Googlers' Pay Gets Goosed

The other day, Google's CEO Eric Schmidt sent out a memo to all 23,300 employees worldwide telling them that they would each be receiving a 10% salary increase. As Schmidt put it in the memo, "everyone gets a raise, no matter their level, to recognize the contribution that each and every one of you makes."

The memo also makes it clear that senior management pays attention to things like employee surveys and postings on Google's internal site, Googlegeist. (On a side note, it's amazing how they've managed to attach an unwieldy word like Google to just about everything they do. How's that for branding?) Schmidt wrote in the memo that, as a direct result of employee feedback saying that salary is the most important component of pay, the company is moving a portion of each employee's bonus into their base salary. And to top it all off, every last Googler gets a $1,000 dollar holiday cash bonus - with all taxes paid.

The first thing analysts said upon hearing the news (after saying something to the effect of "must be nice") was "why?" After scouring the news reports regarding this memo, I can't seem to find anyone who believes this is simply an altruistic, job-well-done reward. Instead, pundits insist the move was made as a desperate retention effort in the face of some recent high-profile departures from Google.

So is this a desperate move? Is it a brilliant move? Is it both? Our research shows that salary increases and bonuses are actually midway down the list of effective retention tools. So while Googlers may see it as the most important part of their compensation (which happens to include some legendary bonuses and perks), there's room for skepticism when it comes to its effect on retention. However, the shift in salary should give Google a nice edge on market rates as the rest of the world starts to wake up from its economic nightmare.

But we also can't ignore the potential risks. i4cp research also shows that high-performance organizations make pretty clear distinctions when it comes to rewarding higher-performing and lower-performing employees. Perhaps an across-the-board increase like this will alienate high performers and encourage low performers to keep underachieving. Or it could be possible that the overall increase is so high that no one could possibly complain and slackers will kick into gear.

From the armchair quarterback position, I would call this a positive move by Google. It makes Googlers happy, makes others jealous and makes for good PR. Except for the part where they fired the guy who leaked the memo. I'm pretty sure he's not happy.

What do you think about the Google pay bonanza? Are they getting a jump on a stagnant job market that shows eminent signs of new growth? Will it positively affect retention or undermine the pay-for-performance paradigm pursued by many high-performance organizations? And in a workplace with that many high performers sharing exceptional benefits, does an across-the-board, pay-driven retention policy make more sense? How does this relate to the recently broken up no-employee-poaching pact that included Google and five other tech giants?
David Wentworth
David Wentworth, Senior Research Analyst
David Wentworth has been a research analyst for the Institute for Corporate Productivity since 2005. David has previously worked with digital media development and delivery, and currently researches several topics for i4cp, including workforce technology and the outsourcing of human resources. David has a bachelor’s degree from the University of Massachusetts.