I find this fascinating. It almost smacks of game theory. A land-mined game of incentives, anyway.
Think of the sheer amount of considerations that go into a decision like this. Higher-ups at Google must acknowledge:
* Offering someone an enormous sum only after someone else has made you an offer can be off-putting. Consider the many articles written about never making counter offers[1], or never accepting them.
* Along the same lines, if you're not offered a large enough sum to stay, you might take it as an insult. "They're only offering me this much money after I've considered leaving?" Google certainly made sure the sum was large enough, by any count.
* Offering an enormous sum to one person may tempt others to fish out offers from other companies. Others may feel like they're never going to get a raise unless they are courting or being courted actively.
* Google's decision-makers (or check-writers) have to be careful about the number picked. They want to send a message to the person, and to other companies, and to the market. But they probably don't want to end up paying $100m for every high value employee. Luckily for Google, if its gonna be a cash arms-race against other companies, there are few that can do serious battle with them.
* Speaking of high value employees, while you might get person A to stay, you make make resentful group B. After all, there's already a comment here: "It's only a matter of time before us little developers get's similar packages!" It's not a stretch for anyone to sympathize with that view.
~~~
And then, at the end of all that, people in a room pursed their lips together and quietly nodded while somebody pulled out the (metaphorical) checkbook. This guy is staying, it's going to be this much money, and we're going to make it purposefully public knowledge. Signals everywhere.
It seems to be a dangerous game. Others may (as a default) suddenly feel unappreciated since Google hasn't made them an offer to keep being a Googler, and perhaps hasn't approached them with any considerable raise in some time. 100 million ensures that you keep a single employee, but how many do you alienate at the same time?
Hard to blame Google's decision, I'm sure they gave it much more thought than I have. I wish I could know what they're thinking, it's just so fascinating what goes into this.
Google is safe offering him $100M without offending the other employees, because the other employees at that level at Google already earn that much, if not more.
Giving him $100M was more of a correction because he arrived at the company later than the other equiv execs. Most of the top tiers of employees at Google, which is where he would be, are worth hundreds or millions and more through vested stock, new options, bonuses, etc.
I find that very hard to believe. I'm ok with the talk about hackers being 10x more productive than regular developers. But a $100m bonus would mean that guy is about 1000 times more valuable than the average. It defies common sense in every way. And it's not just because I'm jealous and resentful I'm thinking that, no ones time is that valuable.
A person making decisions that may lose $100 million or make a $100 million profit can be thought as "1000 times more productive", because large losses/profit depend on his actions.
Of course the average software engineer at Google can't make similar decisions, so they can't be worth that much even in theory (unless they happen to invent something revolutionary).
So my point is that yes, CEOs can be "worth" thousands of times the salaries of the average employee, but that's not fundamentally about the skills of the CEO, but because the CEO happens to be in a position where his choices/strategy/etc have extremely large consequences. (In this example Mohan is not CEO though, but makes similar choices that a CEO does).
A real world example would be Stephen Elop at Nokia: some say that he has made Nokia lose billions of dollars, when another CEO might have made Nokia save that money.
Why stop at $100M? A company worth $250B could justify $50B salaries following this argument. And the same exact argument can justify outrageous salaries for traders who gamble huge amount of money that's not theirs. Yes, large losses/profits depend on their actions but it's unclear how much of that depends on their skills. A lot has to do with chance or market dynamics that nobody really grasps. And if they win, they win big bonuses, but if they lose, at worst they lose their job.
For traders, Daniel Kahneman has shown that they have no skills whatsoever (see http://www.nytimes.com/2011/10/23/magazine/dont-blink-the-ha...). I do believe that CEOs have some skills but the expected value of these skills is much lower than the potential impact of their decisions. Having been a company owner, I have learned that how CEO decisions are executed (by all the other people in the company who don't make outrageous salaries) is often much more important than the decisions themselves.
That seems to say that stock pickers and fund advisors have no skills, not very much about professional traders. whatsoever. I've read some stuff that said that the military has studied pit traders at NYMEX due to their skill in handling vast amounts of information and making split second decisions on it.
You are right. I used "traders" a bit too vaguely. Kanheman's research applied more to stock pickers and wealth advisors. But I think the argument applies to all: none of these people's skills justify the 8 or 9 figure bonuses that Wall Street has been distributing.
Sure, CEO:s have a much greater impact on the company than the average employee. And they should get paid "lots," I don't disagree on that. But that's not the scale we are on here, we're talking 1000 times more productive. It's a larger difference than between peasants and the kings of feudal Europe.
Google either gets 1000 extra engineers or gets this probably really smart guy. I guess we just have to agree to disagree since there is no way to measure how valuable a CEO is. I do think that the burden of proof is upon those that think those salary differences is justifiable since "extraordinary claims require extraordinary evidence."
> A real world example would be Stephen Elop at Nokia: some say that he > has made Nokia lose billions of dollars, when another CEO might have > made Nokia save that money.
Not a good example since Symbian has been a dead end for years and Nokia has failed to make desirable smart phones. Putting all the blame on him ignores all the bad decisions all the other people at Nokia did.
Yes! My problem with the "CEOs make big decisions so they should get paid a lot" thing is that it encourages CEOs to set up companies where they make all the big decisions. And of course to draw all the attention to themselves. And to focus everybody on trying to figure out what the CEO wants, rather than what the customers want.
Contrast that with, say, 3M. The Post-it Note was a bottom-up invention. One guy came up with the adhesive. Another person figure out what to do with it. They've sold billions of dollars worth of the stuff. As far as I'm concerned, that makes the 3M CEOs much smarter than the hands-on ones. Instead of treating the company like a giant prosthesis, they created an ecology.
