An Evaluation of Employee Total Rewards Programs at Google Inc. and Yahoo! Inc.

Total reward programs seek to boost organizational performance by attracting talented applicants and providing incentives for exemplary work. While total rewards programs have been in place for conventional businesses, such as sales organizations and retail operations, the use of similar reward programs to attract top talent is a prevalent practice in the technology industry. Internet startups that possess limited risk capital typically seek to obtain the best talent through combination approaches of total compensation, variable compensation, and benefits packages. An analysis of the successful Internet search engine companies Google Inc. and Yahoo Inc. highlights the method through which companies in the competitive tech industry utilize total rewards programs in order to obtain highly skilled employees and increase employee motivation. As the assessment reveals, the provision of benefits in lieu of increasing total or variable compensation is the dominant practice in the industry. However, tech firms can increase employee motivation by focusing on recognition and other incentives that reward employee performance.

Google Inc. Total Rewards Program

Google Inc. is a California-based firm that provides Internet search engine services and advertising services to online users. Google also develops and provides applications, such as mapping services and electronic mail services, to Internet users at no charge. Within a seven-year span, Google has grown from only having three employees to having 4,000 employees (Employer Profile, 2005, p. 66). As Kuntze and Matulich (2010) highlight, Google is an innovative company that provides a fast-paced work environment for employees (p. 2). Because Google thrives on innovation, it is necessary for the company to attract committed employees who will enable Google to maintain its competitive advantage over other search engines and online advertisement companies. This section will evaluate the components of the employee rewards structure at Google Inc. to assess the efficacy of the company’s practices.

Total Compensation

Total compensation refers to the base pay that employees receive for their labor. While compensation has traditionally been used to attract employees, Google Inc. is notable for reversing the trend of enticing employees with high base salaries. As Kuntze and Matulich noted, “Google instills in its employees the credo that it isn’t about the money – rather that theirs is a lifestyle that breeds innovative superiority over the competition” (Kuntze & Matulich, 2010, p. 2). As a result of this perspective, total compensation is considered to be lacking at Google compared to other firms in the industry. As a comparison between industry salaries reveals, Google Inc. provides its employees with base salaries that are below the industry average (Kuntze & Matulich, 2010, p. 4). Compounding the problem of lower wages, Google employees are expected to make significant contributions that exceed their levels of compensation. In describing the work culture, Kuntze and Matulich noted that Google engineers can be seen on the Google campus at the early hours of the morning reviewing a project (Kuntze & Matulich, 2010, p. 4). Further, the company has received criticism for a “constantly on the clock” culture where employees frequently surpass the 40-hour workweek (Kuntze & Matulich, 2010, p. 4). The amount of time that employees are expected to devote to the company further reduces the value of their base pay and exacerbates the effects of under-compensation.

Variable Compensation

Variable compensation refers to forms of compensation that are applied in addition to base salary to provide an incentive for employee commitment and performance. Stock options serve as a common example of variable compensation because employees typically must remain with a company for a minimum period of time to receive the stock option benefits. Thus, employees have a motivation to remain with the company and ensure its success in order to maximize the value of the stock options. Like variable compensation, Google is selective in highlighting variable compensation as a primary incentive. The two primary forms of variable compensation that Google provides for employees include bonuses for sales staff and overall company bonuses that are distributed to non-sales employees (Employee Profile, 2005, p. 76). Yet, variable pay does not bridge the industry pay gap for Google employees. As industry analyses assess, Google employees still receive lower compensation in terms of pay after their stock options and bonuses are taken into account (Kuntze & Matulich, 2010, p. 5). Thus, while the company features variable pay as a component of its total rewards structure, this component is an insignificant feature.

Benefits and Recognition

Benefits and recognition refer to tangible and intangible fringe benefits that are offered to motivate employees, create a pleasant work environment, and recognize employee contributions. Google is unique in its reliance on benefits to attract, reward, and retain employees. Employees at Google are provided with a wide range of tangible and non-tangible benefits that are intended to compel employees to work longer hours on the Google campus and substitute the low levels of total and variable compensation (Kunze & Matulich, 2010, p. 2). Benefits that provide an incentive for employees to remain at work longer include free gourmet food, onsite childcare facilities, transportation services, and sports facilities (Kunze & Matulich, 2010, p. 3). Additionally, Google provides a unique 20% Creative Time Program, which enables its engineers to spend 20 percent of their work time on projects that are of personal interest (Kunze & Matulich, 2010, p. 3). Evidencing the value of this benefit, GMail, Google News, and AdSense are among the highly successful Google products that resulted from the individual projects of Google engineers (Kunze & Matulich, 2010, p. 3). In total, the benefits provided by Google create a unique company culture that encourages employee loyalty and foster innovation.

