The session was titled “Using Statistical Research to Change Compensation Strategy.” I’m pretty vocal about my dislike for across-the-board increases, so when Google announced at the beginning of the year that they were doing a 10 percent across-the-board increase and a bonus for EVERY employee, I was skeptical of the business decision. This session was an opportunity to learn why and how Google did the increase.
Did Google change my views on across the board increases? Yes, they did, and here’s how.
They made the decision after extensive research
It shouldn’t really surprise anyone that Google put a lot of thought and a lot of research into this investment before they made it. Unlike most companies who use across the board increases as a way to go the “easy route,” Google made the choice after months of research. Google surveyed all of their employees (and got a 90 percent response rate) to find out the value that they place on the different elements of compensation.
They then used conjoint analysis to determine what elements of compensation were most rewarding to their employees. And, being that Google is Google, they took it even further to understand the relative worth of one type of reward versus another. For example, did you know that, on average, a Google employee values bonuses at $.91 compared to $1.00 of base salary? This helped the company to understand where they would get the most “bang for their buck” if they wanted to invest more in their people.
They made the decision in alignment with their compensation philosophy change
Google felt strongly that they were a competitive payer in the market. They said they used survey data at the 75th percentile to extrapolate the 90th percentile for most positions. Interestingly, they also said they have a collection of market data that they have amassed from employees hired into their organization based on their previous salary at other top technology companies. But, the organization decided that it was no longer enough to be competitive, they wanted to have the highest salaries in the market, and that is when they decided to do the 10 percent across the board increase.
While we assume that many of the employees that work at Google are top performers, this increase wasn’t about performance but more about their commitment to be the very best in terms of compensation. They wanted to do that across the board – not just for certain individuals. So, while I’m not a fan of across the board increase as a substitute for smarter compensation decisions, in Google’s case it was in addition to their merit process. It was about raising all of their salaries to levels that exceed at the competition.
They made the decision after carefully studying the impact on the business
It’s a different type of person who does compensation work at Google. This was evident when one member of the team talked about how fun it was to do a month of Monte Carlo simulations on the stock price for various proposals. Google made this decision carefully with good information about the effect it would have on stock price now and in the future. They knew exactly what ROI they were hoping for and are tracking that closely to make sure that they intended result is the actual result.
Preliminary results indicate success as their retention rate saw a sharp increase in the first quarter of this year. Google understands the value of retaining top performers and, rather than give lip service to this value, they live it in practice. They know that the investment they make now will reduce the turnover of top talent, which can be devastating to the bottom line.
What about the non-performers? How did the board, leadership and fellow employees feel about a low performer getting the same increase as a top performer? The answer was simple. Compensation is not the way to handle low performance. Low performance is a management issue and the presenters said that Google has strong commitment to managing employees in a way that moves them out of roles where they aren’t successful and making sure that low performance isn’t tolerated.
Interestingly, they said that when low performers are put on performance improvement plans about 25 percent of the time they improve their performance, 50 percent of the time they move to a different role within the company that may suit them better and 25 percent of the time they leave (usually on their own). Thank you, Google. I couldn’t have said it better myself. It’s true, compensation is not the way to deal with management issues in the organization. If anything, their actions in aligning their compensation with their new strategy only further illuminated the need to deal with non-performers.
Thanks to this presentation, I have to put a little asterisk on my dislike about across-the-board increases and say that, if you do what Google did, go for it. If you have a well thought out action plan that is well researched, aligned with your compensation strategy and has a positive impact on the bottom line, then proceed with your across-the-board-increases. For the rest of us, let’s work hard to be like Google someday.
Stacey Carroll, SPHR, CCP
Director of Professional Services
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