Alphabet Delivers for Employees, Shareholders Win

The Wall Street Journal analyzed the median pay at S&P 500 companies in 2021. It found that Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) paid out $295,884 in total compensation to its employees. That’s very good news for GOOG stock. How’s that, you might ask?

Well, when you’ve got a tight employment market, the last thing you want to do is go cheap on employee pay. After all, they’ve got options. Besides, do you want to be one of the 44 companies whose median income was less than $30,000?

In March, I wrote about Amazon (NASDAQ:AMZN) creating more jobs in the past decade than any other U.S. company. Unsurprisingly, AMZN stock’s annualized total return over the past decade is a whopping 27.2%, double the performance of the entire U.S. market. 

Combining job growth and increasing median pay is a recipe for a stock’s success. Alphabet is no different.   

GOOG Stock and Employee Pay

The Securities and Exchange Commission (SEC) adopted company pay ratio rules in August 2015. Starting in January 2017, public companies must report the median pay of all their employees except the CEO. They would also be required to register the annual total compensation of the CEO. The pay ratio is the CEO’s pay divided by the median pay of their employees. 

So, while we can’t go back a decade to examine Alphabet’s pay practices, we can look at the past five years. 

In 2017, the median pay for Alphabet’s employees was $197,274. The CEO’s total annual compensation was $1. The pay ratio was 1:197,274. Alphabet co-founder Larry Page was CEO at the time. He opted to take a dollar salary with no stock or option awards.

In 2021, the median pay for Alphabet’s employees was $295,884. The CEO’s total annual compensation was $6.32 million. The pay ratio was 21:1. Alphabet CEO Sundar Pichai got $276.6 million in restricted stock awards in 2019 when he was promoted from the head of Google.  

So, Alphabet increased the median pay of its employees by 50% between 2017 and 2021. In those five years, the number of employees grew by 95%, from 80,110 at the end of 2017 to 156,500 at the end of last year.

Is it any wonder that Alphabet’s annualized total return over the past five years was 19.0%, 52% higher than the 12.5% total return for the entire U.S. market. 

As I said, job growth plus increasing median pay is a recipe for a stock’s success.

How Did Amazon Do?

In the introduction, I mentioned that Amazon hired more people than any other company over the past decade. Its stock has done well in the last decade, so you’d expect that it would deliver on increasing median pay and job growth. 

In 2017, the median pay for Amazon’s employees was $28,446. Jeff Bezos, the CEO then, had total annual compensation of $1.68 million. The pay ratio was 59:1. 

In 2021, the median pay for Amazon employees was $39,677. New CEO Andy Jassy’s total compensation was $212.7 million. The pay ratio was a whopping 6,474:1. 

Amazon increased the median pay of its employees by 39% between 2017 and 2021. In those five years, the number of employees grew by 184%, from 566,000 at the end of 2017, to 1.61 million at the end of last year. 

Amazon’s annualized total return over the past five years was 19.1%, also 52% higher than the 12.5% total return for the entire U.S. market. 

Once again, job growth plus increasing median pay is a recipe for a stock’s success.

Leading the Way

I think the big thing that separates Alphabet from Amazon is its employees’ pay level. The former’s is off-the-chart good, but both are major job creators. They drive the American economy. 

Consider Aptiv (NYSE:APTV), the automotive parts supplier. Its five-year annualized total return was 8.3%, more than 400 basis points less than the entire U.S. market. 

In 2017, it had a median pay of $5,464. In 2021, it was $7,402, 35% higher. It grew jobs by 19% to 155,000 in 2021, from 130,000 employees in 2017. Aptiv would argue that it’s creating jobs and raising pay in locations such as Mexico, where the average annual wage in 2020 was just $16,230. That might be.

However, it can’t hold a candle to Alphabet, who generally delivered for its employees and worked their butts off in return. Everyone wins, especially GOOG stock.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.