Compensation Practice

Posted: July 15, 2016

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Compensation Practice

Lombardo, (2015), argues that written or unwritten, formal or informal, any organization have a compensation plan. Some organization might be having it just to meet the compliance requirement, whereas others have it so that they can attract qualified individuals and retaining and motivating the already existing individual so that the objectives of the organization can be realized. Regardless of the goal, complexity and size of the compensation plan, some elements are easy to identify (Lombardo, 2015).

Before the compensation plan is developed, there are key factors that should be considered. When the time has been taken to go through all the playing factors of a compensation plan, the process of developing and administering the plan becomes easier, and as a result, the goals and objectives of the organization can be matched (Lombardo, 2015).


In any organization, pay is an important element. Organizations have been using the payment to drive, motivate and rewards their workers and employees. Based on the pay system and the amount, workers can also be demotivated. Strategic compensation is compensation of employees so that their motivation towards work can grow and at the same time, the efforts can gear the organization to attain its objectives, philosophies, and the organization culture.

Balaji, and Balachandran, (2012) argues that compensation can be in any form of payment and rewards given to the employees for their jobs. All employees in an organization require a compensation system which is fair and can also be commensurate their effort, expectation, and skills. When the compensation system is effective, then the organization will also be effective in the implementation of its goals. In this competitive economy, an organization should be competitive. For it to be competitive, the organization should attract a workforce that has the knowledge, skills, attitude and aptitudes. Therefore, to maintain the workforce that assists the organization to achieve its objective and goals, it should have a reward system that has its focus on the attention of its employees (Balaji, & Balachandran 2012).


According Geier, (2015), Google is a firm that operates by having a pay that is competitive with its competitors. It also pays the highest within the boundaries of its industry. Even if Google decides to invest its money to its employees, in most cases, time and research have to be invested. Even if time and research were planned carefully, several merits and demerits would come with the decision. The company can be impacted either negatively or positively, as well as the employees that are working on it (Geier, 2015).

The mission of Google is to be an organization of the world so that it can be accessed universally. Google was established in 1998 and has been serving a vast number of clients over the globe. Larry Page and Sergey Brin made the organization while still at the Stanford University. Initially, Google was known as BackRub, and then it was using links in the determination of useful links of individual web pages. The name Google was derived from “googol”, a term that means 1 followed by a hundred zeros. Google’s headquarters are in California, on a mountain view which it called Googleplex. As of now, the company has more than 70 offices in more than 40 countries around the world.

Google believes that the employees are what makes Google the way it is. The people who are getting hired in the firm are those who are smart and experienced. Therefore, the employees have common goals, visions for the company. There is a great diversity of the people in the company for they come from all the corners of the world, and speak the many different languages. Google believes that an open culture is a key to the success of the company, and makes the startups feel comfortable in the sharing and offering their opinions (Geier, 2015).

Every week, the employees have a meeting where they ask a direct question to the founders, Larry, and Sergey, and any company issue can be resolved. The way in which the offices are designed and constructed encourage the employees within and across teams to interact more freely, and also to spark conversation about work and play.

Compensation Strategy

Google has an average of $3.5 of payout, and this is equivalent to 10% salary increase. Google is constantly battling with its competitor, Facebook, on who has the top engineering. All of that is because of the mid-level staff engineers, for the two companies are choosing the best. The decision was made so that it can be in line with the compensation philosophy and how it has an impact on the business.

Compared to the other companies, Google has based their decision after months of research. A survey was conducted by the employees, in which the result was a rate of 90%. The study was meant to find out the value of different elements of compensation. The results of the research were put together; they found out that their employees value bonuses at $0.9 compared to $1 of base salary. Because of the results of the study, Google realized how they could benefit when they invest in their employees.

Competitiveness in salary is not the aim of Google, rather, they want to be the highest in the market. The increase was not about the performance but the commitment to the very best regarding compensation. The compensation was not for only certain individuals but was for the entire board. The 10% increase of salary was their best move which was advantageous to the employees. Google succeeded in the raising of the employees’ salary so that it can exceed the level of the competition.

Clearly, the 10 percent increase in the salary would have an effect on the company. The decision was made based on good information. The process was planned out well, and not a thrown together process. One of the factors that were considered was the impact on the stock prices at that moment and in the future. Google also realized that the decision was a risky one regarding return on investment.

Results and impact of compensation strategy

The results after the 10% increase resulted in a sharp increase in the first quarter of the year. Google understood the worthiness of keeping their top performers, and instead of offering a lip service in the value, they did it in the practices. Google know that the investment that they make to their employees will likely reduce top talent turnover. As results, there can be devastating to the bottom line. Google also put their low performers in an improvement plan in 25% of their time so that they can improve their performance, spend 50% of their time moving in a different role that they may be suited better and the remaining 25%, they leave on their own.

Google has been one of the best places to work. It always finds it way in the ranking of top business, especially the Fortune. There perks are great and furthermore have a great culture. Regarding retaining their top talent, the firm has to make sure that their employees are near or top of the compensation in the industry. However, efforts to retain top performances can attract issues and problem for Google.

A company always want to retain their employees who are top performing for it is an asset but at the same time, it does not have to look as if they are being forced to do so. Specifically, the ones that are not performing at the top level. When a department is full of employees who have the same skills, it a waste to the company. Compensation is not a way of dealing with management issues in a firm.

Even though a 10% increase of the pay to the employees is a positive impact on the company, it also has some negative issues that accompany it. The people who are regarded as being the top performers are aware that there are individuals who should be fired. When the word that there is an increase of pay to all the employees, they feel that the low or nonperforming staff are being rewarded for nothing. Moreover, the feeling that they are working hard without a proper reward start developing. A company that is also expanding has the inefficiencies and bureaucracy that comes with it. As a result, the top performing employees may start to search for greener pastures from the competing companies that offer the same opportunities.

Across the board retaining mediocre employees by using compensation strategies are set up for failure. The very thing will likely happen when salary is frozen across the board. In a frozen salary scenario, the pain might be shared throughout the company, but those who can highly be compensated elsewhere are the one who lose the most. And the issue is that if everyone gets a reward, then there will be no reward that will be special. A firm can be handling high performing employees in the same manner as the other employees who are barely producing.

Balaji, & Balachandran, (2012) imply that employees will make a comparison between their job and pay with another company’s job and pay. In most cases, the employees will be considering more than their basic pay in the determination of external equity. However, individual employees might be given consideration concerning employees benefit, physical working environment, job security, commuting distance, advancement opportunity in determining the external equity issues. Another issue that is important is determining is their external equity is according to the transferability of their skills. If the employee feels that he or she has more advanced skills than the others, then he will likely feel that he should be treated inequitably (Balaji, & Balachandran 2012).

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