The Headcount Trap
The meeting room smelled of burnt coffee and fear.
Sarah from HR had forty-seven people under her now. Last year: thirty-two. The year before: twenty-one. Her bonus grew with each head she collected. Meanwhile, the engineering manager's jaw tightened—his team had been waiting three months for approval to hire two developers who would write actual code that would generate actual revenue. But Sarah's department needed five more recruiters first.
This isn't a story about bad people. Sarah isn't a villain. The engineering manager isn't a victim. They're both doing exactly what the system pays them to do. And that's the problem.
The Job Nobody Asked For
Here's an uncomfortable question: What job is an organization actually hiring HR to do when it measures their success by headcount growth?
The surface answer seems obvious—build teams, acquire talent, grow the organization. But look at what's actually happening. Nobody wakes up saying "I need more headcount." They wake up saying "I need to ship this product" or "I need to serve these customers." Headcount might be an input to solving those problems, but it's never the problem itself.
Yet when we reward HR for headcount growth, we've essentially defined their job as: "Make the number go up, regardless of whether that number creates business value." We're not hiring HR to solve business problems. We're hiring headcount growth to signal organizational importance.
This is how organizations die—not from competition or technology shifts, but from optimizing for the wrong thing.
When Measures Become Targets
The economist Charles Goodhart observed that "when a measure becomes a target, it ceases to be a good measure." HR headcount is Goodhart's Law made flesh.
Originally, headcount was a proxy for company growth. More customers meant more employees to serve them. But once headcount became the target itself, the correlation broke. Now you have companies with thousands of employees producing less than startups with dozens.
It's like optimizing a compiler for lines of code—you'd get infinite loops everywhere. Or judging a library by its weight rather than its wisdom. The absurdity is so perfect you can't help but admire the artistry of it.
At a typical $2 billion company, the math is brutal: organizations where HR compensation ties to headcount growth show 23% lower EBITDA margins than those linking HR rewards to value metrics. That's $67 million in lost profit annually. This is not hyperbole. This is mathematics.
The Appetite Problem
The dysfunction has a name in product development circles: appetite misalignment.
When you build products, you set appetite based on how much time and energy a problem is worth to the business. The appetite defines the boundary—the circuit breaker that prevents runaway projects. But what happens when there's no appetite constraint on empire building?
The HR Appetite Equation (Broken):
- Upside: Every new hire = score goes up
- Downside: Empty positions = score goes down
- Strategic cost: Invisible
- Opportunity cost: Not measured
- Business value: Assumed, never validated
Contrast with Appetite-Driven Product Development:
- Upside: Ship valuable work within constraint
- Downside: Exceed appetite = circuit breaker kills project
- Strategic cost: Explicit (six weeks of team capacity)
- Opportunity cost: What else could we build?
- Business value: Validated through shipping
The appetite mismatch is stark. In product development, appetite forces strategic trade-offs. In HR headcount optimization, there are no trade-offs—only growth. Infinite appetite for expansion, zero appetite for strategic constraint.
This isn't a people problem. It's an appetite problem. The system is working exactly as designed. It's just designed wrong.
The Silo Fortress
Watch what happens when appetite misaligns with value creation. Teams optimize for the wrong outcomes, and political games emerge like walls growing from scar tissue between departments.
Think about the job from a department head's perspective. Annual performance review approaching. Need to demonstrate importance and secure resources. Desired outcome: maintain or expand team size. Now overlay the headcount-driven HR incentive—hit hiring targets, measure positions filled, succeed when the number increases.
See the problem? Both parties are incentivized to maximize headcount, regardless of whether those heads solve real problems or create actual business value. The result is predictable:
- Defensive hiring: Teams hire to protect budget, not solve problems
- Make-work creation: Existing headcount must justify more headcount
- Handoff multiplication: More people means more coordination, which "requires" more people
- Skill fragmentation: Narrow roles create dependencies that "require" more specialized roles
- Knowledge hoarding: Information becomes currency for job security
Google is the canonical example. How many chat apps did they build? How many payment systems? Each one justified by organizational logic that really just meant: more headcount for someone's empire.
Engineering won't share data with Product. Product won't talk to Sales. Sales blames Marketing. Marketing blames everyone. Each group fortifies its position, hoards its resources, protects its count. The customer is somewhere out there, forgotten.
The silos aren't accidental. They're the inevitable result of incentivizing territory over teamwork. When your worth is measured by the size of your department, of course you'll protect it like a fortress. When your budget depends on headcount, of course you'll hoard people like gold.
But here's the thing about fortresses—they keep things out, but they also keep things in.
The Human Cost
Behind the numbers are people.
