Is Tech Hiring a 'Fixed' Game?

The U.S. Justice Department is investigating whether big tech firms have a de facto agreement to keep salaries down.

The U.S. Department of Justice has begun an investigation into the hiring practices of a number of Silicon Valley firms, including Yahoo and Apple, alleging collusion in hiring practices, according to several media reports.

Citing unnamed sources, stories in the Washington Post and New York Times say that the problem stems from an agreement among the firms not to poach each other's high level talent. By doing so, this keeps wages down because there isn't true competitive bidding for talent as firms try to outbid people for talent.

The DOJ would not confirm or deny the reports, and calls to Yahoo (NASDAQ: YHOO) and Apple (NASDAQ: AAPL) were not returned. Also named in the investigation is biotech giant Genentech.

The investigation is said to be "industry-wide" and at least a dozen firms have received DoJ inquiries.

The Times noted a tie to this issue and current events. In 2001, federal appeals court Judge Sonia Sotomayor, who is now a candidate for the Supreme Court, ruled that Exxon and other oil companies colluded in hiring decisions by agreeing to not hire from each other, thus suppressing wages.

Good luck proving it, said analyst and former recruiter Rob Enderle, principal of The Enderle Group. "Collusion is always hard to prove. But there are these black lists that exist, then they can work from that and allege from the black list the companies are colluding. Because it's so hard to prove, that's why the penalties are so high," he told

Black lists are lists companies have of other firms from which they will not recruit. Because this is business with a long supply chain, it would be easy to step on a partner by stealing their talent.

One Silicon Valley recruiter, who asked not to be identified by name, said that's fairly common. "I recently work for a large firm that gave us a list and said 'you can't recruit from these companies, they are our clients.' A lot of these firms have partnerships, so you can't recruit from those companies. Outside of that, it's pretty fair game," she said.

The Valley is also pretty small and companies and executives don't want to burn bridges, the recruiter added. But Enderle notes there have been a lot of layoffs, with many people leaving tech entirely, who wouldn't really care to torch some bridges on their way out. "All [the DoJ] needs is a couple of people," he said.

Poaching and lawsuits

The tech sector isn't known for aggressively poaching talent, in part because they all have to work together. When poaching does take place, lawsuits have a tendency to follow. In 2005, Microsoft and Google got into a brawl over Google luring away Microsoft executive Kai-Fu Lee. The two sides eventually settled.

More recently, Apple and IBM went at it out after Apple hired IBM executive Mark Papermaster to run its iPod business. He eventually took the job, but not before some legal wrangling. IBM, which has seen many of its executives poached by other firms, recently sued Dell over the hiring of another executive.

There is a bit of irony in all this investigation. The antitrust division has become very busy as of late, after enjoying what some critics might call an eight-year vacation during the Bush years for lax enforcement. The Silicon Valley enthusiastically supported the Obama candidacy and the result has been three investigations in six months.

First, the DoJ opened an inquiry into a settlement of a class action lawsuit between Google and publishers and authors. Then the Federal Trade Commission is looking into antitrust issues with the close ties between the boards of Apple and Google. Now this investigation, which may include Google, making it the third antitrust investigation to target the firm.

Enderle said the administration is being aggressive about antitrust everywhere. "They have a clear agenda to go after big business everywhere. They clearly have a mandate from the American voter to do this. With the banks and auto companies going south, I think the voter is saying they aren't real fond of big companies right now," he said.

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