Does it make economic sense to treat your empoyees well?
So life at Google is great. The past week Deadra has been out of town so I've been spending a lot of time there. Three great meals a day (I've had lamb 3 times this week) and a midnight snack. Not that I'm working until midnight; I'm just playing board games with some of the other Googlers. On the days I'm not there so late I bring Chachi. Today the big discussions were the winter trip and the Christmas bonus. The bonus is two orders of magnitude better than any present I've received before. And my real bonus is still to come in March. The trip alas I can't go on this year because Dea is due so close to then, but it's a 3 day trip with a bunch of Googlers, traditionally to a ski hill but there's some different destinations this year. I've spent one day this week working on my own independent project. I also did a last minute interview so HR gave me a thank you certificate for a free hour long massage.
It's all kind of insane. Why would a company treat it's employees this well. Some think that Google somehow got lucky, made a bunch of cash, and now is spending it unwisely on ridiculous perks. They figure that the money will run out and either the perks will stop or the company will go bankrupt. Is this so?
Well, how much do these perks really cost? There's in the neighbourhood of 20K people in the company, including contractors, temps and interns. Give them all a nice salary somewhere in the 100s of thousands, toss in many 10s of thousands more for ridiculous perks, then add the costs of office space and computers and whatnotelse. Of course there's also potentially the stock options, but if the company is really going to run out of money those won't be worth anything anyway.
The way I see the math, the final compensation budget is somewhere around a few Billion dollars a year. That's a lot of money! Way more than I have, and in fact way more than many mid-size companies are worth. If you trimmed costs by 10% you'd have a few spare $100M per year. That's still a lot of money. Surely 10% trimming wouldn't hurt that much, right?
So what would a company like Google spend that cash on? How about another YouTube, or part of Facebook, or the next great thing that none of us has of heard yet. Google spends billions of dollars every year on these acquisitions. What do they typically get from these purchases? Software, Hardware and People. The Hardware is usually pretty minimal, and while the People are often great, they still demand salaries every day and big stock option grants so you're really only saving on their recruiting costs. That means that most of the value of these companies is in their software. Software can have value in two ways: It's complex software that would take a long time to reproduce, or it has users who wouldn't switch even if an identical product existed. Websites tend to have very little of the former, and lots of the latter (The first mover advantage).
So every year Google spends similar amounts on it's entire compensation budget and on buying companies that have first mover advantage. What if you could produce one more product in house per year, such that you then buy one less company. Well, that would save you Hundreds of Millions of Dollars, the same amount as all the crazy perks.
Most of these startups are created by a couple of guys in a garage working on crappy hardware with no job security. Surely if you took a few thousand really smart people, gave them all the perks in the world, great job security, the greatest computing infrastructure that exists, and a few days a month to brainstorm ideas, one great idea product would spring forth, right?
If all those perks cause one of thousands of Googlers to make one great product for Google then all the perks have been paid for.
When it costs the same amount to buy two guys in a garage as to keep tens of thousands of employees crazy happy it seems really dumb not to treat your employees well...
It's all kind of insane. Why would a company treat it's employees this well. Some think that Google somehow got lucky, made a bunch of cash, and now is spending it unwisely on ridiculous perks. They figure that the money will run out and either the perks will stop or the company will go bankrupt. Is this so?
Well, how much do these perks really cost? There's in the neighbourhood of 20K people in the company, including contractors, temps and interns. Give them all a nice salary somewhere in the 100s of thousands, toss in many 10s of thousands more for ridiculous perks, then add the costs of office space and computers and whatnotelse. Of course there's also potentially the stock options, but if the company is really going to run out of money those won't be worth anything anyway.
The way I see the math, the final compensation budget is somewhere around a few Billion dollars a year. That's a lot of money! Way more than I have, and in fact way more than many mid-size companies are worth. If you trimmed costs by 10% you'd have a few spare $100M per year. That's still a lot of money. Surely 10% trimming wouldn't hurt that much, right?
So what would a company like Google spend that cash on? How about another YouTube, or part of Facebook, or the next great thing that none of us has of heard yet. Google spends billions of dollars every year on these acquisitions. What do they typically get from these purchases? Software, Hardware and People. The Hardware is usually pretty minimal, and while the People are often great, they still demand salaries every day and big stock option grants so you're really only saving on their recruiting costs. That means that most of the value of these companies is in their software. Software can have value in two ways: It's complex software that would take a long time to reproduce, or it has users who wouldn't switch even if an identical product existed. Websites tend to have very little of the former, and lots of the latter (The first mover advantage).
So every year Google spends similar amounts on it's entire compensation budget and on buying companies that have first mover advantage. What if you could produce one more product in house per year, such that you then buy one less company. Well, that would save you Hundreds of Millions of Dollars, the same amount as all the crazy perks.
Most of these startups are created by a couple of guys in a garage working on crappy hardware with no job security. Surely if you took a few thousand really smart people, gave them all the perks in the world, great job security, the greatest computing infrastructure that exists, and a few days a month to brainstorm ideas, one great idea product would spring forth, right?
If all those perks cause one of thousands of Googlers to make one great product for Google then all the perks have been paid for.
When it costs the same amount to buy two guys in a garage as to keep tens of thousands of employees crazy happy it seems really dumb not to treat your employees well...
posted by Ze Ace at
11:29 PM
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