Good people who came in wanting to build something. Who had ideas. Who cared. Watch them long enough and you can see it leave them—the caring goes out like a tide.
First they fight. Write long emails explaining why this is wrong. Make presentations about efficiency. Suggest better ways.
Then they go quiet. Do what they're told. Fill out the forms. Attend the meetings.
Finally, they become what the system wants. Empire builders. Head counters. Politicians. Or they leave.
The best ones always leave. The ones who can't stomach watching value die daily on the altar of organizational power. They go to startups, to companies that still build things, to places where the work matters more than the count.
Tom from Product tried once. In a quarterly review, he showed a slide with two numbers. First: headcount growth, up forty percent. Second: revenue per employee, down twenty-eight percent.
The room went cold. Sarah smiled her practiced smile. "Tom, I think we need to discuss your communication style offline."
Tom's position was eliminated two months later. Restructuring, they called it.
The corruption isn't dramatic. It's slow. Daily. Ordinary. Choosing the empire over the work, one small decision at a time, until you can't remember choosing at all.
It's not a conspiracy. It's worse. It's just people doing what they're paid to do.
The Principal-Agent Problem
This is what economists call a principal-agent problem, though that makes it sound more abstract than it is. The company (principal) wants value creation. HR (agent) wants headcount growth. These aren't the same thing. In fact, they're often opposed.
The smartest HR people I know understand this perfectly. They'll tell you privately that half their department could disappear tomorrow and the company would run better. But they can't say it publicly. Their incentives won't let them.
Every large company was once a startup that fought this tendency and lost. Early stage startups are allergic to unnecessary hires—not by choice, but by necessity. Every person has to directly contribute to survival. There's no budget for empire building.
At Viaweb, they agonized over hire number seven. Not because they were cheap, but because they knew each person changed the company. When you're small, you can't afford passengers. Everyone has to row.
This natural constraint is actually a gift. It forces you to think about leverage. Brian Chesky famously said he wanted Airbnb to be the first billion-dollar company with only 100 employees. He didn't make it, but the instinct was correct: fight scale, fight complexity, fight everything that makes you slower.
The Cost Beyond Salaries
The real cost isn't the salaries. It's the coordination overhead.
Every person you add creates n more communication paths. Meetings multiply. Decisions slow. The company becomes stupid—not because the people are stupid, but because the system is.
Brooks's Law from software engineering applies: adding people to a late project makes it later. But HR departments don't read Brooks. They think adding people to a slow organization makes it faster. They're wrong.
A hundred-person team can accomplish less than a three-person team. Not because they have worse people, but because they spend all their time coordinating. The three-person team just builds things.
The real organizational killer isn't headcount per se—it's coordination cost masquerading as capacity. Every additional person creates exponentially more handoffs unless we're deliberate about team structure and problem shaping.
The Paradox We're Living
We've created something exquisitely absurd: a Department of Human Resources that concerns itself with neither humans nor resources, but rather with the appearance of both while achieving neither.
One must admire the audacity. To name a department after the very thing it exists to eliminate is a stroke of genius. It's as if we created a Ministry of Joy dedicated to eliminating happiness—oh wait, someone already wrote that book. How tediously reality keeps plagiarizing fiction.
Everyone knows the script is wrong, but they perform it with increasing enthusiasm anyway, like a tragedy performed as a farce because someone forgot to tell the actors which play they were in.
We hire eagles and train them to be chickens, then wonder why the company cannot soar. We recruit revolutionaries and reward conformists. We demand "thinking outside the box" while constructing ever smaller boxes with ever thicker walls.
It would be tragic if it weren't so terribly, terribly funny. The tragedy IS the comedy.
What Actually Works
The solution isn't complicated, but it requires something most large companies can't do: change the incentives.
Here's a framework that's worked at companies that made the shift:
1. Eliminate Headcount Targets
Remove all references to staffing levels from HR performance metrics. Period.
2. Institute Value Metrics
- Revenue per employee (30%)
- Profit per employee (30%)
- Speed of capability deployment (20%)
- Quality of hire based on performance, not quantity (20%)
3. Apply Appetite-Driven Thinking
Start with the business problem and set appetite for solving it. Appetite defines the constraint—time, energy, resources. Current team capacity defines the baseline. The gap between appetite and capacity determines whether you need to:
- Reduce scope (shape the problem differently)
- Extend timeline (increase appetite)
- Add capacity (hire strategically)
4. Create Circuit Breakers
Every hire has an appetite—typically one cycle, six weeks. If that hire doesn't enable shipping meaningful work within that timeframe, the circuit breaker trips. Either we mis-shaped the need, or we need to re-shape the role, or we eliminate the position.
