Eh, I don't think the DM should manipulate the initiative order; the system doesn't support that. If a DM is having every monster act on the same initiative, though, he's got other problems to reconcile, so beats me how that works.
Would your players not do the same thing?
Whether it's being used against PCs or monsters, if we assume combatants 1,2,3,4,5,6,7,8 who are in initiative order 1-8:
1,3,5,7 are hypnotized: 1 definitely loses his action. 2 should try to get to 3 to wake him up. 3 can then get to 5 to wake him up. Any of 4-6 can wake up 7 and the other 2 attack. You lost 6 of 8 turns to the spell total.
2,4,6,8 are hypnotized: 1 wakes up 2 who wakes up 4 etc - You lost 5 of 8 turns to the spell total.
And for higher level tactics...
2,4,6,8 are hypnotized: 1 attacks multiple of them (eldritch blast, punches, burning hands, scorching ray, etc) - You lost 1 of 8 turns to the spell total.