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Google: The risks of giving everyone a raise

Finally, someone is handing out raises. And big ones, at that. Despite a huge pool of unemployed talent looking for work, Internet search giant Google is giving all 23,000 of its employees 10 percent salary increases--no 2 percent cost of living blips here--according to The Wall Street Journal. The move comes amid recent defections from Google's staff to Facebook and other Silicon Valley companies.

Sounds nice, right? On the surface, a hefty raise appears to be a great way to boost morale and retain people. Indeed, some 86 percent of Wall Street Journal readers think it's a good move, according to this online poll.

But I'd argue that giving a 10 percent salary increase to every single Google employee probably won't do enough to retain the company's best and brightest. And in fact, it could backfire. The company's hardest-working, most irreplaceable people could think all that extra effort is for nothing if their less talented colleagues see the same uptick in pay they do. And that could have them running for the door even faster.

Yes, Googlers are a special breed--getting hired by the company is well known to be a notoriously difficult proposition. The company may argue that C players at Google would be A players somewhere else. But even Mountainview is no Lake Wobegon. Inevitably, the tech company has stars it can't imagine losing, steady performers who keep the place ticking along; and no matter how good it is at finding the very best, a few folks it could surely do without.

That Google is including everyone in its beneficence is particularly surprising given news reported in the same Journal story. Google has apparently begun testing a mathematical formula to try to predict who is most likely to leave the company, by looking at things like performance reviews. What good is that formula if it can't also help them decide who needs a 10 percent raise--and who needs a 5 or 20 percent pay increase instead?

Surely, like every other major global corporation, Google also has some kind of less-mathematical performance review system in place that helps it decide who deserves more money and who doesn't. When those annual reviews happen in the future, I have to wonder how much impact the corresponding rewards will actually have after good and middling performers alike have been handed the same extra dough. In a meritocracy, consistency matters.

Presumably, the company is still doling out special bonuses and extra equity to the very best coders and tech geeks around the Googleplex. That's where the real money is, after all, and where retention tools like vesting schedules make money really start to have an impact on keeping people around. The Journal reports that after company surveys found that salaries are most important to employees, it is "moving part of employees' bonuses into their base salaries, so they would receive some of it in every paycheck." As a result, some real differentiation is still likely to occur.

Still, I cringe every time I see "across-the-board," whether it comes before the word "cuts" or before the word "raises." Leaders have to make tough decisions when it's time to trim staff or slash budgets--cutting under-performing units while protecting, if not investing in, things that are doing well. The same goes for raises. To keep the best people feeling like they're rewarded for working smarter or harder than the rest, tough calls need to be made about who truly deserves more money, too. When leaders don't make them, their efforts to raise morale could raise the risk of defections.

By Jena McGregor

 |  November 10, 2010; 12:48 PM ET |  Category:  Bad leadership , Corporate leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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Comments

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I think it's a great move. WAY too much time and emotional energy is spent comparing every employee to every other employee, every year. It's counter-productive, destroys morale, discourages cooperation, and encourages back-stabbing. Just decide: keep, or fire? Then let other bonuses be determined by things the employees have control of.

Posted by: dmm1 | November 16, 2010 1:43 PM

It's about time that sucessful companies start rewarding all employees. Not just the ones at the top. It's refreshing to see a company that's rewarding their technical talent. I hope that more companies follow Google's lead. I think that Ms. McGregor should be more concerned about the excessive executive compensation that's bringing down the entire country.

Posted by: TechWoman | November 12, 2010 9:13 AM

This policy is consistent with Googles information collections and search result display policies, i.e. cumbersome and imprecise...often exactly wrong.

Their methods of collecting information are wholly automated and when errors occur they are unable to correct them.

For instance, if two articles run one after another, and the first one ends with a quote: "I have been to many cookouts, and know that alligators are a tasty entree at any cookout." And the next one begins with "George Bush made a statement to the diplomatic community..."

The idiotic Google algorithm collection system would display on the search engine page under "George Bush" the following:

George Bush: I have been to many cookouts, and know that alligators are a tasty entree at any cookout.

It doesn't matter that George Bush did not say these words.

It does not matter that your email Google and advise them of the error.

