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When Equity Speaks Louder than Cash

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News leaked today that Google is giving all its employees a generous 10 percent salary bump (See more on the story in the Inc.com reporters' blog). 

Here's an analysis of what it means from the Business Insider's Henry Blodget:

'Well, first it suggests that Google is still an awesome place to work. Given that employee retention has been a problem, it also suggests that Google is now going the extra mile to keep its employees happy. Lastly, it suggests that the company's financial performance continues to be very strong.'

I believe all those things are true, but the move also highlights something else: it says the biggest weapon Google has against competitors like Facebook when it comes to attracting and keeping talent is cash it already has on hand. The promise of a giant, future equity payout has sailed away from Google employees.

While Google no doubt supplies a hefty paycheck to its workers, because of its already sky-high stock price (roughly $620 a share as I write this), it can't offer the sort of eye-popping creation of wealth that something like an IPO can.

Programmers are the lifeblood of a tech company. They're going to want to go where they can have the most freedom, biggest impact -- and reap the financial rewards of their work. So Imagine you're a young, hotshot programmer at Google who joined after it went public. You are paid very nicely, but you sit in a position previously held by someone who has already cashed in her millions and moved on to the next adventure. Plus, the secretary might be worth more than you ever will be. Facebook and Twitter might look just a little appealing.

For its part, Google insisted in an internal memo that its workers want the cold hard cash:

'We've heard from your feedback…that salary is more important to you than any other component of pay (i.e., bonus and equity). To address that, we're moving a portion of your bonus into your base salary, so now it's income you can count on, every time you get your paycheck.'

That may very well be the case, but I would add 'salary is more important to you than any other component of pay that Google can offer.' Send that survey around to Facebook employees and I'd wager you'd find a few more that would love additional equity instead.

This attraction-of-talent problem isn't just at the programmer level. In 2007, Google went searching for a new CFO. You'd think it would be one of the more glamorous positions in the finance world, but it took Google a year to fill. The hire, Patrick Pichette, wasn't some tech world superstar, but the president of operations at Canadian telecom giant BCE (formerly Bell Canada). I'm in no way trying to insinuate anything bad about Pichette, who is by all accounts a very fine executive, but the choice was considered something of a head-scratcher given his rather staid background. Recruiters I talked to at the time believed the lack of a big upside in Google's stock limited the candidate pool.

Contrast that with Facebook, which went hunting for a CFO last March. That search was completed in just a few months and returned David Ebersman, who by age 38 had already served as CFO of biotech pioneer Genentech for four years. Impressive stuff -- and probably the kind of resume you'd expect from a Google hire in, I don't know, 2003.




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