Google has given all of its employees $1,000 cash “holiday bonuses” and 2011 salary increases of at least 10%, a loyal reader tells us. The 10% company-wide raise will take effect on January 1, 2011. In addition, Google will also give each employee an additional raise equivalent to 1X the employee’s target bonus for the year.  And employees will be eligible for additional “merit increases” based on their individual performance.

In another nice gesture, Google will pay the taxes on the $1,000 holiday cash bonuses, thus allowing employees to keep the whole thing. (You can sniff that $1,000 isn’t much, but it’s a lot more than nothing, and spread across 20,000 employees, it’s costing the company $20 million. A 10+% raise on a total cost base of $20 billion, meanwhile, will probably cost the company $1 billion a year, assuming a third of those costs are compensation. Judging from an internal memo, the new salary costs will be somewhat offset by reduced bonuses and stock option grants.)

This surprise news, Google CEO Eric Schmidt explained in an internal email (see below), comes in response to feedback that Googlers value the salary part of their compensation far more highly than bonuses or stock compensation.

And what does it suggest about the company?

Well, first it suggests that Google is still an awesome place to work. Given that employee retention has been a problem, it also suggests that Google is now going the extra mile to keep its employees happy.  Lastly, it suggests that the company’s financial performance continues to be very strong.

You can find the full letter by Google CEO Eric Schmidt after the break.

CONFIDENTIAL: INTERNAL ONLY
GOOGLERS ONLY (FULL TIME AND PART TIME EMPLOYEES)

I’m pleased to share some very, very good news with Googlers worldwide. But first let me say, on behalf of everyone on the management team, that we believe we have the best employees in the world. Period. The brightest, most capable group of this size ever assembled. It’s why I’m excited to come to work every day–and I’m sure you feel the same way. We want to make sure that you feel rewarded for your hard work, and we want to continue to attract the best people to Google.

So that is why we’ve decided…to give all of you a 10% raise, effective January 1st. This salary increase is global and across the board–everyone gets a raise, no matter their level, to recognize the contribution that each and every one of you makes to Google.

There’s more. We’ve heard from your feedback on Googlegeist and other surveys that salary is more important to you than any other component of pay (i.e., bonus and equity). To address that, we’re moving a portion of your bonus into your base salary, so now it’s income you can count on, every time you get your paycheck. That’s also effective January 1st. You’ll be receiving an email shortly with further details about these changes to your compensation. And one last thing…today we’re announcing that everyone will get a holiday cash bonus, too.

Googlers, you are what makes this company great, and our goal here is to recognize you for your contribution, in a way that’s meaningful to you. Thank you for all that you do, and for making Google a place where magic happens.

Eric