Google Found Out That Giving Its Employees Trips To Hawaii is Better Than $1M Awards

July 9, 2015

If you were to ask any human on earth if they’d rather have the chance to win a million dollars or a trip to Hawaii, just about everyone would say the money.

And yet, tech giant Google ran that exact experiment by offering both options as awards to its employees during different times in the company's history. What they found was that the chance to win a trip to Hawaii made their employees much happier than the chance to win $1 million.

The failure of Google’s million dollar prizes

In 2004, three months after its IPO, Google decided to start a program entitled Founders’ Awards. The idea was for the company to give away large stock awards to members of its top performing teams, with Google giving away $12 million in awards in 2004 and $45 million in 2005. Individual payouts could be worth up to $1 million.

Google co-founder Sergey Brin explained the reasoning behind the program in his 2004 letter to shareholders:

“We believe strongly in being generous with our greatest contributors. In too many companies, people who do great things are not justly rewarded… Like a smart startup, Google will provide substantial upside to our employees based on their accomplishments. But unlike a startup, we provide a platform and an opportunity to make those accomplishments much more likely to occur.”

Sounds great, right? Well, Google rigorously surveys its own employees to see how happy they are in their jobs. And, despite spending $57 million in stock awards over two years, what they found was it actually made its employees less happy.

Why Google’s million dollar awards made people less happy

Expectedly, those big awards began causing jealousy within the Google workforce, and workers began complaining that some employees had a much better chance of winning an award than others. After looking into it, the company realized the complaining workers had a point.

Specifically, Google’s software engineers won almost all of the awards, Google’s head of people operations, Laszlo Bock, wrote in his book, “Work Rules.”And not just any software engineer, but the ones that worked on designing new projects, he wrote.

Even the people who won the awards weren’t always happy. After all, while the largest awards were $1 million, the smallest ones were worth around $5,000. People who received the smaller sum often were resentful of the ones who got the much larger awards, Bock wrote.

Of course, designing a perfect plan is just about impossible. And, by having the cash awards so public, it was destined to lead to griping and jealousy.

“Compensation systems are based on imperfect information and administered by imperfect people,” Bock wrote. “They will inevitably have some errors and injustice in the margins. The way we ran the program focused too much attention on the money, which then naturally led to questions of whether the process was just, and to unhappiness.”

In response, Google slowly phased out the Founders’ Awards program.

A better award: experiences instead of cash

Google still wanted to reward its employees that did well, but the Founder’s Awards program had too many negative consequences. Instead, the company piloted giving out experiential awards, such as a voucher for a dinner for two, gifts like a Nexus 7 tablet, or sending entire teams to Hawaii, instead of cash awards.

That worked much better. The Googlers within the pilot said the program was 28 percent more fun, 28 percent more memorable and 15 percent more thoughtful than the Founder’s Award, Bock wrote. It soon was adopted company-wide.

Since then, people have been far less resentful about winners and the winners were almost always happy with their prize, no matter the size, Bock wrote. The reason for this “profound change for the better” was the difference between the way a person views a cash prize versus a non-cash prize.

Cash prize are evaluated on a cognitive level, and seen through practical eyes, Bock theorized. Meanwhile, a non-cash prize conjures up a different feeling.

“Non-cash awards, whether they are experiences or gifts, trigger an emotional response,” Bock wrote. “Recipients focus on the fact of what they get to experience, rather than calculating values.”

How it applies to you

In his book, Bock consistently highlighted the importance of giving your best performers much higher compensation packages than average employees. But, there’s a difference between what you pay someone and what you give him or her as an award.

A person’s salary is a private matter that an employee (generally) hopes to increase over time. An award is a well-publicized bonus that teams work together to try to win.

If you give out money for those awards, Google found that jealously is almost assured, even within the winners. But if you give out experiences, Google found it’s more memorable for all the people who do win, and eliminates a lot of the toxicity cash awards can cause.

Bottom line, money is good in private. In public, give experiences or gifts.

* image by Envios

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