Employee benefits are one of the best ways to support employees in your company. And one of the most commonly used employee benefits is equity compensation. Equity compensation is non-cash pay offered to the employees, in the form of company stock, representing ownership of the company. And when an employee gets equity as compensation, it motivates them to work harder in the end. As the employee now owns shares in the company, the more the company grows, the higher the price of their shares would be.
In this article, we are going to cover the plans that Google offers and how it has benefited the company and its employees.
About Google LLC
Most everyone in the world knows Google. This is because no company arguably has ever been more responsible for shaping the internet and modern way of life other than Google. The company started off as a novel search engine and now, manages eight major product lines with more than 1 billion users each.
History of Google
Started off as BackRub, Google was a research project that was launched by Larry Page, who was enrolled in a Stanford graduate program in 1995. It was here where he met his partner Sergey Brin. Both of them began to look into the behavior of linking on the World Wide Web and Page suggested to get a system in place that would crawl the internet and determine which pages were linking to other pages. And that is how the Google search engine came into being.
With Page’s skills and idea, and Brin’s math expertise, they both created the PageRank algorithm. This formed the foundation of the world’s most powerful search engine today. With this success, the search engine was launched in the Stanford server in 1996. In 1997, they decided to rename the project to Google and in 1998, their discovery was shared at the World Wide Web conference. By 1999, they had raised almost $30 million from private investors, Stanford University and VCs to take Google online.
Since then, the company has grown exponentially. It was in 2014 that the company decided to go public and had one of the most anticipated IPOs ever. With this, they raise $1.6 billion. That is when the Alphabet was launched as the holding company of Google and other subsidiaries. This restructuring offered some separation between Google’s core search engine and its increasingly diverse side projects, and Alphabet replaced Google as the publicly-traded entity.
How far Google has come
The company has grown ever since it was created and has created a chain of successful products, partnerships, and acquisitions, way beyond the original search engine. It offers products that are designed for photo organizing and editing (Google Photos), note-taking (Google Keep), video sharing (YouTube), mapping and navigation (Google Maps, Waze, Street View, Google Earth), language translation (Google Translate), instant messaging and video chat (Duo, Meet, Hangouts), cloud storage (Google Drive), scheduling and time management (Google Calendar), email (Gmail), and for work and productivity (Google Docs, Google Slides, and Google Sheets).
The company also manages the development of the Android mobile operating system, Chrome OS (a lightweight operating system based in the Chrome web browser), and the Google Chrome web browser. In addition to this they also expanded into hardware products like Google Home and Google Pixel smartphones.
Google Employee Benefits
As Google grew into a better organization, it did not just improvise in creating more and better products, but also in keeping its employees happy with it’s Google stock units.
Google offers a lot of employee benefits which is why its so highly sought after by many in the tech industry. Google wants to make its employees’ lives easier, and it’s constantly searching for ways to improve the health, well-being, and morale of its Googlers.
Here are the top employee benefits that Google offers:
- With Google being one of the most well-known technology companies in the world, it offers employees with better job prospects in case they want to leave Google. In addition to this, it also offers growth within the company for every level.
- Google invests in its employees by offering extensive opportunities for professional and personal development. Google also offers a Global Education Leave program, which enables employees to take a leave of absence to pursue further education with everything covered by Google.
- Google offers a lot of onsite amenities and benefit programs that are aimed at supporting their employee’s family through all the stages in life. There are retirement savings plans, death benefits, generous parental leave policies, and many more.
- At Google, the employees enjoy the most innovative work environment and cultures. And since Google cares about innovation, it has set forth nine principles of innovation to encourage more creative ideas for its products.
- Google also helps its employees live a healthier life and offers access to excellent healthcare choices. They offer massage services, physical therapy, chiropractic, and physicians. Additionally, the Google offices are equipped with on-site fitness centers, classes, and cafes and kitchens that serve food.
Background of company stock units, RSUs and RSAs
To start off, we should cover exactly what employee equity plans look like. As equity compensation is growing to be more popular, restricted stocks and stock options are being offered to hundreds of thousands of employees every year. So, if you are working for a big tech company like Google, Amazon, Microsoft, Apple, or Facebook, chances are a significant amount of your long term compensation will be doled out in RSUs, stock options or RSAs.
Let us understand each:
Stock options offer the option holder the right, but not the obligation, to purchase or sell a certain number of shares within a specific period. It is used as employee compensation to reward those who perform well in their jobs and so that they can help the company grow as well. Just know that the employee does not become the owner of the shares in the stock options until they exercise them.
