Court docs: Google hiked wages to combat "hot, young" Facebook after Sandberg refused to join hiring cartel

By Mark Ames , written on March 30, 2014

From The News Desk

One of the striking things about the “Techtopus” wage-fixing scandal, now heading to a jury, is how strange it seems today that Intel, Intuit, Adobe or even Google and Apple were once able to constitute the core players in an effective tech hiring cartel. In 2007, 2008 they were the big dogs in tech, while the names that dominate today, like Facebook and Twitter, were still just getting started.

Indeed, as Pando’s Sarah Lacy explained recently, it was partly the emergence of those new giants — and their refusal to play ball with Jobs, Schmidt and his colluding cronies — that began to weaken the Techtopus, even before the Department of Justice antitrust division finally cracked down and drove a stake in the cartel's heart.

Now, thanks to newly unsealed court testimony as well as older, heavily-redacted documents, we have a much better idea just how nervous Google executives in particular were of the threat posed by Mark Zuckerberg's growing social network.

For instance, an October 2007 email from Sergey Brin sent to then-Google executive Marissa Meyer and to Google’s “Executive Management Group” — essentially the company’s Politburo — complained:

Having talked to a number of people now, I feel that we are even more at risk retention wise than I had previously imagined. [...] The facebook phenomenon creates a real retention problem, I now realize, not just because of FB’s direct hiring but the more insidious effect that everyone wants to start the next facebook or get rich by having a popular fb app. Whether fb itself does well or not is hard to predict but it is clear to me that there is a social networking bubble of imitations and tag alongs.
In other words: Brin saw that Facebook was the first of a new generation of startups which threatened the old guard’s dominance, and their ability to hire and retain the best of the talent.

In his deposition last year, Google's Jonathan Rosenberg admitted that the company was “concerned about Facebook’s recruiting.”

[ROSENBERG]: Because [Facebook] were the next hot, young, pre-IPO startup company.

Q: They were sort of like where Google was several years prior?

[ROSENBERG]: Relative to large, established companies in the Valley, yes, in many ways, that analogy is correct. A few questions later, Rosenberg was more direct in describing the difference between the two firms:

[ROSENBERG]: I think as I said before, Google was the – at this stage, Facebook was the young, hot, pre-IPO startup and Google was a larger, more established firm.
In his deposition, Schmidt made clear that Sheryl Sandberg’s defection from Google to Facebook in March 2008 posed a serious threat to Google:
"Sheryl had built our recruiting organization, was an excellent recruiter, and as she went over to Facebook, many people left Google to work for her in jobs which they perceived as promotions.

“There were also a number of engineering leaders who also went to Facebook, and it became -- and it was pretty clear that Facebook's management structure was being built out of executives coming out of Google, which is now a public company, Facebook was a private company.” According to testimony from Sandberg, recently unsealed, almost as soon as she left Google for Facebook in March 2008, her former Google colleagues began discussing ways to bring her and Facebook into the illegal wage-suppression cartel.

For her part, Sandberg insists that she and Facebook rejected Google's overtures, and the evidence (much still redacted) supports her position. People familiar with this case who have spoken off the record to PandoDaily back up Sandberg's account as well.

Fortunately, Google execs already had a plan B in mind, should Sandberg and Facebook prove unwilling to play ball. As Federal District Court Judge Lucy Koh wrote:

In March of 2008, Arnnon Geshuri (Google Recruiting Director) discovered that non-party Facebook had been cold calling into Google’s Site Reliability Engineering (“SRE”) team. Geshuri’s first response was to suggest contacting Sheryl Sandberg (Chief Operating Officer for non-party Facebook) in an effort to “ask her to put a stop to the targeted sourcing effort directed at our SRE team” and “to consider establishing a mutual ‘Do Not Call’ agreement that specifies that we will not cold-call into each other.” Arnnon Geshuri also suggested “look[ing] internally and review[ing] the attrition rate for the SRE group,” stating, “[w]e may want to consider additional individual retention incentives or team incentives to keep attrition as low as possible in SRE.” Finally, an alternative suggestion was to “[s]tart an aggressive campaign to call into their company and go after their folks—no holds barred. We would be unrelenting and a force of nature.”
The quasi-Nietzschean rhetoric in Geshuri's proposed war threat shows that Steve Jobs—who initially strong-armed Google into the cartel in early 2005—had apparently rubbed off on Google's executives.

By August 2008, with Facebook's recruiting efforts still gathering speed, Google brought in Bill Campbell for advice. Besides serving as Intuit's chairman, Campbell was the personal "coach" to Eric Schmidt and Steve Jobs, and served on the board of Apple as well as "senior adviser" to Google. In an email back-and-forth with Google's Executive Management Group (Google's "Politburo"), Campbell wrote:

"Who should contact Sheryl [Sandberg] (or [Facebook Founder] Mark [Zuckerberg]) to get a cease fire? We have to get a truce.”
According to Judge Koh—now backed by Sandberg's unsealed testimony:
Sandberg refused.
It was only after the DOJ busted the wage-fixing cartel that Google grudgingly accepted that the most effective way for them to retain talent would be to pay their employees more, and treat them better, than rival companies did. Judge Koh observes:
[Two months after the DOJ made public its investigation of Defendants], Google announced its “Big Bang,” which involved an increase to the base salary of all of its salaried employees by 10% and provided an immediate cash bonus of $1,000 to all employees. In an internal email, Laszlo Bock (Google Senior Vice President of People Operations) explained that the rationale for the Big Bang included: (1) being “responsive to rising attrition;” (2) supporting higher retention because “higher salaries generate higher fixed costs;” and (3) being “very strategic because start-ups don’t have the cash flow to match, and big companies are (a) too worried about internal equity and scalability to do this and (b) don’t have the margins to do this.”
Unfortunately that’s all we know for now because, beyond the evidence cited above, almost every mention to Facebook in the court documents remains redacted, or sealed.

Those tantalizing redactions include the email below, in which Sergey Brin appears to lay out his own proposal for changing employees' perception of Google vs Facebook...

Screen Shot 2014-03-29 at 1.13.38 AM

With the jury set to convene on May 27th, Pando will continue trying to uncover what lawyers for the defendants don’t want you to know about the workings of their cartel, and in particular what other steps Brin and other senior Google execs proposed to try to neutralize the threat of Facebook.

Google, Apple and the other defendants in the case have all so far declined to respond to Pando’s requests for comment. A request for comment from Facebook (~24 hrs ago) had not received a response by press time.

Follow all of our Techtopus coverage here.

[Image credit: Brad Jonas for Pando]