Well I know a dev at a major publisher recently messed up a canonical meta implimentation on a single job site and that cost over 1/2 a million £ in less than a week.
And in the past I was admin in charge of a billing system for British Telecom and when we had our first million pound month (about $5,000,000 in today's money) the CTO (one of Vint Cerf reports I believe) Nudeged me and said this had better be right or we are both out of a job :-)
Seems perfectly sensible to me. Are you telling me that there aren't developers out there who have thousands or even millions of times greater impact than an average coder? Some people write code that impacts literally millions of people (or even billions), code that generates literally billions or even trillions of dollars in value.
This isn't about productivity, it's about impact.
Google started out as a very small company and yet had many cornerstones of their core technology stack laid early. And the technology of pagerank, treating data centers as giant computers, massively automating IT operations, etc. is what allowed the company to dominate search and is a key factor behind their multi-billion dollar annual revenues of today. The people that built that technology are easily millions of times more valuable than the average coder in terms of their contributions to the world.
>Are you telling me that there aren't developers out there who have thousands or even millions of times greater impact than an average coder?
“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.”
Slightly off-topic, but your statement is the programmer's equivalent to that. We all want to be the developer that is a million of times more important (and end up making huge sums of money/having a worldwide impact/whatever). This argument appeals to the ego of a lot of people here I think.
The people aren't more valuable. Their contributions were more valuable.
I know plenty of Google millionaires, and they are indeed really smart. But no smarter than the other top-tier people I know. The reasonable explanation for their wealth versus equivalently good people is, depending on how you view it, either circumstance or luck.
That this guy can extract $100m from Google is certainly true, but that orthogonal to the point you were replying to, which is about it being right.
Based on a virtual napkin math based on what's in the story and GOOG's current stock price, I'm speculating the entire deal was simply "200,000 options." I'm sure he got a promotion/raise out of it as well.
$7b revenue will put you in the 300s on the Fortune 500.
Since the display ads is one of Google's high margin cash cows, would guess quite a bit higher on the list in profits.
Google has about 1/2 the earnings of JPM, about 1/3 the book value, but a larger market cap than JPM, and let's just say there's some wiggle room in what JPM reports, loan loss reserves, 'debt valuation adjustment', non-marked to market 'whale' losses, etc.
Anyway, as a shareholder I have no problem at all with that kind of pay package if it's for a legitimate superstar who could otherwise run a competitor, it's reasonably tied to performance, not guaranteed if he pulls a <name a disaster/CEO scandal>. If he's adding 0.5% of earnings growth compared to the next best candidate it's a bargain.
Article says that Goole gets 32% of that $7 billion, which is not out of line with JPM's profits on its revenue. Yeah, Google has a lot more growth potential, but on the flip side, I'd imagine Mohan isn't in the line of fire as much as the CEO of a Wall Street bank...
Point is that he's not clearly getting low-balled at that number.
very true. and if he's a legit key man and it's reasonably tied to performance, not irrational either, to match a Sheryl Sandberg type offer.
$2.2b in profit will put you in the 90s on the Fortune 500. Google is 16th in net profit margin at 25.7, JPM 49th at 17.1 [1]. the saying is, earnings are an opinion, cash is fact.* JPM's earnings are more of an opinion than most.
Kind of a long way of describing that big company big wigs get paid a lot of money, and it isn't really a big issue because no worker bee is as irreplaceable.
He knows a lot of similarly well placed people and knows a lot of Google's business which competitors would be interested to learn about (nothing informal on paper of course), and like a tin pot dictatorship, stability is better than churn, regardless of whether the stable leaders are amazingly good or not.
I think Mohan is a little more than just another "big wig." Google probably should have given him an incentives package similar to $100 million a long time ago.
Think of the sheer amount of considerations that go into a decision like this. Higher-ups at Google must acknowledge:
* Offering someone an enormous sum only after someone else has made you an offer can be off-putting. Consider the many articles written about never making counter offers[1], or never accepting them.
* Along the same lines, if you're not offered a large enough sum to stay, you might take it as an insult. "They're only offering me this much money after I've considered leaving?" Google certainly made sure the sum was large enough, by any count.
* Offering an enormous sum to one person may tempt others to fish out offers from other companies. Others may feel like they're never going to get a raise unless they are courting or being courted actively.
* Google's decision-makers (or check-writers) have to be careful about the number picked. They want to send a message to the person, and to other companies, and to the market. But they probably don't want to end up paying $100m for every high value employee. Luckily for Google, if its gonna be a cash arms-race against other companies, there are few that can do serious battle with them.
* Speaking of high value employees, while you might get person A to stay, you make make resentful group B. After all, there's already a comment here: "It's only a matter of time before us little developers get's similar packages!" It's not a stretch for anyone to sympathize with that view.
~~~
And then, at the end of all that, people in a room pursed their lips together and quietly nodded while somebody pulled out the (metaphorical) checkbook. This guy is staying, it's going to be this much money, and we're going to make it purposefully public knowledge. Signals everywhere.
It seems to be a dangerous game. Others may (as a default) suddenly feel unappreciated since Google hasn't made them an offer to keep being a Googler, and perhaps hasn't approached them with any considerable raise in some time. 100 million ensures that you keep a single employee, but how many do you alienate at the same time?
Hard to blame Google's decision, I'm sure they gave it much more thought than I have. I wish I could know what they're thinking, it's just so fascinating what goes into this.
[1] https://news.ycombinator.com/item?id=3549384