Compensation Philosophy of Google – Structure & Benefits Essay

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Google’s bonus structure plays a vital role in the retention and motivation of their employees. Learn more in the essay on this page.

Table of Contents

Introduction
HR Practices at Google
Google’s Compensation Philosophy
Google’s Compensation Structure
Google’s Compensation and Benefits – Employee Motivation
Works Cited

Introduction

Google’s achievements as a technology company over the last decade are remarkable. The company started as a college project and is now a leading global player in the IT sector. The company acquired a solid reputation as an innovative player early in its life. While the main product offered by Google is its internet search service, the company is behind very innovative practices in other business areas.

The company attributes its success in business to its ability to attract and retain top talent. This paper examines the compensation plan of the company. The purpose of this paper is to examine the contribution of Google’s compensation plan to its efforts to motivate and retain talented employees.

The paper evaluates several facets of Google’s HR practices as the basis for discussing the contribution of its compensation plan to its talent retention strategy. In this regard, this paper evaluates the HR practices at Google and the compensation philosophy that guides remuneration and benefits.

Thereafter, the paper evaluates Google’s compensation system. The paper then looks at how the compensation system contributes to employee motivation and employee retention in the company. A brief conclusion examines the criticisms against Google’s compensation system.

HR Practices at Google

The three main HR practices at Google that influences its talent management practices are reliance on data, the use of analytical tools, and reliance on internal referrals. These practices attract both the support and criticism of HR professionals in equal measure.

Most activities at Google are data driven. This is not surprising considering that the company’s core business is organizing data. Google decided to use its ability to analyse data to develop data-driven services within the company. The company insists on using hard data to support all its important decisions. In this sense, it is accurate to say that reliance on hard data is part of the company’s corporate culture. Critics of Google’s reliance on data feel that the company lacks a human touch.

The critics say that in the place of feelings, Google has algorithms (Manjoo). Proponents of this approach argue that the use of hard data to make business decisions is laudable. Google’s HR department, known as People Operations, relies on hard data to make HR decisions. Reliance on hard data is part of Google’s DNA. The company uses its massive data processing capabilities to handle its HR functions.

The second element of Google’s HR practices is the use of “people analytics” (Carroll). Google’s HR department uses this term to describe the use of algorithms to make HR decisions.

The company has good reasons for using data processing methods to handle hiring. Every year, the company receives more than one million job applications (Manjoo). The process of sifting through all these applications requires advanced data management techniques. The company must use advanced data processing methods to find the talent it needs from the overwhelming number of applications.

In addition to using data processing techniques to handle recruitment, the HR department also relies on data to track the performance of each employee. In this regard, performance evaluation at Google does not rely on subjective scores, but on hard data. Another interesting application of data processing techniques is the development of algorithms that can identify high flight risk employees. Google values its talent pool. The ability to identify, motivate, and retain such employees is crucial for the success of the company.

The third HR practice at Google is the use of internal referrals to find suitable talent. Google recognises that talented employees have equally talented associates. The company therefore uses its employees to identify potential recruits. When an employee refers someone to the HR department, the HR department uses the established procedures to check whether the person can fit in the company. This saves time and increases the odds that a new employee will fit into the company’s culture.

It is worth noting that Google has very many data analysts and software engineers in its ranks. This gives the company’s HR department an advantage over its competitors in the application of data management techniques. The main risk associated with the reliance on data to recruit and assess employees is the loss of the human touch in employee relations (Manjoo).

Behavioural psychologists know that the performance of an employee can wane because of personal issues. High potential is not always an indicator of good performance. At the same time, the systems can fail to identify talented employees who do not fit in the conventional profiles of top talent.

Google’s Compensation Philosophy

Google’s compensation philosophy is not radical in comparison to those of its competitors. The advantage Google has over its competitors is that it has the financial muscle and the boldness to implement innovative compensation approaches. The five main aspects that define Google’s compensation philosophy are as follows.

First, Google bases its compensation plan on hard data and research. The decisions the company makes arise from conclusions derived from research. The company believes in finding out which aspects of its compensation plan produce the best results. It achieves this by conducting surveys and talking to its employees. This approach gives the company confidence that the changes it makes to its compensation plan lead to greater employee motivation.

Secondly, Google has a commitment to pay its employees as competitively as possible. The company regularly conducts assessments to find out how its competitors pay their employees. In the past, Google set the salaries of its employees at the ninetieth percentile. It ensured that it was always among the top ten best paying companies in any job group.

The company recently made a decision to become the best paying company among its peers. Therefore, it implemented a ten percent salary increase for all its employees. This notwithstanding, Google understands that money is not sufficient to motivate high performing employees. However, it also believes that uncompetitive pay is a loophole that its competitors can use to poach its talented employees.

Thirdly, Google believes that is must reward top talent. This is not only fair, but is also necessary for retaining the best employees. Google competes for talented people with other players such as Apple, and Microsoft (Manjoo). In addition, many start-ups with funds from venture capitalists also compete for top talent.

