One of the enduring mysteries is out of what budget does Google fund the 20% time it’s engineers are supposed to be working on their own special projects. A simple plain text reading of the statement would suggest that Google is overstaffed by 20% or said differently: they have 20% more people than they need for their current projects. A negative spin on this would be that in a down turn they could lay off 20% of the company to meet expenses without impacting current deliverables. If this was true, I was even more envious of the Google business model than I already am. But I was mistaken.

In an interview in Wired, Eric Schmidt explained:

How do people actually do 20 percent time? How do people actually figure out a way to actually get 20 percent of their time for that without working on weekends?

They work on weekends.

Do you compensate them in a way that encourages them to come up with these projects?

Yeah, but remember the kind of people who we hire are not here for the compensation, they’re here for the impact. And there’s essentially an internal draft system, that helps redistribute talent which is complicated and quite clever.

Do you actually have to declare what your 20 percent project is going to be?

People are encouraged to do so as part of the snippets.

Okay. That’s the incentive.

But it’s encouraged, not required. Again, there’s things you measure and require and there’s things that you encourage. The 20 percent is a cultural thing.

So you’re encouraged to come up with an independent project, and if you’re an engineer it’s part of being able to sit at the lunch table with your peers and be respected?

That’s right. Your peers all have one, so what’s yours?

At last the mystery explained: it comes out of the personal budget of the engineers.

Fasinating.

Updated: June 16 2007, fixed some errors in the HTML encoding. Foolishly assumed that the thin client POC that I was using worked as well as MS Word did.