Why Google Pays Unfairly And Is Proud Of It

If you have 25 minutes, listen to this Kleiner Perkins podcast with Laszlo Block who was Google’s SVP of people operations for 9 years.

If you have only 5 minutes, keep reading because I’m going to summarize it for you :)

Here are the main points:

Structured interviews trump all

Brain teasers are not a good indicator of future performance. Interview questions should be based around problem solving questions.

Hiring decisions are made in less than 10 seconds and are very biased

The results of research from Toledo University was that college sophomores made the same assessment as trained psychologists when interviewing candidates.

They took an interview conducted by the psychologists and cut it down to 10 seconds without sound for the college sophomores, and their assessments of the interviewee were essentially identical to the trained psychologists assessment.

Google now has a dedicated hiring committee so they aren’t making biased hiring decisions.

Take most of the power away from managers, but not all

According to Google’s research that once engineers become managers, they forgot everything about what it was like being a non managing engineer. They also had a manager above them, and they weren’t able to work with them properly.

The employees were naturally not truthful to their manager.

Larry Page implemented a rule that got rid of all managers and all 500 engineers would report to the head of engineering. That didn’t work too well.

There must be an incentive for employees to be honest with you.

Pay Unfairly

The best people are way way way better than an average employee and produce results much higher, so you can’t pay them fairly since they are producing so much more value.

There are two ways to look at the pay system.

Distributive justice — This is when you make pay transparent. The problem with that is that no one is ever happy with it except the person making the most money.

Procedural justice — This is when you explain clearly how the pay system works and can defend why the pay system is fair.

Laszlo gave a great example about the best performers in the NBA Lebron James and Stephen Curry. The average NBA players don’t complain that they should be making as much as Lebron or Stephen because they aren’t at that level.

Pay systems are usually designed to be fair, however that system isn’t designed to keep the right people within your company.

Someone made the comment that “They can’t possibly pay that person 10x more than everyone else.” What they found out is that they can and should pay unfairly for great talent.

As long as you can justify their value, then you can pay unfairly.

You need wide distributions of pay because the market is going to pay what they’re worth anyway

Without the wide distribution you will lose high performers that generate a lot value.

In some cases on the low end someone would receive a 10k stock bonus and on the high end someone would get a $1M bonus.

This system also worked well for paying women fairly. Statistically, women make $.79 for every $1 a man makes. Google doesn’t hire on past pay (woohoo) and only hires on the market value of the position.

No counter-offer policy

At Google, they implemented a no counter-offer policy. If someone received an offer from another company, they would not offer a counter-offer to match the new company’s offer.

Laszlo has a strong view that counter offers are toxic. It incentivizes the wrong people.

How to stop your employees from being poached

Although this goes against the no counter-offer policy, it worked well when Google was looking to hire talent away from their competitors.

Laszlo mentioned a story about how Google was hiring from other companies, and the company would triple their employee’s compensation to keep them employed at their company.

Since recruiters have metrics to meet, it became much harder to recruit from those companies and they would eventually avoid the company.

In summary,

It was a very interesting podcast and I learned quite a bit!

My view on hiring,

I’m the CEO and Co-Founder of June where our team shares a different vision and a different take on how to hire. At June, we have found that in our experience it costs less and takes less time to hire when you pay talent to pitch them a job than to try and use conventional tools to get them to apply to your company. Ditch the job boards and pay to talk with the people who have the skills you want. Check us out at http://www.joinjune.com today.