Microsoft's Stock Price and Net Profits
Microsoft Company went viral in 1994 with its shares trading for $100 and the stock price picked up to $ 370 in 2012. Taking a comparison between 1994 and 2012, their net profits have increased tremendously amounting to $270 per share. This makes Microsoft, one of the richest and high operating companies in the world. As discussed in chapter two, Microsoft changed its pay strategy to pay less attention to stock options and focus on stock grants. As its cycle evolved to maintenance, they decided to rely less on stock and focus on cash. This has led to slow growth of its stock price.
Salary Increase and Compensation Strategy at Google
Additionally, the company also made a 10% salary increase to all its members and Barclays reported that the salaries amounted to $400 million. According to analysts, Google is not the only company suffering from this problem since other companies like Big Tech have suffered from the start-up. A few months ago, Google was paying its computer majors $20,000 more than they get in other companies. Despite the profits that Google has been making in the selling of shares and other ownership products, I think that Google has made a wrong decision in changing its compensation strategy. First of all, their employees have taken the opportunity to change their options in order to reap more profits. Although this may be a way of motivating their employees, I think Google has overdone things and it may not be able to sustain its operations if they don’t adjust and opt for other methods of compensation. Despite the fact that stock options are still used as compensation packages, they only serve as added perks and not a substitution of competitive salary (Hahn & Lasfer, 2011).
Disadvantages of Stock Compensation for Google
There are several disadvantages that Google may suffer from the stock compensation technique. Converting compensation cash into capital gains like for instance paying taxes is quite applicable and good for the employee. However, for the employer, the calculation of tax may be complicated and Google may not be in a position to calculate the tax due to be imposed on their employees. They may end up clearing debts not intended for them. It may also lead to increased dilution towards shareholders in future since stock compensation options are difficult to calculate and value the exact amount of money owed by each individual (Hahn & Lasfer, 2011). This technique only benefits employees and executives as they may end up receiving compensation for poorly done work.
Effects of Stock Compensation on Google's Finances
According to the use of stock compensation in 2012, Google lost over $7.64 million to stock values. This is a depreciation of about 1.02% of the money they should have made if the stock did not contribute to the cash arrears (Hahn & Lasfer, 2011). According to the Forbes magazine, over 2,000 employees took advantage of the opportunity and changed their options leading to an average of $522. The increased rates of compensation have no investment value to the company. Although they may have decided by trading their stocks to compensate their employees, it may have long-run effects. For example, all the stock value may shift to employee side and soon the stock value may lose meaning leading depreciation of labor cost and insurance policies. The company will not be in a position to reward itself handsomely. Since Microsoft is one of the best companies to work with, they don’t have to risk this type of compensation as employees might take over and become successor owners of the business.
Reference
Hahn, P. D., " Lasfer, M. (2011). The compensation of non-executive directors: rationale, form, and findings. Journal of management " Governance, 15(4), 589-601. Retrieved from:
https://www.forbes.com/sites/steveparrish/2013/02/20/stock-options-top-5-reasons-not-to-use-them-as-an-employee-incentive/#17eb30fa4edc