In addition to offering an extensive array of benefits, Google makes limited use of its recognition program. The founders of the company established the “Founders’ Awards,” which provides monetary awards to individuals who make significant contributions to Google (Kunze & Matulich, 2010, p. 5). Yet, the main shortcoming of the program is that it only extends to executives and is rarely awarded to regular employees (Kunze & Matulich, 2010, p. 5). Thus, while encouraging individual employee achievement through its benefits package, Google is limited in its actual recognition of individual achievements. This is among the flaws in Google’s employee rewards program that must be addressed in order to enhance employee motivation.

Yahoo! Inc. Total Rewards Program

Yahoo! Inc. is also a successful provider of online search engine and Internet application services. With revenues exceeding $5.2 billion, Yahoo! Has over 10,500 employees globally and falls behind Google as a leading search engine provider (Levin, 2006, 35). Like Google, Yahoo! Relies upon the talent of its employees to compete in a rapidly changing industry. Yet, the company is noteworthy for its formal establishment of a total rewards program that seeks to encourage employee loyalty and enhance job satisfaction. This section will review and evaluate the total rewards program at Yahoo! Inc.

Total Compensation

Yahoo! Inc. adheres to the prevailing wisdom that employee benefits packages should primarily consist of non-monetary compensation. As Levin (2006) noted, over 30 percent of total rewards packages consist of alternative forms of compensation, including 401(k) matching, stock options, and tuition reimbursement programs (p. 35). Recognizing that employees were concerned with matters concerning base pay, the organization chose to develop a system that explained noncash benefits to employees rather than increase base compensation (Levin, 2006, p. 36). Thus, mirroring Google Inc., Yahoo! Inc. deemphasizes total compensation in its employee rewards program.

Variable Compensation

Yahoo! provides variable compensation as a significant component of its incentive structure. Stock options are the dominant form of variable compensation offered by the company. According to Levin, Yahoo! provides the average employee with a stock option package that is worth as much as two and a half times their base pay (Levin, 2006, p. 35). Additionally, the company provides sales commissions as an incentive to its sales staff and distributes bonuses to regular employees based on company performance (Levin, 2006, p. 37). Through variable compensation, Yahoo! attempts to motivate employee performance and substitute the role of base pay in motivating employees.

Benefits and Recognition

Rather than add to the number of benefits available to employees, Yahoo! attempts to increase enrollment in benefits that are currently available. In 2005, Yahoo! introduced a medical benefit that included cost-sharing while also launching a campaign to educate employees on the value of this benefit (Levin, 2006, p. 35). Additionally, Yahoo! has made an effort to increase employee enrollment of its 401(k) plan and use of other benefits (Levin, 2006, p. 35). Like Google, Yahoo! offers a campus work environment for employees that offers access to a fitness center, subsidized cafeteria meals, 24-hour foosball, and free lattes (Levin, 2006, p. 37). Yet, as this list reveals, the benefits offered by Yahoo! are less extensive than the benefits offered by its competitor Google.

Program Evaluation

Both Google Inc. and Yahoo! Inc. possess the objectives of hiring technically skilled workers and motivating innovation. Google Inc. adopts a total rewards program that emphasizes benefits as a method of motivating its employees to remain loyal to the company and make significant contributions in innovation. While Google does succeed in creating a unique company culture through the provision of fringe benefits, the cost of these benefits the primary detriment of this approach. Google is noted for its industry lead in productivity, generating $209,624 in revenue per employee (Kunze & Matulich, 2010, p. 6). According to analyses of Google’s operating costs, payroll-related benefits compose 50 percent of total revenue at Google (Kunze & Matulich, 2010, p. 5). Further, the provision of catering costs the company over $63 million per year for its US employees alone (Kunze & Matulich, 2010, p. 5). Thus, the cost of providing incentives for performance reduces gains from increased productivity.