What's worse, when you notify Google of such errors, they respond that their collection system is automated and they cannot make corrections.

This is pure incompetence.

This mentality does not deserve a 10% raise.

The end of the meritocracy is the end of American civilization as we knew it.

Long live Bing.

Posted by: inojk | November 11, 2010 12:09 PM

I think this is a great idea on the part of management. It's a pretty convincing demonstration that they value all of the people in the company. If that's not a morale booster, I don't know what is.

I seem to recall that Kingston Technology did similar types of things for their employees - does anyone here remember details?

Posted by: apn3206 | November 11, 2010 3:03 AM

ok, whatever. If I could get a 10% raise in this economy, I wouldn't care what anyone else got. What I want to know is why the wapo puts links to articles like this on the front page, which take you to pages that have 50 other stories, but not the one you were linking to, forcing you to search for the article to find it (after doing a text search on the page to see if I missed the link and not finding it but finding an article about Google and Street View). Geez!

Posted by: jjtwo | November 10, 2010 11:20 PM

The writer seems to think that a 10% increase for everyone gives everyone the same increase. However, the mail room staff are getting 10% of almost nothing while the upper level staff are getting 10% of a substantial amount of money. It's not a way to recognize top performers in the middle, but it does tell everyone they are valued and it does reaffirm the company's commitment to all employees.

Posted by: DWinFC | November 10, 2010 9:39 PM

My company gives out rewards for going above and beyond in the form of points that can be cashed in for gift cards or merchandise. I consider myself the top performer on my team, and I have numbers to prove it. Well just recently I got some points and thought ok, finally getting some deserved recognition. Then I find out EVERYBODY on my team got points including the poorest performing team member! So I agree with Jena. Doling out extra compensation to everyone is terrible for morale.

Posted by: davidwg46 | November 10, 2010 8:17 PM

My company rewards well he top 15% or so, throws sometimes crumbs at the top 50%, and gives little or nothing to the rest. So, to be better off, you need to beat your buddies. Does not really breed love and makes the competent non-dominant types unhappy.

Posted by: teplicky101 | November 10, 2010 7:11 PM

This column is completely off the mark. A ten percent across-the-board raise for all employees does not mean that everybody is making the same salary all of a sudden. The higher-ups and star performers will still be making more than the average performer. But this move will more likely make all employees feel vested in the company's performance since all are getting to share in its success. Too often, only the people at the top get rewarded when the company's success also depends on the lowel level employees doing their jobs very well. It ends up breeding a Us vs. Them atmosphere.

I applaud Google's management in sharing the company's phenomenal success with ALL employees from top to very bottom.

Posted by: LittleRed1 | November 10, 2010 6:44 PM

@jill_kennedy: I did not know about Manka Bros. Thanks for sharing and giving me a laugh at the end of the work day.

Posted by: bucinka8 | November 10, 2010 6:42 PM

Works for the military, right? If I were a lower paid employee, I might think 10 percent is a little low, but overall, in this climate, it probably won't backfire.

Posted by: readerny | November 10, 2010 6:02 PM

Google is known for having fun and being aware of the outside world. What the heck is wrong with letting all its employees share in the resulting profits in an egalitarian way?

What's wrong w/ regarding the mail clerk as valuable as the Sr. VPs now & then. He/she might well be one of those VPs one day.

HR people: Open your windows and take in the nice day.

It's much easier to snuff out moral than it is to boost it.

Posted by: TEQ1 | November 10, 2010 3:38 PM

Nothing wrong with giving people raises, especially across the board-- it raises morale for everyone, it avoids resentment among the rank and file, it creates a sense of collective success.

Besides, you realize also that 10% of the salary of a top executive is a lot more than 10% of the salary of the janitorial staff, right? "10% across the board" sounds more egalitarian than "$100,000 for the boss, $2,000 for the cafeteria lady". Regardless, I hope they are all happy, and congrats to all Google employees.

By taking a naysaying view of this happy event, the article seems poisoned by envy, as if it was written by an employee of a dying industry that has only seen layoffs and pay cuts in recent years... Oh, wait...!

