Google, Inc. (NASDAQ: GOOG) is a publicly traded American multinational company, which has carved out a niche for itself in the provision of internet-related products and services. These products and services include: internet search, software, cloud computing, and advertising technologies. The company’s major profits come from the advertising revenues generated by AdWords, its pioneer advertising technology. Google, Inc. was founded by two computer experts, Larry Page and Sergey Brin, in 1998 while they were both pursuing Masters degrees at Stanford University. The company’s compensation strategy is focused on creating the best form of motivation for its employees and subsequently achieving an excellent employee retention percentage. This can be ascertained by the ever-growing number of employees at Google, and who attest to their ultimate satisfaction while working for the company. For the last eight years, the employee number has been growing exponentially by over 25 times, thus confirming the company as one of the best companies to work for (Hill, 2014). The compensation strategy at Google provides for various perks, incentives, and allowances in addition to their base payments.
The various perks that Google, Inc. employees enjoy include: full access to fitness centers and gyms, billiards, Laundromat, and also pet-boarding. In addition, Google employees receive free meals all day, free bus transportation, free electric cars usage, and excellent healthcare incentives. Further, all employees – regardless of their level in the company hierarchy – receive a 10 percent increase in the base salaries at the end of every year as well as a cash bonus of $1,000 to cover holiday perks bonus. Compared to its rivals in the technology sector, Google ranks first in employee compensation practice. From previous surveys, for instance, there is clear-cut evidence that supports their exponential growth. For instance, a greater number of its employees report an extremely flexible job atmosphere, unlike employees from its main competitors. There is also a considerable difference between the company’s average vacation weeks and those of its competitors. As the survey found, Google offers an average vacation period of up to 2.6 weeks in comparison with those of Apple Computer, Inc (2.3 weeks). Despite this success in the establishment of a stable compensation plan, Google has had to face myriad challenges in the recent past regarding the introduction of an effective compensation strategy.
The company’s compensation strategy structure can be said to have grown in three main phases, namely: Phase I (Pre-IPO), Phase II (Post-IPO), and Phase III (Maturity period). The first phase covers the period beginning 1998 to 2004, when the company launched its first IPO. The second phase covers the time period beginning 2004 – immediately after the launch of the IPO – to 2009, while the third phase covers the time period beginning 2009 to present. Prior to the launch of Google’s IPO, the company utilized a very conservative compensation strategy. The compensation strategy ensured that no single Google employee earned a base salary of over $100,000 per annum, and that no merit increment could easily come except by promotion only. At the same time, the company’s employees worked so hard with a feeling of urgency considering the growth phase that the company was in. As the IPO launch date approached, the company’s stock increased exponentially in its value although it had not become a publicly traded company.
The second phase (2004 – 2009) is often referred to as the post-IPO phase. Immediately after the launch of the IPO, Google became aware of the impending challenges that faced them. With the IPO came numerous challenges, among them being the ability to retain and attract the best talent. The management knew that they had to make the company’s stock attractive since it was experiencing frequent dips and spikes. In making the stock look attractive and stable, they would retain and attract the best talent from their rivals (Noe and Noe, 2012). Google, Inc responded to this malady by coming up with a policy that sought to adjust stock options, especially for those employees who were at the base of the performance band. However, this policy only covered those employees who had been hired when the stock price either had had a dip or spike. The policy managed to balance the imbalances that had been brought about by the stock prices, and sooner Google started reaping the fruits of their long-sought strategy. This is coincidentally the period that Google’s profits started to rise at an exponential rate in proportion to their employee performance and workforce number (Hill, 2014).
The third phase in Google’s compensation practice started in 2009 to the present. After their initial success in managing to stabilize their stock, Google engaged in yet another endeavor to review their compensation strategy so that they could offer the best to their employees relative to what they gave as output (Noe and Noe, 2012). Their workforce had already grown and it still continued to grow. The company had also grown into a technology giant. However, they always wanted to retain their employees since they believed their current workforce, by then, was largely responsible for their success. To maintain employee satisfaction, Google introduced newer strategies for compensation known as equity programs (Hill, 2014). They wanted these equity programs to attain a significantly higher recognized internal value for their employees in their quest to extract the best from the talent pool that existed. However, the company knew well that the initial stock plan they had undertaken could not offer them a long-term solution in providing an effective compensation plan. For this reason, they needed to come up with various innovative methods for rewarding their employees. This is how the current equity program for compensation came to be.
