With Google, everyone is an armchair HR critic

The handwringing over Google's hiring practices is getting to be comical.

Google hired 2,130 people in the third quarter and now employs almost 16,000. Oh no! News.com's Elinor Mills asks what these people do? Short answers: Sell ads, cook up new technology and add brainpower to the company. Saul Hansell at the New York Times notes that Google is trying to wean itself from its hiring addiction. Yahoo hired 1,200 people in the third quarter for a total of 13,600. Did that raise such a ruckus?

According to the transcript of the third quarter earnings conference call Google CEO Eric Schmidt's hiring explanation went like this:

Douglas Anmuth, an analyst at Lehman Brothers, asked Google CEO Eric Schmidt the following:

It looks like you added more than 2100 net headcount adds in the quarter, which is significantly more than you added in Q2, despite being more focused on headcount. So even ex Postini, it looks like it is more than 1800. So can you give us some color on the timing of your hires during 3Q and also how we should think about this in relation to margins going forward? Thank you.

Schmidt's answer:

Obviously can’t talk about margins going forward. What we said last quarter, as you know, is that this is an area where we needed to spend some more time and focus more on what is the appropriate rate. And the good news is we have done that. The numbers that you are seeing are essentially an overhang and they are an overhang from hiring that had been agreed to many, many months earlier. June, of course, is a major college hiring, university hiring, professor hiring kind of a cycle, so I don’t know that that will be repeated. The important thing here is that we did in fact correct and I think going forward, you should be comfortable that we are paying a lot of attention to the headcount.

So if you take Google at its word, it hired a bunch of brainiacs and now it'll toggle back a bit. No need to panic here folks--as long as Google keeps delivering huge quarters. Meanwhile, operating expenses in the third quarter fell to 30 percent of revenue from 31 percent. Expenses just aren't running amok.

To wit:

• Google ended the third quarter with 15,916 employees. For the nine months ended Sept. 30, Google had $11.76 billion in revenue. That works out to $739,338 in revenue per employee. Not too shabby. This figure is based on the way Google sees revenue, which includes traffic acquisition costs. It's imperfect, but gives you a view of how Google sees things. On that same basis, a Yahoo employee generated $377,740 in revenue for the nine months ended Sept. 30.
• For the nine months ended Sept. 30, Google had net income of $2.99 billion. That works out to $188,318 in profit per employee. Yahoo: $33,402. (Note: The Google comparison to me is Amazon since the etailer has a penchant for investing (and hiring) for the future Wall Street be damned. The rub: Amazon hasn't reported its nine month results yet.)
• Derek Brown, an analyst at Cantor Fitzgerald, noted that "Google has now generated year over year net revenue growth of 60% or more in at least 23 consecutive quarters, by our estimate." It takes headcount to support that growth.
• Along those same lines, Google is growing 4 times faster than Yahoo and twice as fast as eBay and Amazon.

Now Google's hiring practices could become worrisome and HR and culture are the company's biggest challenge. And it is odd that 41 percent of the company has been hired in the last 12 months. But then again Google is an odd company. It's run by a three-headed entity--Sergey Brin, Larry Page and Eric Schmidt--that would never fly anywhere else. Google is defying the laws of large numbers with growth and delivering big profits. Until that changes why get hung up on being an armchair HR person?