The financing gives them an advantage over established firms. Talented people tend to be risk takers and a start up that recognises and rewards their talent can be a more appealing destination compared to an established firm like Google. In this regard, Google knows it must maintain its reputation as a company that recognises and rewards top talent.

The fourth aspect of Google’s compensation philosophy is giving employees a satisfying work environment. The company tracks the happiness levels of its employees and tries to make them happier.

This aspect explains the unconventional office practices at Google. The company recognises that if its employees are satisfied with their working environment, they are likely to remain there. The importance of this aspect in Google’s compensation philosophy is that the employees feel rewarded simply for being employees. This works by giving them ongoing satisfaction as Google employees.

Google’s Compensation Structure

The main elements of Google’s compensation system are similar to those found in other companies. The compensation system includes salaries and bonuses, good working conditions, stocks, and various benefits. The genius in Google’s compensation system is its ability to harness ordinary compensation elements and to optimise them to achieve organizational goals. The company uses its data processing capabilities to ensure that the benefits achieve maximum effect.

The first element of any compensation system is a salary. As discussed in the section above, the company is currently implementing salary hikes that will make it the best paying company among its competitors. The salaries given by the company have always been high as compared to industry standards. The company now wants to be a market leader when it comes to salaries. The ten percent salary increase for all its employees is the first step in this direction.

The second element in Google’s compensation system is workplace perks. Google believes that it needs to reward its employees on an ongoing basis to ensure that they fully focus on working for the company. Google believes that if it makes working conditions for its employees as conducive as possible, then they will focus on their work.

Google therefore goes out of its way to offer employees various incentives to ensure that their working environment is conducive. Google gives its employees free lunch. The company also ensures that snacks are available only a short distance from each employee. In addition, Google gives the employees free transport as well as access to laundry services. The company also operates a concierge service for employees who need to run errands.

One method that many organizations use to motivate their employees is to give them annual bonuses. Companies base their bonuses on the performance of the company in a given year.

Many companies give bonuses when the profit margins improve. The idea is that bonuses promote teamwork. For many years, Google gave bonuses to employees in proportion to the growth in its profit margins. In the recent years, the company has started to look for other ways of giving bonuses to its employees. As discussed earlier, this method is not unique to Google.

What is unique is Google’s way of issuing bonuses. The company conducted research among its employees to find out whether they prefer salary raises or bonuses. The research also sought to find out the level at which bonuses became attractive. The company found that on average, a Google employee prefers a 0.9-dollar salary raise to a 1-dollar bonus (Carroll). The reasoning is that a raise is permanent, but a bonus is dependent on the performance of the company every year, making it unpredictable.

Early on, Google used stock options to retain its employees. This strategy is very common with start-ups that are seeking to retain top talent. Such companies give their employees the opportunity to become shareholders. The companies usually restrict how soon the employees can sell the stocks. It is common to give employees a five-year hiatus barring the transfer of stocks. In many cases, the employees do not benefit from the stocks if they leave earlier.

Google was no different in the early years. It recently reduced the time it takes before employees can trade in their stocks. The company knows that it has the capacity to retain its top talent regardless of what the employees do with their stocks. The opportunity to own part of the company is very attractive to many employees. It is also a very effective way of creating a sense of ownership in the company because the employees know that their stocks will appreciate if the company performs well.

Another strategy used by Google to retain top talent is giving a generous maternity and paternity leave for new parents. When the company started its operations, it realised that the attrition rate of its female employees was very high. Research showed that the company lost its women employees at twice the average rate after childbirth. The length of the maternity leave at the time was twelve weeks, which was consistent with industry standards.

The company then sought ways of retaining women employees. Part of the current strategy is to give new mothers a paid maternity leave of five months. New fathers now get a seven-week paternity leave. In addition, the company gives a bonus to any employee who gets a new child. The bonus caters for the costs associated with getting a new child such as diapers, clothes, baby cots, among others. This strategy reduced the attrition rate of women employees to normal levels.

Google’s Compensation and Benefits – Employee Motivation

The compensation system used in Google is a key part of its employee motivation and retention strategy. Employee motivation encapsulates the activities, programs, and conditions created by an organization to induce high performance. Retention in the other hand refers is the ability to stem high staff attrition rates.

It is important to note that it is impossible to avoid employee attrition completely. In fact, a certain amount of attrition is necessary to ensure a company has an inflow of new ideas and energy. However, very high attrition rates can affect the performance of an organization. The high tech industry is notorious for very high attrition rates. Google’s compensation system has several elements that support employee motivation and retention.

First, Google implements measures that give employees certainty about their benefits and rewards. The reliance on data and analytical methods makes it possible for Google employees to predict what will lead to better rewards. In this regard, the Google compensation system has ensured that all employees know what to do and what to expect.

This seems simplistic because of the obviousness of the need for predictability when it comes to compensation and benefits. However, many companies lack clear policies on how to compute bonuses, and how to reward top performers. In such companies, the employees do not know what to do to earn higher rewards.