In the case of Yahoo! the introduction of a total rewards system that educated employees on extant benefits rather than adding benefits improved employee retention. By developing an online system that informed employees of the available forms of non-monetary compensation, Yahoo! decreased voluntary turnover for three months following the launch of the system (Levin, 2006, p. 36). Further, the company increased 401(k) enrollment and successfully implemented its medical premium cost-sharing program through the new system (Levin, 2006, p. 36). Yet, the modest provision of benefits and inconsistent management reduces performance incentives for the company. In 2008, the company was the center of controversy when it implemented a ranking system that forced managers to identify their lowest and highest performers (Yahoo Staff, 2008, p. 2). As a result of the system, only top performers received pay increases. Yet in 2009, Yahoo! fell far behind Google and other leading technology firms in productivity, generating on $31K in revenue per employee (Kunze & Matulich, 2010, p. 6). The main shortcoming in Yahoo!’s total reward program is that it fails to foster a unique environment that encourages employee productivity and enhances company morale.

Recommendations and Conclusion

Gross and Friedman (2003) outline several components of a successful total rewards strategy. According to their assessment, an effective total rewards package provides affordable benefits at sustainable costs, connects with business strategy to foster a high-performance culture, and generates maximum return on reward program investment (Gross & Friedman, 2004, p. 9). Additionally, Lovewell (2011) identifies that while creating a transparent strategy is important, many companies erroneously equate developing a clear statement of their rewards with developing an effective strategy (p. 39). As Lovewell notes, an effective strategy must have a proportional mixture of the elements of pay, including base salary and variable pay, benefits, learning development, and career development (Lovewell, 2011, p. 39). These guidelines must be applied by Google and Yahoo! in order to improve the efficacy of their total rewards programs.

The primary drawback of Google’s reward program is that it is costly and unsustainable in the long term. In order to improve upon the sustainability of its program, Google must reduce non-essential benefits and provide both monetary and intangible incentives to increase performance. A primary method that Google can adopt to encourage innovation at a lower cost is to improve its recognition program. As the evaluation of Google’s benefits and rewards scheme revealed, employees are excluded from the opportunity to receive regular recognition. However, Google can motivate employees to introduce innovative ideas by providing monetary awards for unique contributions to the organization.

The primary drawback of Yahoo!’s total rewards program is that the company relies upon improvements to its total rewards statement over introducing innovative rewards. Rather than introduce significant benefits for employees, the company invested in a system that informed employees of extant benefits. While this has improved turnover, it has failed to increase productivity or aid the company in innovation. In order to improve morale, Yahoo! should discontinue its ranking system, which only provides bonuses for top performers. Rather, the company should provide benefits, such as education and skill development opportunities, which encourage employees to become more innovative and productive.

As Google and Yahoo! demonstrate, total reward systems are an integral component of employee motivation and retention practices. In the highly competitive technology industry, developing rewards packages that attract talented employees while preventing turnover is essential in maintaining a competitive advantage. However, as Google demonstrates, relying upon expensive benefits over monetary compensation and recognition for performance can lead to unsustainable conditions in the long term. Yet, Yahoo! demonstrates that the complete lack of unique benefits can undermine employee morale and create stagnant working conditions that hinder innovation. Thus, an ideal total rewards program combines total pay, variable pay, benefits, and recognition to develop a stimulating company culture while providing reasonable rewards for innovation and performance.

References

Employer profile - Google: Searching for talent. (2005). Employee Benefits, 66-70. Retrieved from http://search.proquest.com/.

Gross, S. E., & Friedman, H. M. (2004). Creating an effective total reward strategy: Holistic approach better supports business success. Benefits Quarterly, 20(3), 7-12. Retrieved from http://search.proquest.com/.

Kuntze, R., & Matulich, E. (2010). Google: Searching for value. Journal of Case Research in Business and Economics, 2, 1-10. Retrieved from http://search.proquest.com/.

Lovewell, D. (2011). Total reward: A totally rewarding strategy. Corporate Adviser, 39. Retrieved from http://search.proquest.com/.

Yahoo staff face performance-related pay. (2008). Personnel Today, 2. Retrieved from http://search.proquest.com/.