On Pay Raises, It's Google Or Bust

Google's recent 10 percent pay raise shows the accelerating split between knowledge work and everything else, says Chris Farrell
The split between the haves and have-nots of the workplace couldn't be more dramatic.

On Nov. 29, President Obama announced a two-year pay freeze for non-military federal workers. And on Dec. 3, the government is expected to confirm that the U.S. unemployment rate remains stuck at 9.6 percent, according to the median estimate of 57 economists surveyed by Bloomberg, which will translate to anemic pay gains. But not at Google (GOOG). The search-engine behemoth, looking to stem the defection of key workers to other hot Silicon Valley employers, announced last month that its 20,300 employees will get a 10 percent wage hike starting in 2011. (Imagine, when will the average employee feel it's a reasonable gamble to walk into the boss' office and demand a 10 percent raise or threaten to walk?) "Google has to preempt the desire for its talented employees to seek work elsewhere," says Richard Florida, director of the Martin Prosperity Institute at the University of Toronto. "I've seen talented employees flee the previous employer of the moment for the next employer of the moment—just ask Microsoft (MSFT)."

With $33 billion in cash and a stock market capitalization of almost $180 billion, Google can afford to throw money and shares at its employees. Yet the significance of Google's across-the-board pay raise extends far beyond corporate competition. It reflects a war for brains and talent that is heating up throughout the information technology ecosystem. Web-based search engine companies, mobile Internet providers, application developers, wireless companies, and other innovative communication businesses are jockeying for position in growing, and profitable, markets. And while the implosion of housing, the bank bailouts, and the divisive politics of fiscal and monetary policy received most of the headlines since 2007, those years also marked the acceleration of the information-intensive creative economy. Google's growth and shared prosperity serve as a punctuation point. "I have been convinced for some time that we are going through a major restructuring of the economy that is much bigger than the difficult time we are going through right now," says Erik Brynjolfsson, director of the MIT Center for Digital Business.

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