Compensation, HR News & Trends

Secret Wage Agreements Cast a Dark Shadow Over Silicon Valley

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After years of stories about the incredible worker perks, the “don’t be evil” corporate mottos, and the higher brand of capitalism practiced by some of Silicon Valley’s most celebrated companies, a darker side has emerged.

Roughly 60,000 Silicon Valley workers have gained clearance to pursue a class action lawsuit accusing Apple, Google, Adobe and Intel of conspiring to hold down wages through secret agreements not to poach one another’s staff  in violation of the Sherman and Clayton Antitrust Acts.

Mark Ames at Pando, in his article Techtopus: How Silicon Valley’s most celebrated CEO’s conspired to drive down 100,000 tech engineers’ wages, provides a detailed timeline and description of the events and players involved in the secret arrangements, even showcasing some of the emails involved.

It all dates back to George Lucas

The philosophy underlying the conspiracy actually dates back to George Lucas, who is quoted in 1986 court documents at the time he sold the computer animation division of Lucasfilm, Pixar, to Steve Jobs explaining that companies should not be directly competing for computer engineering talent because “we don’t have the margin for that sort of thing.” The story about the actions underlying the lawsuit, however, had its real beginnings in 2005.

From Ames’ article:

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 Feb. 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 U.S. 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 billion effectively 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 U.S. District Court judge Lucy Koh, who presided over the Samsung-Apple patent suit.”

Agreeing to reduce wages and competition

The companies involved not only agreed not to recruit one another’s employees, but also allegedly shared salary data with one another in an effort to coordinate pay practices.

In the court documents, the plaintiffs in the class action suit explain that by eliminating the competition among themselves that would normally exist in a “properly functioning and lawfully competitive labor market” through the prohibition of “cold calling.” the defendants reduced both employee wages and mobility:

Most directly, Plaintiffs allege that the practice of cold calling provides the recipient of a cold call with opportunities to secure higher wages either by switching to a rival company or by negotiating increased compensation with the recipient’s current employer. Id. ¶ 46. Plaintiffs further allege that the compensation effects of cold calling are not limited to those individuals who receive the calls. Rather, Plaintiffs allege, the effects of cold calling (and the effects of eliminating cold calling) have a broader, common impact on Defendants’ salaried employees, especially their technical employees. Id. ¶ 50.

Many of us in HR chafe at the restrictions that the Sherman Antitrust Act places on our efforts to collect and exchange compensation data with other employers. Perhaps this case serves as a helpful reminder of why those laws exist in the first place.

This was originally published on Ann Bares’ Compensation Force blog.

Ann Bares is the Managing Partner of Altura Consulting Group. She has over 20 years of experience consulting in compensation and performance management and has worked with a variety of organizations in auditing, designing and implementing executive compensation plans, base salary structures, variable and incentive compensation programs, sales compensation programs, and performance management systems. Her clients have included public and privately held businesses, both for-profit and not-for-profit organizations, early stage entrepreneurial organizations and larger established companies. Ann also teaches at the University of Minnesota and Concordia University. Contact her at abares@alturaconsultinggroup.com.
  • Jacque Vilet

    This type of suspected “collusion” has existed for a long time. . I remember once at an annual salary vendor meeting of all participants —- compensation employees at two different companies got up and walked out of the meeting. Reason? They didn’t want to be involved in any discussion that could possibly be construed as “collusion”. With compensation professionals this is always a danger as most of them discuss pay issues with their counterparts on a regular basis. Good for us to be reminded of the legal repercussions.