Posted by: alarico | November 10, 2010 3:37 PM

150K * .10 > 50K * .10

Posted by: bsteiner1 | November 10, 2010 3:31 PM

Google is in a unique position. Their highly talented workforce are being poached by Facebook and other firms. Even the mention of 'FB' at an annual review would prompt concern from their HR. Their HR is actively trying to retain their workforce with this move.

Posted by: SpecTP | November 10, 2010 3:25 PM

Looking at pay stats, I think employees in general probably need about a 50% pay boost to get back to circa 1990. Capital needs the pay cut. Give returns in the 3-4% range, year in and year out. The greedy can send their money to "emerging" markets and there should still be plenty available.

Posted by: pbassjbass | November 10, 2010 3:10 PM

Several points to make about this article and this situation:
1. Nowhere has it been said that this is Google's ONLY compensation adjustment. It's very likely that this is a 10% bump for everybody, and it will be accompanied by additional stock/bonuses/payraises for the top performers. Google isn't foolish enough to go for "one size fits all."
2. This is a company that made a quarterly profit of over 2 billion dollars last quarter; they have over 33 billion dollars of cash in the bank. This is not a huge deal for them.
3. The market seems to have weird reactions these days. In both of the first two quarters of this year, Google's stock sank when they announced the hiring of thousands of new employees. Now it's down again on the news of payraises granted to employees. I guess the Wall Street herd mentality just can't deal with a profitable, growing company that wants to keep growing and increase its profits. :-)
4. Given their record over the last decade, I'm giving Google the benefit of the doubt on this one. Don't question them until you can do better than they do.

Posted by: ArmyBrat1 | November 10, 2010 2:55 PM

To me, that comes off as engineers treating employees like machines, not like people.
Posted by: wvmikep | November 10, 2010 1:50 PM
--------------

That would normally be a valuable observation if the context of the article didn't just demonstrate how much they reward their employees. And if you were not talking about Google--who fosters such an embracing environment that they give everything from massages to child care. So, if they want to put metrics behind what they are doing so other companies follow suit--even more valuable.

Posted by: CultureClub | November 10, 2010 2:35 PM

I would just like to amend my comment to add to the author, your unease about a profitable company's decision could be an example of why you write blogs, instead of running a company the likes of Google. Next time, many of us would prefer to see blogs of more substance. There are a myriad of business issues and complexities affecting the current job situation on both a local and national level. Did your bosses ask you to write this because the corporate decision-makers would never do something so drastic, like share more of the profits with employees on all levels?

Posted by: Just_An_Observer | November 10, 2010 2:06 PM

Manka Bros. is also offering bonuses and raises but to Senior Management only.

http://mankabros.com/chairmans-blog/2010/11/manka-bros-awards-1001-bonus-a.html

Posted by: jill_kennedy | November 10, 2010 2:03 PM

If Google can afford to give its employees a 10% raise, more power to them. If the top performers and best and brightest of the company are currently making more $$$ than less-talented or "less important" employees, Their 10% increase will be higher in terms of $$ amount and should ease their fears of not feeling important.

This is a non-story. Why does the general public of today try so hard to find a criticism in EVERYTHING?

Posted by: Just_An_Observer | November 10, 2010 1:59 PM

What a terrible article! 10% across the board is not only a fantastic raise for anybody but also signals the company is doing well and has faith in its current staff all-round. I applaud all of the folks at Google. This is great news in a world where the economy is in the toilet. Shame on the WaPost for trying to turn this into something bad and negative.

Posted by: GenXer1 | November 10, 2010 1:55 PM

"Google also has some kind of less-mathematical performance review system in place that helps it decide who deserves more money and who doesn't."

What about good, honest interpersonal communication?

To me, that comes off as engineers treating employees like machines, not like people.

Posted by: wvmikep | November 10, 2010 1:50 PM

I agree - that was not a well thought out HR move. Talented performers mostly care about their rank within the organization. They also like to believe that they are paid more than everyone else within the organization - the absolute value of the salary doesn't matter, what matters is the perceived differential from everyone else.

As a general social observation, there have been many studies showing that what people really care about is how much money they make COMPARED to everyone else. The absolute value of the salary or wealth has little bearing on overall satisfaction - the main thing that matters is the differential from "everyone else".

Posted by: sw11231 | November 10, 2010 1:49 PM

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