Google Insiders Get Paid

Outside the tech world, the number seems even bigger -- $3 billion is greater than the economies of Greenland, Samoa and Monaco combined. It's a half-billion more than the U.S. government budgeted for humanitarian aid. It's almost five times what the American Red Cross brought in through public support last year.

In other words, it's a lot of money for most people.

But the big numbers are not just the result of the surge in Google's stock price. Insiders there have been unusually active in selling. In the past six months alone, they've sold 5.6% of the total shares held by insiders. That ratio is lower among its peers: Microsoft(MSFT Quote) insiders have sold 5.3%, Yahoo 4.6%, eBay(EBAY Quote) sold 0.6% and Amazon.com(AMZN Quote) insiders shed 0.7%.

And that is exactly how the system is set up to work. Find a brilliant idea, or make someone else's brilliant idea more useful, and these are the kinds of rewards to be reaped. So no one is begrudging co-founder Sergey Brin his $858 million or co-founder Larry Page his $855 million, or Schmidt and the other two insiders who have sold upward of $250 million in stock.

But for investors holding Google shares, this may be the most relevant bit of context: In just one year, Google's insiders made nearly twice as much from stock sales as the company raised in its initial public offering. The 14.5 million shares sold are nearly three-fourths as much as the 19.6 million offered last summer. That's adding a lot of supply of the stock.

And more shares are headed toward the market. Google has filed to sell another 14.2 million shares to fatten its cash coffers. This time, it's quietly abandoned the Dutch auction process and dropped WR Hambrecht, the boutique firm specializing in auction IPOs, from the underwriters named on the prospectus.

Instead, the new shares will reportedly go to a few dozen powerful institutional investors. Currently, 59% of Google's shares are held by insiders and another 38% are held by institutional investors. After the secondary offering, individual investors will control an even thinner sliver of the company's shares.

That in itself isn't a bad thing. But it does illustrate Google's quiet retreat from the high ideals of standing up for the individual investor. During its IPO, Google bragged that the offering would democratize the underwriting process, just as its search engine democratized the Internet. A year on, the underwriting process is the same oligarchy it stood up to a year ago.

In their quest for fortune, Google's managers have abandoned the ideals of democracy for the profits of pragmatism. It's working very well, but it raises a question: If Google is so quick to drop field-leveling auctions from its underwriting process, how long will it take before it considers stripping the democratic algorithms in its search engine?