Google’s business is growing at its fastest pace in two years, and a blowout earnings report in April sparked the biggest rally in Alphabet shares since 2015, pushing the company’s market capitalization to $2 trillion.
But in a plenary meeting last week with CEO Sundar Pichai and CFO Ruth Porat, workers focused more on why that performance isn’t translating into higher pay and how long the company’s cost-cutting measures will be in place.
“We have seen a significant drop in morale, increased mistrust and a disconnect between leadership and the workforce,” said a comment posted on an internal forum before the meeting. “How does leadership plan to address these concerns and restore the trust, morale and cohesion that have been fundamental to our company’s success?”
Google uses artificial intelligence to summarize employee comments and questions for the forum.
Alphabet’s top leadership has been on the defensive in recent years as vocal executives have voiced back-to-the-office orders after the pandemic, the company’s cloud contracts with the military, fewer benefits and widespread layoffs — totaling more than 12,000 last year — along with other cost cuts that began when the economy turned around in 2022.
Workers have also complained of a lack of confidence and demand to work to tighter deadlines with fewer resources and reduced opportunities for internal development.
The internal dispute continues despite Alphabet’s better-than-expected first-quarter earnings report, in which the company also announced its first dividend as well as a $70 billion buyback.
“Despite the company’s stellar performance and record profits, many Googlers have not received significant compensation increases,” read one top-rated employee question. “When will workers’ compensation fairly reflect the company’s success and is there a conscious decision to keep wages down because of a cold labor market?”
Another highly rated comment focused on the company’s priorities, including its massive investments in artificial intelligence.
“For many people, there is a clear disconnect between spending billions on share buybacks and dividends and reinvesting in AI and retraining critical Google employees,” the post said.
Ruth Porat, Alphabet’s chief financial officer, appears at a panel session at the World Economic Forum in Davos, Switzerland, on May 24, 2022.
Holly Adams | Bloomberg | Getty Images
“Our priority is to invest in growth,” Porat said as she took the microphone to answer questions. “Revenues should grow faster than expenses.”
He also took the rare step of admitting the leadership’s mistakes in its previous handling of the investments.
“The problem is a couple of years ago — two years ago, to be exact — we actually got it in reverse and expenses started growing faster than revenue,” said Porat, who announced nearly a year ago that she would was leaving the CFO Position but has not yet vacated the office. “The problem with that is it’s not sustainable.”
Google executives have been hammering this issue lately.
Search boss Prabhakar Raghavan, in an internal meeting last month, highlighted Google’s key business challenges, saying “things are not like 15 to 20 years ago” and urged employees to work faster. He told his team, “It’s not like life is going to be crazy, forever.”
Google’s cloud business was among the units that directed employees to move within shorter timelines, despite having fewer resources after cost cuts.
Google’s use of cash
There were many questions from employees ahead of last week’s meeting aimed at buying the company, Porat said.
As of last quarter, Alphabet had more than $100 billion in cash on the balance sheet, but, as Porat said, “you can’t just run it down” or the company will be in the same position as in 2022.
Instead, distributing cash to shareholders is not considered an expense on the balance sheet, he said, adding that the board has a fiduciary duty to consider such measures. Buybacks and dividends are no substitute for investing in AI, Porat said.
Pihai shouted when Pora finished her answer.
“I think you almost set the record for longest TGIF response,” he said. Google’s face-to-face meetings were originally called TGIFs because they were held on Fridays, but now can be held on other days of the week.
Pichai then joked that management should hold a “Finance 101” Ted Talk for employees.
As for the drop in employee morale, Pichai said that “leadership has a lot of responsibility here,” adding that “it’s an iterative process.”
Pichai said the company was overstaffed during the Covid pandemic.
“We hired a lot of employees and from there, we had a course correction,” Pichai said.
Alphabet’s full-time workforce rose to more than 190,000 at the end of 2022, up nearly 22% from a year earlier and 40% higher than at the end of 2020.
Pichai, who replaced the Google co-founder Larry Page, as CEO of Alphabet in 2019, has drawn his share of criticism of late for his messaging to the workforce as well as his high pay package, which totaled $226 million, including stock awards, in 2022.
The package in 2022 included $218 million in stock through a three-year stock grant. His total pay in 2023 was $8.8 million, up from about $8 million the previous year (not including the stock grant), according to Alphabet’s power of attorney filing. In addition to Pichai’s $2 million salary for each year, most of his additional compensation was for personal security.
Employees have complained about the amount of Pichai’s compensation at a time when the company is shrinking.
“Given recent headcount and positive earnings, what is the company’s headcount strategy?” a question was read. Another asked: “Given the strong results, are we done cutting costs?”
Pichai said the company is “working through a long period of transition as a company,” which includes cutting costs and “driving efficiencies.” On the latter point, he said: “We want to do it forever.”
“To be clear, we are increasing our expenses as a company this year, but we are moderating our growth rate,” Pichai said. “We see opportunities where we can reallocate people and do things.
A Google spokesperson reiterated to CNBC that the company is investing in its biggest priorities and will continue to hire in those areas.
The spokesman also said most workers will get a pay raise this year, including increased salary, stock grants and bonuses. Executives at the all-hands meeting said staff members who received raises last year received smaller raises than usual.
Another comment released ahead of the meeting was linked to “growing concerns about jobs moving from the US to lower cost locations”. CNBC reported last week that Google is laying off at least 200 employees from its “Core” organization, which includes core teams and engineering talent.
Executives were asked about the continued layoffs, despite a strong earnings report, and “when can we expect an end to the uncertainty and disruption created by the layoffs?”
Pichai said the company will have faced most layoffs in the first half of 2024.
“Assuming current conditions, the second half of the year will be much smaller in scale,” Pichai said, referring to the job cuts. It said it would continue to be “very, very disciplined in terms of managing headcount growth throughout the year.”
This means the company is still making tough choices when it comes to investing in new projects.
“There’s a lot of demand to do new things and, in the past, we would just do it reflexively by increasing the number of employees,” Pichai said. “We can’t do that now through the transition we’re in.”
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