How does Google look at employee compensation?

Compensation can be a contentious issue. So how does Google go about it?

Most companies are trapped in pay ceilings for each position and “fair” payment, with regulations specifying that salary differences for the same position may not exceed 20 percent. Unfortunately, this practice encourages top performers to look for better compensation elsewhere.

Bill Gates reportedly said that a fantastic coder is worth 10,000 times more than an average coder. Google shares this mind-set, which is why you may think it pays “unfairly.” For instance, one worker may get a stock award of $10,000, while another worker in the same position might receive $1 million. You may also witness a top performer in a junior role getting paid far above an average performer in a senior role.

But Google also learned there are often more effective ways to retain employees: offer experience rather than money.

In 2004, Google established a Founders Award for performance. That year, Google awarded $12 million to two teams and the next year $45 million was divided among eleven teams. But internal surveys showed that this didn’t make Googlers happy. Quite the opposite. It led people to look for other jobs where the chances of getting a generous award were higher.

Their mistake was rewarding with money instead of experiences, like a dinner for two or a team trip to Hawaii. It turned out these special occasions created more memories and brought teams together far better than cash could.

But Google didn’t just give rewards when they were expected.

In 2009, Google announced the real-time collaboration tool Google Wave. One team worked on it for two years and agreed to forgo their bonuses in favor of higher compensation via stocks if Wave succeeded. Sadly, it failed, but Google rewarded the team anyway. Why? Because innovation means exploring the unknown, so there should be rewards for people who take calculated risks, even if they fail.

We’ve seen how empowering employees, transparency, and giving workers a voice have made Google so successful. Unfortunately, sometimes these practices backfire. But when they do, Google knows how to handle it.

Google suffers one major leak per year. When this happens, it’s investigated and the guilty party, who leaked it either by accident or design, is found and fired. Not only that, but the company announces to everyone what was leaked and what happened to the employee who did it. The cost of a leak is small relative to the openness and transparency that the company values and upholds.

What else can sometimes go awry? Well, Google’s culture fosters innovative thinking and this inevitably results in huge influxes of ideas, which have to be adjusted or culled periodically in order to keep the company running smoothly.

In fact, between 2006 and 2009, more than 250 products were launched and then discontinued by Google.

CEO Larry Page is responsible for the annual spring clean where he discontinues some products that are waning, don’t have great market prospects, or are being outperformed by others.

By being open and explaining the reasoning behind each cull, Google manages to maintain its focus and direction, and retains its managers instead of angering them.

Finally, sometimes even company perks can go sour. Google is famous for its benefits and when it provides them, at first everyone is delighted. But after some time, some employees can start to feel entitled.

One employee, who became grumpy when the cafeteria used smaller plates, started throwing forks in the trash in protest, and some Googlers even threw food at the staff.

The final straw was Meatless Monday, which was launched to benefit employee health. Yet after a month, only one employee threatened in an anonymous survey to move to Facebook, Twitter or Microsoft. So Google shared the survey with its employees. Consequently, many staff were embarrassed by the person’s actions and the level of entitlement and abuse fell.

There’s a reason why everyone wants to work at Google. They understand how to hire and retain the best staff, utilize the expertise already present in the company, give power to their workers, and keep them happy in their job. By studying these strategies, you too can learn how to lead and maintain a company that enjoys great success.

So try these tips out. First, hire in teams.

Confirmation bias can lead an individual to favoritize information or individuals that agree with their own beliefs. In job interviews it can cause employers to only take on people who echo their opinions or who resemble them. Avoid it when you’re hiring by assembling a team to sort through and interview applicants. By having more than one opinion on prospective employees, you’ll end up with a more diverse team.

Next, take your time.

Sometimes the hiring process can be frustrating, especially when time is of the essence. But holding out for the best new employee will most likely save money in the long run, as company funds won’t be wasted on training up someone average.

Check out my related post: Do people like open work spaces?

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