HRM PROJECT

GROUP – 9

TOPIC: COMPENSATION
MANAGEMENT
NAME SEAT NO. ENROLLMENT
NO.

Mohammed Kaif 28 23BSPHH01C0401

Khan
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.LEARN MORE

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.

CONCLUSION
In conclusion, Google's compensation strategy stands out as a data-driven,
competitive, and holistic approach. By prioritizing competitive salaries,
performance-based bonuses, generous stock options, and unique benefits,
Google attracts and retains top talent while aligning employee success with
company growth. Through continuous internal analysis and adaptation,
Google ensures its compensation strategy remains not only competitive but
also a key driver of employee engagement and overall organizational success.
This focus on a data-informed, employee-centric approach positions Google
as a leader in the tech industry, attracting and retaining the talent needed to
continue its innovative journey.