Google employees query executives about “decline in morale” after profits

Google's business is growing at its fastest pace in two years, and a blowout earnings report in April sparked its biggest rally of the yr alphabet shares since 2015, pushing the corporate's market cap to over $2 trillion.

But at a full board meeting last week with CEO Sundar Pichai and CFO Ruth Porat, employees were more focused on why that profit isn't resulting in higher wages and the way long the corporate's cost-cutting measures will last.

“We have seen a significant decline in morale, increased distrust and a divide between leadership and workforce,” said a comment posted in an internal forum before the meeting. “How does leadership plan to address these concerns and regain the trust, morale and cohesion that have been fundamental to the success of our organization?”

Google uses artificial intelligence to aggregate worker comments and questions for the forum.

Alphabet's top leadership has been on the defensive in recent times as vocal employees railed against post-pandemic return mandates, the corporate's cloud contracts with the military, fewer advantages and a lengthy series of layoffs — greater than 12,000 in all last yr — together with other cost cuts that began with the economic turnaround in 2022.

Employees also complain about a scarcity of trust and demand to work with shorter deadlines, fewer resources and fewer opportunities for internal development.

The internal dispute continues whilst Alphabet delivered better-than-expected first-quarter earnings reports, wherein the corporate also announced its first dividend and a $70 billion buyback.

“Despite the company's outstanding performance and record profits, many Google employees have not received significant raises,” says one among the highest worker questions. “When does employee compensation adequately reflect the company’s success and is there a conscious decision to keep wages lower due to a slowing labor market?”

Another highly rated comment centered around the corporate's priorities, including its heavy investment in artificial intelligence.

“For many people, there is a clear disconnect between spending billions on stock buybacks and dividends and reinvesting in AI and retraining critical Google employees,” the post said.

“Our priority is to invest in growth,” Porat said as she took the microphone to reply questions. “Revenues should grow faster than expenses.”

She also took the rare step of admitting the leadership's mistakes in its previous handling of investments.

“The problem is that a few years ago — two years ago, to be exact — we actually turned the whole thing on its head and expenses started growing faster than revenue,” said Porat, who announced her retirement almost a yr ago I hold the position of CFO, but I actually have not yet left the position. “The problem with that is that it’s not sustainable.”

Google executives have been emphasizing this issue recently.

Search chief Prabhakar Raghavan pointed to Google's core business challenges in an internal meeting last month: “Things are not the same as they were 15 to 20 years ago” and urged employees to work faster. He told his team, “It’s not like life will be in great shape forever.”

Google's cloud business was among the many units that ordered employees to relocate on shorter notices, despite having fewer resources after cutting costs.

In the run-up to last week's meeting to debate the corporate's buyback, there have been many questions from employees, Porat said.

As of last quarter, Alphabet had greater than $100 billion of money on its balance sheet, but Porat said, “You can't just skim it off,” otherwise the corporate would find itself in the identical position because it is in 2022.

In contrast, distributing money to shareholders will not be considered an expense on the balance sheet, she said, adding that the board has a fiduciary duty to contemplate such actions. Buybacks and dividends don’t replace investments in AI, Porat said.

Pichai intervened as Porat finished her answer.

“I think you’ve almost set the record for longest TGIF response,” he said. Google All Hands meetings were originally called TGIFs because they took place on Fridays, but now they also can happen on other days of the week.

Pichai then joked that leadership should give a “Finance 101” Ted Talk to employees.

Regarding the decline in morale attributable to employees, Pichai said, “The leadership has a lot of responsibility here, adding that it is an iterative process.”

Pichai said the corporate had over-staffed through the Covid pandemic.

“We hired a lot of people and from there it was a course correction,” Pichai said.

Alphabet's full-time workforce rose to greater than 190,000 at the tip of 2022, up nearly 22% from a yr earlier and 40% greater than at the tip of 2020.

Pichai, who replaced Google co-founder Larry Page as Alphabet's CEO in 2019, has faced a good amount of criticism recently for his messaging aimed toward the workforce and for increasing his hefty pay package, which grew to $226 million including stock awards 2022.

The 2022 package included $218 million price of stock through a triennial stock grant. According to Alphabet, his total salary in 2023 was $8.8 million, up from about $8 million the previous yr (excluding stock awards). Proxy submission. Aside from Pichai's $2 million annual salary, most of his additional compensation was for private security.

Employees have complained in regards to the level of Pichai's compensation at a time when the corporate is downsizing.

“Given the current number of employees and the positive earnings, what is the company’s workforce strategy?” Read an issue. Another asked: “Given the good results, are we done cutting costs?”

Pichai said the corporate is “in a long transition period as a company,” which incorporates cost reductions and “efficiency improvements.” On the latter point, he said, “We want to do this forever.”

“To be clear, we as a company are increasing our spending this year, but we are moderating our pace of growth,” Pichai said. “We see opportunities to reassign people and get things done.”

A Google spokesperson reiterated to CNBC that the corporate is investing in its top priorities and can proceed to rent in those areas.

The spokesperson also said most employees would receive a raise this yr, including a better salary, equity grants and a bonus. Executives said on the all-hands meeting that employees who received raises last yr received smaller raises than usual.

Another comment ahead of the meeting referred to “growing concerns about the relocation of jobs from the U.S. to lower-cost locations.” CNBC reported last week that Google is shedding no less than 200 employees from its “core” organization, which incorporates key teams and technical talent.

Executives were asked in regards to the ongoing layoffs despite the strong earnings report and asked, “When can we expect an end to the uncertainty and disruption caused by layoffs?”

Pichai said the corporate may have accomplished many of the layoffs in the primary half of 2024.

“Under the current conditions, the second half of the year will be significantly smaller,” said Pichai, referring to the job cuts. He said it might proceed to be “very, very disciplined in managing staff growth throughout the year.”

This means the corporate still has to make difficult decisions about investing in latest projects.

“There is a lot of demand to do new things, and in the past we would have just done that reflexively by increasing headcount,” Pichai said. “We can’t do it now because of the transition we’re in.”

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