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October 26, 2006

Is Google Really Spending $60 million on Food Every and Why Google Gives Employees Free Food

posted by MR WAVETHEORY at 10/26/2006 12:56:00 PM

Google Inc. (Nasdaq GOOG) spends millions of dollars on food each year running its kitchen for its employees. Google feeds its employees very well. How much does it spend? And, why does Google feed its employees beyond saving employees time away for lunch?

One word: Taxes. When Google spends money on food, it is a pre-tax expense. That means it is spending money that would reduce its profits and therefore the amount of taxes it would have to pay to Uncle Sam. There is a very good tax argument for giving employees free food.

When Google spends $1 of pre-tax dollars on food, that $1 is actually worth more than $1 to employees. Why? When you spend your money on food, you are spending after-tax dollars.

For every dollar you earn, you only keep $.70 if you are taxed at 30%. That means every after tax dollar you spend is actually worth $1/$.70 = $1.42 pre-tax.

Every dollar of money Google spends on food is actually an additional $1.42 of pre-tax compensation. That is how Google is giving employees free money.

If you are a shareholder, you should be asking: How much are employees getting in terms of food subsidy every year? After all, it's your money. If every meal costs $15 and on average employees get fed 300 days per year, that is an additional $4500 of pre-tax dollars for Google. For the employee, that is actually worth

$4500/.70 = $6428 of additonal pre-tax compensation

So, Google is spending close to $6428 per employee.

As of the end of the quarter September 30, 2006, there were 9378 full-time employees. My estimate is that Google spends $60 million on food every year.

9378 X $6428 = $60,281,784 on food every year

Dam! That's an expensive little kitchen they run!

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6 Comments:

Anonymous Anonymous said...

I have worked on big corporates who don't even want to give water to their employees. Most of those companies don't have any innovation left in them and they don't show 80% increase in profit like Google. I think you get what you pay for. Also if i have google stock i won't care what they feed their employees with till the time they can deliver the results.

Google is not the only company doing this. Just have a look at companies in India. They are serving their employees subsidized food and in return employees can just concentrate on their work. Checkout the profits for Infosys, Wipro, TCS and compare them to US companies and you will know the difference.

I feel that the 8-5 culture of corporate US is holding us back in the new world order. If you want US companies to compete at global level, you need to empower your employees to do so. They shouldn't find themselves thinking about their next meal when people in India and China are busy coding.

Vivek Puri
StartupSquad.com

7:17 PM  
Blogger MR WAVETHEORY said...

I agree that the 8-5 model is long gone, but I would add that the food costs in India and China are alot lower though, especially since they are collecting US dollars from their customers and spending Indian rupees and Chinese reminbi. That is not the case with Google. But again, when a company is this profitable, you do see a bit of splurging. Nothing wrong with spending money on employees, but I think anyone would agree that $60 million (or whatever the number is) is alot of money.

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