The second element of Google’s compensation plan is that it ties rewards to performance. Again, since the company keeps elaborate employee performance records it is easy to know which ones deserve rewards. One example of a reward that followed performance is the Orkut platform.

Orkut was one of the attempts Google made to take advantage of the social web. The platform got its name from the employee who developed it. His name was Orkut. When Google named the application after its employee, it demonstrated that it rewards high performers.

The fourth way in which Google motivates its employees is by the design of its workplace. The company offers a range of services geared towards making the lives of its employees as stress-free as possible. Google believes that personal responsibilities away from work can lead to loss of productivity.

In this regard, Google offers free transport to ensure that its employees do not worry about commuting. Secondly, Google provides laundry facilities for its employees. The company also has day care centres to cater for mothers with young children. Apart from these, the company offers free lunch, and all employees have easy access to snacks near their workstations. In total, these measures take care of some of the most pressing concerns of its employees. This frees the employees to concentrate on their work.

Google has a unique death benefits program for its employees. If an employee dies, the family receives fifty percent of the employee’s salary for a period of ten years. Employees with young families are likely to stay with Google for a long time as insurance that their family will not suffer in case they die.

Google is implementing a policy that will see it become the best paying company among its competitors. Over the years, Google has been ensuring that the remuneration of its employees falls in the ninetieth percentile. Recently, the company instituted a ten percent pay increase across the board to ensure that its employees become the best-paid ones among its competitors.

Google fully understands that money is not sufficient to motivate staff. However, it is also committed to removing any reasons employees might have to leave Google. Becoming the best paying company in every job group will ensure that no Google employee will leave the company because of money.

Google’s reliance on hard data is making its compensation plan one of the most optimised plans in industry. This means that its employees cannot find any other job that has comparable compensation plans. Google works hard to ensure that the measures it employs for employee motivation and retention create the most happiness for its employees (Manjoo).

Google also uses an algorithm that detects how easy it is to retain a particular employee. The algorithm analyses various factors in the profiles of Google’s employees and applicants, and then it flags those with high flight risk. The use of such algorithms attracts admiration and condemnation in equal measure.

Opponents feel that it is impossible to predict human behaviour using computer programs, while proponents feel that it is a reliable way of evaluating potential employees. The algorithm compares traits found in employees who have left the company with the traits of those who have lasted long in the company. The results indicate the degree of flight risk an employee or applicant presents to the company.

Google conducted research into how it’s the employees wanted to manage their stock options. The company found that the employees wanted more flexibility in regards to how they dealt with their stocks. Google therefore decided to give them more sway in the decisions regarding when and how to dispose their stocks.

This decision illustrates Google’s commitment to the welfare of its employees. Within reason, giving employees the power to decide what happens to their stocks makes the company more favourable to work with compared to competitors who limit stock movements.

Finally, Google gives its employees the freedom to use part of their time to do personal projects of interest, which they believe will be beneficial to their company. Most employees can use twenty percent of their time to carry out any projects that they feel will benefit the company. This is one of the sources of Google’s innovative culture because the company allows employees to pursue their passions. Orkut was one such project that later became a major product offered by the company.

Weakness of Google’s Bonus Structure

Google has many admirers and critics based on its reliance on analytical tools for its HR activities. The arguments against Google’s HR activities range from the fact that computer models cannot accurately determine the choices made by an individual. In addition, too much reliance on hard data can lead to the loss of the human touch in HR issues. In conclusion, it is fitting to examine some of the weaknesses of its compensation system briefly.

First, some analysts believe that the company’s compensation system is not sustainable. Google is a very young company in a very volatile industry. Therefore, its current success in HR and talent retention is not a good predictor of its future success. Its compensation system is possible to sustain because of the abnormally high returns it is achieving at this time. The returns will flatten out as the IT industry matures and maintaining the benefits it currently offers to its employees will become impossible.

The second weakness of Google’s compensation system is that its reliance on data may edge out human insight from its HR practices. For a long time, HR has been an art. In recent years, the use of computer models to analyse data is making it easier for HR to use scientific methods to make decisions. However, total reliance on computers can lead to the loss of insights into human behaviour. In addition analytics cannot predict how people will change based on the conditions of a new working environment.

The third aspect of Google’s compensation system is that it relies on financial incentives at various levels. The main argument in this regard is that the power of money to motivate declines beyond a certain point. Being the best paying company is not enough to retain top talent if employees want to take personal risks or to become entrepreneurs. In addition, the use of financial incentives depends on the availability of funds.

The fourth criticism against Google’s compensation plan is that it can destabilise the business environment. For instance, the recent announcement by Google that it will increase the salary of all its employees by ten percent can lead to similar actions by other players. Such a move can trigger a flurry of salary raises in the industry that can affect the availability of talent. Eventually, it can negatively affect the overall financial performance of these companies.

Works Cited

Carroll, Stacey. Google’s HR Practices Explained. 2011. Web.

Manjoo, Farhad. The Hapiness Machine: How Google Became such a Great Place to Work. 2013. Web.

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