Compensation Plan Analysis of Google Assignment Help
1. Evaluate the existing compensation plan to determine if it is the most appropriate for your company. Explain your rationale.
2. Determine the most beneficial ratio of internally consistent and market consistent compensation systems for the company you selected.
3. Evaluate the current pay structure used by your company and assess the recognition of employee contributions.
4. Make two (2) recommendations for improving the effectiveness of the discretionary benefits provided by the company you selected.
5. Evaluate the types of employer-sponsored retirement plans and health insurance programs provided by the company you selected and compare them to that company’s major competitors.
6. Use at least three (3) quality references. Note: Wikipedia and other websites do not qualify as academic resources.
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Google’s compensation plan has been evaluated. The most beneficial ratio of internally consistent and market consistent compensation system for Google has been assessed. The current pay structure and recognition of employee contributions of the company have also been evaluated. Recommendations have been made on how to increase the effectiveness of Google’s discretionary benefits to employees. Employer retirement plan and health insurance benefits offered by Google have been compared with that of its major competitors in the technology industry.
Evaluation of the existing compensation plan of Google to determine if it is most beneficial for it
The existing compensation plan of Google is one that consists of a fixed component and a variable component. The variable component is linked to the performance of the employee on certain parameters of individual performance or performance of the team to which the employee belongs (Kiechel, 2014). The fixed component of the salary serves like of hygiene factor, while the variable component serves like a motivating factor, if we apply Herzberg’s two factor theory to the compensation plan of Google.
Google’s compensation plan differs significantly from the compensation plan offered by many other companies in terms of various non-monetary benefits that the company offers to its employees. These non-monetary benefits include many types of free meals to employees while they are at work, maternity leaves, paternity leaves, three-month non-paid leave for any employee, and other such benefits. Up to $ 8250 of contribution to the 401 (k) retirement savings plan by an employee, Google matches that contribution by 50% (Lisa, 2016). In case an employee dies, the company provides 50% of the salary of the employee to her surviving spouse over the next 10 years after the death of the employee. Google also offers employee stock options. It gives options to own stock of the company to certain employees. Employees can exercise this option and get the stocks of the company after they remain with the company for a certain number of years. The objective behind these employee stock options is to retain talented employees in the long term.
Google’s compensation system is a mix of traditional bases of pay such as seniority & merit and incentive-based and person-focused approaches of compensation. The company has chosen this mixed compensation system is order to take advantages of the positive aspects of the two bases of pay while eliminating their shortcomings. Traditional bases of pay reward employees on the basis of their past performance and record. But their disadvantage is that they do not consider adequately the current performance (Kramar & Syed, 2018). They do not give adequate motivation to employees to perform better in the present. In order to overcome this shortcoming of the traditional bases of pay, they need to be complemented with incentive based pay systems. Incentive-based pay systems reward employees on the basis of their current performance. They are therefore more effective in motivating employees. The most effective compensation system is one that combines traditional bases of pay with incentive based payments. Google has opted for such a mixed system of compensation.
The existing compensation plan of Google has proved to be very beneficial for it. The company is a technology company. It relies heavily on technological innovation in order to sustain its competitive advantage. To achieve a high rate of innovation, Google needs employees who are highly engaged with their work (Luthans, 2016). This requires high level of motivation in employees. The compensation plan of the company has succeeded in achieving that level of motivation in employees. This is reflected in the ability of the company to innovate continuously. Its competitive advantage due to better rate of innovation than its competitors can be seen in its financial performance too.
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Most beneficial ratio of internally consistent and market consistent compensation systems for Google
Internally consistent compensation systems are those where the pay given to an employee is based on the value of work that she performs for the company. Internally consistent compensation systems can therefore be considered fair and more equitable (Kramar & Syed, 2018). When the pay is not related to the value of the work being done by an employee, then such a compensation system cannot be called fair or equitable. Job analysis and job evaluation are done in internally consistent compensation systems to assess the value of a job for the organization.
Market consistent compensation systems are those where the pay of a job is based on the market rate for it. Market consistent compensation systems can be unfair on inequitable if the market rate for a job varies widely with the inherent value of the job for the organization (Kramar & Syed, 2018). This kind of variation can exist because of inefficiencies of the market. However if the forces of supply and demand are allowed to work freely then the variation between inherent value of a job and its market value is soon corrected.
A company like Google has human resources as its most important resource. For any technology company, its human resource is its biggest source of competitive advantage (Ogbonnaya & Valizade, 2018). The technology industry in which Google operates is a fast changing one because of rapid pace of technological innovation. The only way to sustain competitive advantage is to stay ahead of the competition in terms of innovation. Google has maintained its leadership in the search engine market over the past two decades because of more rapid pace of incremental innovation in its search engine. This ensured that its search engine remained better than that of competitors such as Microsoft. Now to achieve this kind of incremental innovation, Google needs to attract and retain the best talent in the market. It will not be able to attract and retain the best talent that is available in the market if its compensation system is only internally consistent and not market consistent.
