Why is the FTC looking at McKinsey? The reason is that this consulting giant is a ringleader of pricing in the economy. McKinsey’s main strength is that it is trusted by corporate America to gather large troves of sensitive business data, and then share insights about that data.
To give you a sense of how this system works, here’s an email from a BIG reader on how important McKinsey is to his corporation.
I was working as an engineer for [large oil company] in 2018. After a wave of resignations and a lot of complaints about pay versus competitors, the corporate headquarters i sent the head of remuneration to speak to the engineering staff about how “competitive” the [large oil company]’s pay was.
All the engineers and engineering managers, roughly 200 people or so, were invited into a large auditorium and provided a presentation on how we were paid versus competitors. The presentation relied on McKinsey’s data. It showed [large oil company]’s pay for given engineering disciplines (i.e. mechanical or chemical, among others) distributed across bell curves, with [large oil company] and a few dozen major and minor competitors placed along each curve.
Other slides featured a matrix that showed which competitors paid bonuses, pensions, additional money for high COL areas, and the portions of compensation that were salary versus benefits. Then we were told that [large oil company] targeted to be 50th percentile among most criteria. Basically, McKinsey had furnished [large oil company] and, presumably, its interested competitors with a breakdown of compensation data that would not otherwise be shared so freely and in such detail. I venture that without all this data that compensation would be tied to the value of our work instead of leveraging peer data to keep pay clustered tightly to industry averages. [Large oil company] uses McKinsey extensively, from adopting its recommended Org structure revision in the 2020 layoffs to performing biannual employee morale surveys every six months.
In other words, McKinsey is setting pay in a significant portion of the oil industry. Is that cross-firm price-setting legal? Probably not. But here’s the legal rationale, such as it is. In 1993, the Clinton administration’s antitrust enforcers announced a safe harbor for the exchange of wage information among health care providers like hospitals, who could share sensitive information so long as they did it through third party consultants. There were a few other minor caveats, but that’s the gist. These ‘safety zones’ were expanded in 1996 and 2011. There was no actual change in statute; these were simply statements from enforcers saying they would ignore the law to benefit employers.
In 2023, both the Antitrust Division and the Federal Trade Commission withdrew these safe harbors, with Assistant Attorney General Doha Mekki explaining in a widely cited speech that consolidation and algorithms had changed the game… The corporate legal world freaked out, because it turns out that large corporations in every sector of the economy - not just health care - have been using consultants to share and set wages.
10 years ago Steve Jobs & other tech execs got hit with a lawsuit about wage fixing. A $400+ settlement split amongst the offenders. Pocket change/cost of doing business ala Jamie Dimon/JP Morgan fines.
Besides wage fixing FTC looks into price surveillance.
The FTC says the practice allows companies to charge different customers, different prices.
The list includes Mastercard, JPMorgan Chase, Accenture and consulting giant McKinsey. It also includes software firm Task, which counts McDonald’s and Starbucks as clients; Revionics, which works with Home Depot, Tractor Supply and grocery chain Hannaford; Bloomreach, which services FreshDirect, Total Wine and Puma; and Pros, which was named Microsoft’s internet service vendor of the year this year.
“Firms that harvest Americans’ personal data can put people’s privacy at risk,” FTC Chair Lina Khan said in a news release. “Now firms could be exploiting this vast trove of personal information to charge people higher prices.”
This krap won’t stop until fines get into billions of dollars or CEOs face jail time.