Unlike stock options, the employee who receives restricted stock owns them from the day they are issued. The stocks are “restricted” as the employee still has to earn them after they have been issued. One of the common restrictions on these stocks is a vesting schedule, where the shares are earned over time. This allows the employees to stay longer with the company, and in case they leave the company in between, the company can repurchase the vested stocks back. There are two kinds of restricted stock, which are:
- Restricted Stock Awards (RSAs): RSA is a type of restricted stock where the rights of the recipient are restricted until the shares are completely vested or there is a lapse in the restrictions. For example, if an employee gets a few shares vested in the first year, they would not be able to exercise them until all the shares are vested over the given time period.
Additionally, there is also a restricted period added to the vesting which means that if the recipient doesn’t meet the individual or company performance conditions before the vesting period ends, the shares are forfeited.
- Restricted Stock Units (RSUs): RSUs are a grant of a specific number of shares units and are based on the underlying value of the company’s stock. The share units are offered over a period of time, through vesting and are kept in a brokerage account that the employee can control. When all are vested, the employee can sell the shares or keep them as an investment.
Read more about the exact differences between RSAs & RSUs here.
Let us understand how the vesting works with an example:
Let’s say an employee, Tony, gets hired at Google on October 1st, 2018. As a part of his offer, he gets 48 shares of Google Stock Units (Google RSUs). And even though that doesn’t sound like a lot, at the price of $1,200, his grant is worth 48 * 1200 = $57,600. Nevertheless, he does not get the shares instantly. These shares would be vested monthly over the course of 4 years, with a 1-year cliff. In simple words, this means that he will get his first 12 shares after a year of employment and then would get 1 share for each month for the next 36 months.
Although he got the $57,600 easily, he would need to stay employed at Google for the full 4 years to receive all 48 shares. So, if he gets fired or finds another job, he gets no stocks. This is also the reason why there is a 1-year cliff period. Additionally, this would motivate Tony to work harder for Google’s share price to increase. Keep in mind though that he would need to pay taxes on these as well.
Google’s Employee Equity Scheme – Google Stock Units (GSU)
Google is well-known for its employee engagement, its ability to attract the best talent and retain them in the industry along with their ability to offer continued support to their employees’ success. One such benefit offered are Google employee equity plans, Google Stock Units (GSUs).
After the IPO in Google, they knew that they needed to retain the best talent in the company. And the share options they offered as a part of their employee package needed to be world-class. As share prices were volatile during this time, they introduced a policy that enabled them to adjust their share options for those at the tail of the performance spectrum, allowing them to protect their employees. Google employee equity plans have been able to maintain high levels of employee satisfaction for a long time.
But to keep up with the trend, Google knew that they needed to come up with something innovative. Fast forward to now, where Google has spent a lot of time and investment in making GSUs something that they regularly offer to their employees. Here is how it was done:
- Google changed the structure of its long-term incentive plan from share options to RSUs, which are full shares granted to each employee that always have a positive value and are not so volatile like options.
- Employees wanted access to their shares faster, so Google customized the plan to create a tiered vesting schedule to shorten the length of time before the employees are able to access their stock.
- Google introduced an application for its employees to model the value of their equity plans over time given variables in salaries and bonuses. It allows the employees to see the real-time value and growth of their shares.
- One of the most important things was that Google involved its employees at every stage and communicated the new plans and variants that they were proposing. They also converted the messages to show what the changes meant for each individual.
And with this, Google Stock Units were born. They did start off as RSUs, but to make them better, some things were changed. The difference between RSUs and GSUs is that the amount you vest is scaled based on performance. To put it in simpler words, you can get more GSUs if you are a higher performer than you were initially expecting, as part of your performance. In short, it works just like a bonus system.
All-in-all, with a little innovation and a lot of employee output, Google created one of the greatest employee equity plans. This now keeps their players “in their seats” even when there is an increase in competition in the marketplace.
How RSUs can benefit your company
Obviously, all of us do not have the ability to offer such good employee benefits like Google, but finding out what your employees value and offering equity plans in response will keep your key players with the company for longer. One of the best ways is by offering them with RSUs. Here is how RSUs can benefit your company:
- Less risk & clearer value: RSUs have value even if the stock price has not moved or has dropped from when it was granted to employees. This would give the employees a boast as they know they have nothing to lose.
- Cheaper option: RSUs are also a great option due to their monetary value in your pocket, where the company’s stock price for RSUs is easier to figure out as compared to the stock option’s value.
Why use Eqvista to manage your employee equity plans?
With all this said, you too can take your company to reach greater heights by making the right decisions and offering the best equity plans to your employees. Happy employees always create a happy and successful company. So start off by offering better equity plans such as Google stock units. But as you do this, remember that it is very important to keep track of all the shares in your company and the best way to do this is by using a power cap table application.
Eqvista is a great choice for managing all your company’s equity. Our app is good for issuing shares, warrants, convertible securities, and employee options to tracking the financial progress using our waterfall analysis and round modeling financial tools. Check out the application here and try it out for FREE today!