag to match.

If anything it's a great time to shed well-paid fat. Hire a noob out of MIT for 1/2 price and hope that the Sr. gave the project enough legs and enough documentation to allow the NUG to figure it out.

aka keep wages down

I mean that's certainly part of it. If (and it's a big if) you can run a project for less money, you probably should.

However I'm not sure it's as large-scale a thought process as "let's keep industry wages as low as we can" and more "I will look good if I can trim my budget, so I'm going to try to do that." The effect is the same, generally, but not quite as nefarious.

Isn't that his point? The companies don't need the conspiracy to instigate layoffs, they already had a legitimate reason to do so.

"I don’t think dropping the lowest 10% of developers is hurting your output. It might even raise it."

I have seen a few mass layoffs while I was contractor at different companies. Most of these big layoffs weren't performance based but they axed whole departments. Another group at danger were managers that didn't actually manage anybody. they were either demoted or let go. But in general I didn't get the impression that the layoffs were about performance. It was more about being lucky and being at the right place at the right time.

This does not work in practice. You don’t have a perfect metric to evaluate performance, and managers at all levels have some margin of decision and they can interpret different people’s productivity differently. The effects on morale are also usually terrible and can reduce the productivity of the remaining employees while the best ones polish their CV and look elsewhere.

This idea is rooted in a philosophy where people are interchangeable cogs that can be evaluated purely on a one-dimensional axis, don’t have emotions, and where you don’t have competitors taking advantage of this by getting good engineers for cheap you fired for ideological reasons.

This generally isn't how layoffs work because if there is any correlation between performance and protected indicators (age / gender / race / etc.), then a mass layoff may appear to be biased and open up a legal liability.

Instead, layoffs are shaped by specific reductions in funding for product areas, and a degree of randomization and rebalancing is mixed in to eliminate bias.

If you're Amazon it would... this wouldn't be the first time companies colluded to suppress wages in SV. It might not even be explicit collusion. These companies do have other motivations for these changes.

Reply on news.ycombinator.com