Google’s Compensation Strategy Has the Smell of Desperation to It

From the HR blog at TLNT.
From the HR blog at TLNT.

If you’ve been in HR long enough, you know what desperation looks like. It isn’t pretty. It never is.

And I’m not saying that to be condescending, I’m just saying it because you can relate to the feeling. You’ve had an employee bargain with you for an 11th chance. You’ve had candidates who have called desperate for a job, any job, to help them during a tough time. Those are understandable circumstances.

Seeing Google publicly deal with their compensation like this smells like that same desperation. On the heels of a $3.5 million payout followed by an across the board 10 percent salary increase, it now looks like Google has whipped out their checkbook again to write an even bigger check: $6 million dollars.

Desperation is never pretty but in Google’s case, it is worth scratching your head over.

What does being a great place to work mean?

Google has been recognized as one of the best places to work. It consistently ranks among the top businesses to work for by Fortune (including taking home a number one rating in 2008). They have great perks (especially to those of us from outside the tech sector) and a good culture, but does all of that matter in the end? A cool workplace is great, but with underwater stock options and many folks missing the most profitable part of their stock jumps, some employees were certainly looking for money. Other companies took note and offered higher base compensation and the ability to get on the ground floor of some potentially valuable stock.

This has to make any logical person seriously question the value of great workplace lists and striving for that culture, doesn’t it? It isn’t far off to say that if you’re looking at retaining top talent, you still have to keep them at (or near) top level compensation. Just having gourmet chefs or massage therapists at your whim, and 20 percent of your own time for projects, isn’t going to do everything. It is simply part of a comprehensive package.

There is a deeper issue here though than if culture is important (and that’s saying something).

The problem with retention payments

Business Insider‘s quote is worth mentioning here because it nails a major issue:

The trouble with paying these kinds of retention bonuses is that once you start, it’s very hard to stop. They’re basically giving employees an extra incentive to sniff around Facebook or another pre-IPO startup so they can get a job offer to dangle back in front of their managers.

So yeah, you want to keep that guy but you don’t want to be forced to keep every person from that department with the same set of skills and career mobility. So what do you do? You give raises across the board, right? Which is exactly what Google has done to avoid the tide of top talent using Facebook and other tech companies to leverage better pay.

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But there is a problem with that, too.

Across the board raises an issue as well

Let’s say you’re a top performing employee at Google and you get a memo saying everyone gets an increase. Whoopee, right? But wait a second, you know several people who aren’t doing as well and you know others that shouldn’t be there at all. You’re working with a company that is growing increasingly large and with that come bureaucracy and inefficiencies. If you could have received a higher raise but couldn’t because of these factors, would you still listen to a competitive offer from a company like Facebook?

Across the board compensation strategy retains mediocre employees and sets an organization up for failure. The same thing happens when you choose to freeze salaries across the board. There may be some shared pain there but the people that lose the most are those that would be more highly compensated elsewhere. And it’s that issue of if everyone gets a trophy, no one’s trophy is special.

What’s going on at Google?

Like I said earlier, I think these moves hint at the desperate position Google is in. They’ve got a lot of top talent that they want to retain, but they can’t promise over-the-top, seven or eight figure stock payouts anymore. So their people are moving elsewhere.

And while the Facebook connection may be overblown (as I’ve heard), it leaves Google in a vulnerable position for any tech company on the upswing. Unfortunately for Google, they’ve showed their cards and it doesn’t look good.

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3 Comments on “Google’s Compensation Strategy Has the Smell of Desperation to It

  1. Google has been recognized as one of the best places to work. It consistently ranks among the top businesses to work for by Fortune (including taking home a number one rating in 2008). They have great perks (especially to those of us from outside the tech sector) and a good culture, but does all of that matter in the end?

    I think a few things are at work here, Lance.

    1. Those Best Place to Work lists are bullshit. This kind of proves it.

    2. “Good Culture” is subjective. They have lots of fun perks, and 20% time is cool. But they also work insane hours. I’ve read reports that the flattened, decentralized hierarchy is maddening when you’re working on projects. Bottom line: It’s not for everyone.

    3. I think real innovators thrive on new and exciting things. It was a lot easier for Google to provide those opportunities when they were small and young. Sure, 20% time attempts to keep some of that alive. But if these folks are offered a chance to innovate 24/7 vs 20%, what do you think they’re going to choose?

    I have no idea what’s really going on behind the curtain there, but that’s my speculation, anywho.

    Cheers!
    Chris

  2. More money is not a universal answer, even for Google. As you and others point out, this doesn’t get to the root problems they are having retaining high performers, fending off poaching by Facebook or issues with their internal culture. It’s as much a publicity stunt as anything. But what it does say is that their HR department isn’t engaged. Sounds like lack of inspiration along with desperation. More here: http://blog.yoh.com/2010/11/wait-move-up-or-move-on-how-predisposed.html

  3. Hey chris- I disagree with the statement that Best Place to Work lists are bullshit. Every company that makes thaqt kind of a list has an upside and downside in business and talent startegy, just the same as every other company. The difference generally is (and this shows in performance) is that those swings tend to be less frequent, and less dramatic….I don’t think it should be any shock that a complex (and not really mature) business organization like Google is going to run into some of these problems, maybe for the first time. It happenes to all of them..Apple,Microsoft, etc. It’s a test, and a growth opportunity. I think they’ll come out fine – most likley by learning the lesson most other businesses eventually learn. Let ’em walk, and count on your bench strentgh to plug the gaps.

    That ios where the chance to eff up is – in building the bench.

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