Google’s payment level to its employees is very high. The company has altered its paying strategy to pay its employees better than its competitors. This is apparent because its product cycle phases have changed from growth to maintenance. Also, Google’s stock growth rate has slowed down. Google’s pay level has increased by 10% (Kuratko, 2014). Observably, the cost of the salary has increased to approximately $400 million. Google’s pay level can be measured by how it is compensating computer science majors just from college (Graham, 2008). The company is paying computer science, majors, out of college $90,000 to $105,000. This figure is $20000 more than it was paying a few months ago (Kuratko, 2014). Paying computer science major such salaries is challenging for start-ups. The increase in stock price is making the company increase its pay level.
The recent pay level is compared before the company repriced employee stock options (Wolff, 2004). Before the reprising of the employee stock options, the employees were receiving $522. However, after the repricing, the employees started receiving approximately $850. Therefore, it can be said at this point that Google was making much from its strategy.
The main reason why Google reprised its stock option is that its product cycle phase was changing from growth to maintenance (Wolff, 2004). Also, the company was considering reprising its stock options since its stock price was slowing down. Also, Google wanted to give its employees, a salary that valued their input. Furthermore, Google was counteracting comments such as the company was not the best place to work (Graham, 2008). The firm wanted to change the reputation such that the perception has now changed to indicate that the company is the best place to work.
I think Google has done a recommendable thing to change its compensation strategy. One of the benefits would be that there would be increased employee motivation. The other benefit is that it will remain competitive in the market, especially for start-ups. This is apparent because the start-ups cannot afford to pay their engineers at such a salary. However, the compensation strategy is very expensive since the company will use much of the revenues realized from stock trading (Graham, 2008). Approximately, the company will use $2 billion in stock-related compensation. These costs relate to the operating income of the enterprise in such a way that the respective operating income will go down. Also, the total costs will increase. This is because many revenues will be used for compensating employees. Revenues used in compensation will be added up to the expenses.
However, costs in most of the instances are used to attract revenues shortly. This is because these increased costs are likely to be a good investment (Graham, 2008). The increased costs will attract the most qualified engineers. Paying engineers well ensures that the quality of services at Google will go up. Innovations will be experienced in the company, which would increase the reputation of the organization. Also, the increased expenses will deny the start-ups the chance to excel in the market. The company can pay itself from the revenues from the stock options (Wolff, 2004). Although not much will be realized from stock options, in due time, it will be able to compensate itself through improved reputation and motivated engineers. In the future, Google’s competitive position will be distinguishable such that it will be hard for a rival firm to remove Google from the market.
References
Graham, D. (2008). Effective Executive Compensation: Creating a Total Rewards Strategy for Executives. New York: AMACOM/American Management Association.
Kuratko, D. (2014). Entrepreneurship: Theory, Process, Practice. Mason: South- Western Cengage learning.
Wolff, F. (2004). Employee Stock Option Compensation: A Behavioral Finance Approach. Wiesbaden: Deutscher Universitätsverlag.