Today, Google has achieved ultimate recognition as a global technology giant and one of the best companies to work for in the world. This recognition – as has been observed – has not come easily since efforts have been applied to the development of an ultimate compensation plan satisfactory to the majority. Despite all this, there still exist some challenges, especially in attracting, retaining and providing an effective motivational program. This is due to changing demands in the job market that require companies to frequently review their compensation policies in line with job and market demands. For this reason, Google still face a challenge in retaining and attracting the very best talent. Moreover, the company faces the challenge of empowering their employees so that they are in a position to value the equity compensation program. They still need to make their employees believe and actualize the value in the program’s agenda (Hill, 2014). In trying to address some or most of these challenges, Google have developed some strategies that address each problem’s major threat. The strategies also address Google’s application of their compensation practice in determination of positive and/or negative impact to its stakeholders. These strategies include:
- Changing the delivery: Google engages their workforce mainly by the use of surveys and focus groups. For instance, in the post-IPO period, the company’s compensation departmental team carried out an engagement survey of their employees that found Googlers (Google employees) in heavy discounting mood for underwater options. Based on the data collected, Google changed their long-term incentive plan for the employees, creating restricted stock units instead of the obvious stock options. These restricted stock units are whole shares given to every employee; the shares always have a positive net value, unlike options, which tend to change often and can go underwater when there is too much stock volatility.
- Change in the vesting schedule: during the engagement surveys and focus groups, Google employees showed their interest in the development of a schedule that would allow them to have their shares faster. With this data, Google created a tiered vesting schedule that sought to shorten the time in order for the employees to extract maximum benefits from their stock.
- Program customization: Google has since developed a home-grown application, which their employees utilize to mock-up “what if” situations for the worth of their equity over certain time periods. In this scenario, employees can enter their current basic pays and/or a future predictable basic salary with targeted bonuses. The tool then calculates real-time the employees’ vested equity value.
- Communication: in order to make their employees buy into their idea and value of equity compensation program, Google had to educate the entire workforce on what it entailed and how it benefitted individual employees. Communication is certainly the best platform for making employees aware of a company’s compensation practice. This is what Google utilized in order to eliminate the distractions that were hampering the company’s progress and culture. This is how their employees have come to embrace equity compensation program that has subsequently transformed the way Google rewards them. This is undoubtedly one of the most innovative compensation strategies.
In carrying out their compensation practices, Google are somewhat restricted to the most optimal standards; although they still stand out in offering best compensation practices over and above the market rate. For instance, Google pays its compensations at rate of 11 percent above the market rate compared to its competitors who pay an average of 8 percent above the market rate. Also, employees’ bonuses range between $3,500 and $21,500, figures that are well over most of Google’s competitors. Labor laws in the USA majorly impact on Google’s compensation practices in that they tend to be tied down to the Fair Labor Standards Act which demands that there be a compensation structure, in every organization, tied to a performance-based score (Lockton, 2011). Any subsequent compensation, therefore, must have rating system with a performance score for every employee. This applies to all employees of the company, irrespective of whether they are in management level or not. The Act also stipulates that there be a minimum increment value for all employees in the company (Lockton, 2011).
On the other hand, labor unions strive to advocate for the rights of the employees who tend to be members of such labor unions. These unions advocate for the provision of relevant allowances and incentives as well as according safety to the employees. Google has not been left behind, either. Labor unions in the United States of America, for instance call for the basic provision of safety standards in the workplace. Further, they continuously advocate for the rightful treatment of employees and proper complaint handling procedures in case of employer-employee misunderstanding. This has been at the core of Google’s consideration of offering the most effective an efficient workplace as well as in the mainstreaming of complaint handling processes. Market factors also impact majorly on Google’s compensation practice. For instance, the company’s main determinant of the relative value of jobs emerges as market pricing. Due to changing market structures, the company has to keep on reviewing its compensation practice to match what is in the market. However, market structures can either be positive or negative. In lieu of this, Google has to strike a balance between what is good for them and their employees as well. For this reason, Google utilizes the variable pay plans such as bonuses for all employees and performance-based sharing bonuses for the high performers. The resulting balance creates motivation in those employees at the base of the performance spectrum to rise and achieve their performance-based bonuses. This is in addition to the bonuses they receive every year that serve to retain them at Google.
The traditional base salaries at Google have undergone complete evolution to be what they are today. Initially, the criteria for assigning such base salaries used to rely on conservative compensation strategies that seemed to have major weaknesses and limitations. First, these traditional policies kept maximum salaries for all employees – including senior executives –at $100,000. Secondly, one could only achieve salary increments through promotion. Knowing and observing this, the company management carried out urgent reviews to the compensation strategies. The current compensation strategy stands out as one of the best strategies ever launched by a multinational. This can further be supported by the immense growth that followed each review in Google’s compensation practice. This is also the major reason why Google currently remains the global technology giant it is today. Therefore, it can rightfully be said that changes to the traditional base salaries resulted in exponential growth for the company.
References
Hill, C. W. L. (2014). International business: Competing in the global marketplace.
Lockton, D. (2011). Employment law. Basingstoke: New York.
Noe, R. A., & Noe, R. A. (2012). Human resource management: Gaining a competitive advantage. New York: McGraw-Hill Irwin.