For some jobs like those involved in technology research and development, Google has to pay much more than the inherent value of the job in order to keep the best talent that is available, away from the hands of competitors. At the same time if its entire compensation system is only market consistent then it will result in underpayments for many job roles. This may result in dissatisfaction and discontent among a large segment of its workforce (Presbitero, Roxas, & Chadee, 2015). This dissatisfaction can have a very adverse impact on the efficiency and productivity of the organization. Therefore the compensation system at Google should be a mix of internally consistent compensation system and market based compensation system.
For jobs that are high in demand, the market based compensation system should be used for determining the compensation that has to be paid. For job profiles that are not in high demand in the market, internally consistent compensation system should be used for determining the compensation to be paid. This will ensure that a fair and just compensation is paid to employees working on these jobs.
The most beneficial ratio for internally consistent and market consistent compensation systems for Google is 1:1. The compensation system should be a balanced mix of elements of internally consistent compensation system and elements of market consistent compensation systems.
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Evaluation of the current pay structure of Google and assessment of the recognition of employee contribution
The current pay structure of Google is one that pays employees the best compensation in the technology industry. This pay structure has a fixed pay element. The fixed pay is the pay that an employee certainly gets irrespective of her performance or the performance of the team to which she belongs. The variable pay element is linked to performance goals set for the employee or the team to which she belongs (Top, Akdere, & Tarcan, 2015). If those performance goals are achieved then the employee gets the variable pay too. The variable pay element is there in the pay structure so that the efforts of the employees are aligned with organizational goals and objectives.
Google has a strong system of recognizing contribution of employees. Contribution of employees who have performed well or better than expectations is recognized through the bonuses that the company pays them. Google pays an average bonus per employee of around $15000 annually (Jones, 2017). The main objective of paying these bonuses is to recognize contribution of employees in the financial performance of the company. Google also recognizes contribution of employees, who have performed well on a consistent basis, by giving them employee stock options. These options mean that employees are rewarded by giving them shares of Google.
The system of recognizing contribution of employees is a very effective one at Google. This is reflected in the very low attrition rate of the company. Google has a very high rate of retaining employees. It is able to retain talented employees over the medium and long term.
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Two recommendations for increasing effectiveness of discretionary benefits provided by Google to its employees
Discretionary benefits are those benefits that Google voluntarily gives to its employees. It is not required by law to pay these benefits to its employees (Top, Akdere, & Tarcan, 2015). The first recommendation regarding discretionary benefits is that discretionary benefits for employees at the lower rung of the hierarchy should be more in monetary form than in the form of non-monetary benefits. This will have the impact of increasing monetary compensation of these employees. Google pays the best salaries in the industry but it is also true that the cost of living in cities where offices of Google are located have gone up considerably. Giving more of discretionary benefits in the form of monetary payments can increase satisfaction and motivation of employees working in the lower levels of hierarchy.
The second recommendation is that Google should increase the limit of 401 (k) contribution of employees for which it matches 50% of their contribution. The current limit is $8250 annually. This means that if an employee of Google makes contribution to her retirement 401 (k) account of an amount of $100, Google will give $50 from its own side to the 401 (K) account. By increasing this limit Google will effectively increase the compensation that it pays to its employees. This increase in limit will motivate its employees to save more for their retirement needs. The overall impact of this measure will be increase in well-being of employees. When well-being of employees is increased, they become more motivated and engaged with the organization.
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Evaluation of employer-sponsored retirement plans and health insurance programs provided by Google to its employees and its comparison with those of its competitors
A recent survey done by Bloomberg found Google’s retirement plan to be the best in the technology industry, better than those of its competitors (Lisa, 2016). All major companies in the technology industry, such as Google, Apple, Facebook etc have defined contribution retirement plans and not defined benefit ones. Google matches 100% of employee contributions to their 401 (k) fund up to $3000 annual contribution by the employee. For above $3000 and less than $ 8250 it matches 50% of the contribution made by the employee. In comparison to this, Apple matches the contribution made by an employee to her 401 (k) fund only up to the limit of 6% of the pay of the employee. Facebook matches 50% of the contribution of the employee up to a limit of 5% of her salary (BenefitsPro, 2019).
Google offers employer-sponsored health insurance to its every employee. In the cases of some senior employees, health insurance offered has features that can be used by immediate family members of the employee. Google’s health insurance also extends to dental insurance. The dental insurance plan often covers the cost of reconstruction surgery.
The health insurance offered by Apple is very similar to that offered by Google (BenefitsPro, 2019). It too covers dental insurance. Facebook’s health insurance plan is less extensive than those offered by Google and Apple.
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Google’s existing compensation plan is highly effective in motivating and retaining employees. It has contributed to the good performance that the company has seen over the years. It has contributed to the higher rate of incremental technological innovation that has sustained the competitive advantage of Google. The retirement benefits plan of Google is better than those offered by all its competitors. The pay structure is a mix of traditional base pay and incentives based pay. Google’s compensation system can be improved by offering more discretionary benefits in the form of monetary payments and by increasing the upper limit to 401 (k) contribution that the company matches by 50%.
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