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Google waging talent war with Facebook

Google Inc, which is facing an increasing threat from Facebook for Web surfers’ time online, is fighting Facebook for engineering talent as well.

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On Tuesday, Google internally announced plans to boost salaries by 10 percent next year in a move widely viewed as an effort to stanch a stream of engineers and managers leaving the search giant for fast-growing rivals like Facebook.

“They don’t have an absolute lock on the top talent anymore,” said BGC Partners analyst Colin Gillis of Google.

“Facebook right now is accumulating top talent and it’s harder for Google to retain people,” he said, noting that the pay raise was one way for Google to fight back.

Google is the world’s dominant Internet search engine, with roughly two-thirds market share, and the company controls a search advertising system that generated nearly $24 billion in revenue in 2009.

But as social networking has exploded in popularity and begun to reshape the balance of power in the Web industry, a new generation of Internet companies is exerting a strong pull on Silicon Valley’s engineers and product managers.

For some techies, the chance to work at a smaller company than Google, which had than 23,000 employees at the end of September, and to receive attractively priced stock options ahead of an initial public offering, provide an allure that Google can’t match.

“People look at the social Web as the place where things are interesting and innovating, not so much on search anymore, although search is interesting and monetizable,” said Dave McClure, the founder of the angel investment firm 500 Startups, which backs numerous young social networking companies.

“For some folks, I don’t even think it’s cash or equity,” he said of the draw of working for a social networking company. “It’s the opportunity of working for the hot start-up. For many people that is either Facebook, or Zynga, or Twitter.”

Earlier this month, Google engineer Lars Rasmussen left to join Facebook, declaring in an interview with the Sydney Morning Herald that Facebook was a “once-in-a-decade type of company” and noting that it can be “very challenging” to work at a company the size of Google.

Rasmussen, one of the creators of Google Maps, is the latest of a growing number of Googlers to decamp to Facebook, including Facebook Chief Operating Officer Sheryl Sandberg, Facebook head of mobile Erick Tseng and Facebook vice president of advertising and global operations David Fischer.

Google, which is developing new social networking features to integrate into its products and compete with Facebook, is in the middle of an Internet industry “war for talent,” Chief Financial Officer Patrick Pichette said in a conference call with investors in September.

According to a copy of an internal email obtained by the online blog Business Insider, Google will institute a 10 percent salary increase, effective Jan. 1, for all employees, regardless of job duties or location. Google will also give every employee a $1,000 holiday bonus, according to the blog.

Google said in an emailed statement that the company doesn’t typically comment on internal matters, but that it believes competitive compensation plans are important to the future of the company.

Some industry insiders note that the perception of Google as a mature and financially stable company, and its many perks like free meals, remain a key draw for many employees, particularly people in their 30s and 40s with families and mortgages to pay.

Rick Girard, of the technology recruiting firm Girard Richardson, said that having Google on a resume is also an important selling point for many people.

“I think a lot of candidates kind of look at it from a marketability standpoint,” said Girard.

To bring in fresh blood, Google has also launched an acquisition spree, purchasing more than 20 companies this year.

With roughly $33 billion in cash and marketable securities on its balance sheet, Google can afford to pay for talent. And some analysts said the 10 percent pay raise was evidence that Google’s business was performing well.

According to a report by Barclays Capital analyst Doug Anmuth on Wednesday, Google’s 10 percent pay raise could add $400 million in compensation costs in 2011.

Whether Google’s pay hike is enough to drown out the siren call of Facebook and other start-ups remains to be seen.

“I think that Google is still a great option for people, but it’s not the only option anymore,” said McClure, of 500 Startups.