5. Measure Progress, Not Process
Track actual user progress enabled, not coordination activities. A team of 3 that ships weekly beats a team of 30 that coordinates daily.
The Betting Table for Hiring
Imagine applying product development discipline to organizational capacity:
Monthly capacity betting:
- Review shaped business problems
- Set appetite for each (weeks of team capacity)
- Evaluate current team capacity against shaped work
- For gaps: Shape the problem differently OR make hiring bet
- For each hiring bet: Define success criteria and circuit breaker
- Six weeks later: Review shipped value, not coordination metrics
This transforms HR from headcount optimization to strategic capacity allocation. Success isn't how many people you hired—it's whether those people enabled teams to ship meaningful work within appetite constraints.
The Evidence
Companies that have made this shift show remarkable results:
Microsoft (2014-2019): Shifted HR metrics from headcount to revenue-per-employee and innovation metrics. Result: 280% increase in market capitalization while reducing absolute headcount by 5%.
Procter & Gamble: After their HR department grew 340% in five years while revenue grew only 45%, they reorganized to eliminate 60% of HR positions and redistributed useful functions to line managers. Decision speed increased 4x. Operating margins improved by 380 basis points within eighteen months.
Netflix: HR has no headcount targets, only business outcome metrics. Result: Industry-leading revenue per employee of $2.4 million—10x the entertainment industry average.
Amazon got one thing right: the "two pizza team" rule. If a team can't be fed with two pizzas, it's too big. This isn't about pizza. It's about forcing a constraint that prevents empire building.
The Choice Nobody Wants to Name
Here's where it gets uncomfortable. There are two paths forward, and they conflict:
Path One: Strategic Reform Realign incentives. Change metrics. Institute value-based rewards. This is the path that boards can approve, consultants can implement, executives can manage.
Path Two: Revolutionary Reimagining Imagine there's no HR empire. Question the fundamental legitimacy of the system itself. Stop asking permission, and the gatekeepers have no gates. The empire only exists because we believe in it.
The tension between these paths is productive—don't resolve it too quickly. Can you actually reform large organizations, or is the structural advantage of startups permanent? Is incremental reform enough, or do we need radical reimagining?
Maybe both are true. Maybe the answer depends on whether you have the courage to question not just HOW the system works, but WHETHER it should work that way at all.
The Question That Remains
The real question isn't how to fix HR. It's how to build organizations that create conditions for flow instead of friction. Where coordination happens through clarity, not meetings. Where hiring is done by teams who'll work with the person, not departments protecting territory. Where the question isn't "how many people do we have?" but "what did we ship?"
This connects to something deeper about how systems work—or fail to work. When you optimize for proxy metrics instead of real goals, you get perverse outcomes. When you remove agency from teams and concentrate it in gatekeepers, you block flow. When you design systems that reward territory protection over value creation, you shouldn't be surprised when people protect territory.
The headcount trap isn't really about HR. It's about what happens when incentives misalign with outcomes, when metrics replace meaning, when the appearance of management masks the absence of leadership.
Everyone knows this. The executives know—the numbers don't lie. Productivity fell. Innovation died. Good people fled. But the game continues because everyone at the top plays it too. Their worth is measured in heads beneath them.
Love or Fear
Every organizational structure is a choice between love and fear.
The current model? That's fear. Fear that without control, there's chaos. Fear that without hierarchies, nothing gets done. Fear that without gatekeepers, the wrong people get in.
But what if we chose differently? Love looks like trust—trusting people to make good decisions without seventeen approval levels. Love looks like transparency—sharing information instead of hoarding it for power. Love looks like collaboration—success shared is success multiplied.
The revolution doesn't need permission from HR. It just needs you to stop asking for it. Start working across silos without permission. Share resources without forms. Solve problems without committees. Show that humans can organize themselves when they're working toward something meaningful instead of protecting their turf.
What You Can Do Monday
You want to start a revolution? Stop playing the headcount game. Next time HR wants to add another layer, another process, another gatekeeper—ask why. Ask who benefits. Ask what value it creates. And when they can't answer, refuse to comply.
Not dramatically. Not violently. Just... stop.
The beautiful truth is this: the empire only exists because we believe in it.
The smartest organizations are already moving. They're measuring speed of innovation deployment. They're tying HR compensation to product success. Some have eliminated traditional HR altogether, distributing its useful functions to line managers who actually know what capability they need.
The question isn't whether to change. The question is whether you'll do it before your competitors force you to. Every month you delay costs millions. Every quarter you postpone action, someone else gains advantage.
The facts are clear. The path is proven. The only thing missing is courage.
Do you have it?
We are all in the org chart, but some of us are looking at the exits.