I Don’t Care How Well You Code, Understand Your Compensation | Hacker News Reader

I Don’t Care How Well You Code, Understand Your Compensation

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494 pointssigna11307 comments

I think it's mostly supply and demand, timing and where you live. But those are the factors we rarely talk about.

Instead, people complain they are not compensated enough relative to the importance of their work, their intelligence, the hours put in, their title or the length of their education or the risk they take.

If people were paid according to the importance of their jobs, I would argue that plumbers, sewage workers and farmers should be paid higher than programmers. If it were about intelligence, most physicists I know are underpaid and programmers are generally compensated fairly. If it were about hours put in, many of the people producing our clothes should be paid better than us. If it were about titles, programming should be behind almost any other engineering field. If it were about length of education, programmers would generally rank much lower than they do because so many don't have any or much formal training. If it were about risk, in just about any other profession people have taken larger risks than a programmer joining a startup. So you "risk" only making $40,000 for a couple of years? Yeah, well, that's the calculated risk your English high school teacher knowingly took on for life when she decided to take a bachelor in arts. And yes, she could have become a developer or lawyer instead. What about the risk of work injuries faced by construction workers every day. That's real risk. Our financial risks are modest worries.

Programmers in 2016 are generally very well compensated for a low risk, indoor job with a very low barrier to entry.

I think there's truth here, but I also think programmers routinely underestimate the quality and compensation of other careers that they think are "below" them.

For instance, you did it in this very post. Do you really think that all high school teachers are locked into making $40k for life? Here where I live (a large city, but also a pretty affordable one), teachers start at ~$55k in base salary, get a whole range of benefits including a pension plan, actually really do have the summers off (plus numerous other breaks), and leave work at 3:20 PM every day. If you were to have them work year-round and go home at 6-7PM and convert the pension plan into salary, the salary would easily exceed that of most entry-level engineers across all disciplines in the area. When I graduated college, I had engineering friends being offered salaries in the $60-70k range for considerably less stable jobs, much longer hours, virtually no time off, and much fewer benefits.

Annecdata: as a teacher in an inner city high school, I did not break past 50k/year for the three years I was there. That includes the summers I worked. Between grading, lesson planning, meetings, and teaching, my typical week day started before 7am, ended around 8pm or later. Typically most of my Saturday was used up and half my Sunday. Normally all of spring and winter break was used up likewise. I typically got close to a week off in summer.

As a developer, I started at nearly 2x what I made as a teacher. After getting real experience, I make more than most administrators and more than any teacher could after a lifetime of service. I have multiple weeks of paid vacation. Aside from a (weak) pension, my benefits are better. My work only follows me home when I am behind schedule (not often) or when there is an outage (a bit cyclical). My quality of life is so vastly better. Another benefit, I now get to work with motivated and smart individuals.

It's my understanding, from an ex-gf in college who was going through the teaching credential program at the time and had a mother that was a teacher, that there's a lot of work loaded on teachers inthe beginning, as they need to develop lesson plans for everything from scratch (where "develop" may mean find and adapt in some cases). Then, after a couple years it's settles into a normal churn of updating or replacing a much smaller portion of lesson plans as you go, and the rest of the time is the normal grading work.

That said, I'm not sure I've ever met a teacher who takes off at 3:20 every day. I imagine it probably averages out to around an hour before and after school, so 7 AM to 4 PM? But there's often grading that happens at home throughout the week. I wouldn't be surprised to see veteran teachers averaging 44-50 hours a week of actual work for the year (with lulls and spikes for midterms/finalls, etc).

Teachers make less to start as a result of the unions. The people running the union are later in their careers so the increased wages tend to accumulate to more senior positions. At least, that's how it's going for my friend who is a teacher.

Once you put in the time it pretty much turns into one of the most comfortable jobs you can get between decent compensation, lots of time off, good benefits.

To be fair, no teacher I have ever known has stopped working at 3:20 PM. Grading and planning often go far into the evening.

I had a teacher in high school once explain to us a side lesson on time management, she says she used moments of "downtime" in the school day to do grading and lesson planning so she almost never brought home work as a result.

I took it to heart. It worked very, very well for me in college. I'd always have homework with me ready to go and when I was waiting for a class to start, or any other short time with nothing to do, I'd do homework. I'd only get a bit done at a time but it really added up and reduced my take home workload considerably.

I had a total of 3 hours a day on a bus to/from high school. I wish I could have done homework during that time!

But you know how spine-jarring school busses are. Maybe if I'd been able to complete it on a laptop instead of worksheets.

But nah, with how I was treated by folks on my bus, my laptop would've been tossed out the window the second day.

I've often wondered about those that commuted long ways for school. Was it because the school was better, or because there was no closer school? If it was just a better school, do you think it was more beneficial overall to have that time used on the bus when it could have been put to work on something else, or was the local school unsafe?

I was lucky enough to always live very close to my schools, so hours spent commuting to school is entirely alien to me, and barring safety issues, I'm not sure a directed extracurricular learning program wouldn't be more beneficial (and if the student or parents care enough to commute, I imagine they could work out some program from available sources). Then again, I've never been put in a situation that young where it relied that much on my own motivation.

I think the effectiveness of this strategy also depends on how well you can context switch. For some it is a lot easier than others.

I was bad at context switching too but if you really put your mind to it and put in the effort it can be learned. It does get easier with time. For people that it doesn't come naturally to (like me) it takes a lot of willpower to work like this but the payoff is huge.

Additionally, no teacher I have ever known has had the summer off. Summer is when they do catch-up work, lesson planning, etc., the technical debt payback of the teaching world.

(source: three parents/step-parents were school teachers)

In all careers, some people are martyrs unnecessarily. Yes, there's a bit of prep work needed right before the next school year depending on what classes they have for the following year, but except that last week, the time's free if they want it to be.

Or if you're in Germany, many teachers are running on temporary contracts that always last for the school year, so they will be receiving unemployment benefits during the summer break, and (hopefully!) get a new contract for the next school year.

It's a great way to shuffle cost from one government budget (education) to another one (unemployment benefits), and also a convenient way to get rid of annoying parts of the staff.

Teachers in my mother's district in Virginia also work on a contractual basis. However, they renew their contracts at the end of the school year even though they aren't actually working and getting paid over the summer. As a result, they are technically employed and ineligible for unemployment.

To be fair, no teacher I've ever known as received only 10 day vacation and 10 holidays.

They have over 20 days of holidays built in during the school year and a legitimate two months off between years.

No, they have 2 months between school years in which they are not at the front of a classroom. For a lot of teachers that's time used for continuing education, for prep for the upcoming school year, etc. - or for a summer job.

(I'm the one who made the original reply about teachers.)

My comment was based on observations of my SO, who is a high school biology teacher. She legitimately does not have to work at all for the great majority of the summer if she doesn't want to. I understand this may vary a lot by school district and location, and of course even if you don't have to work over the summer there are still benefits to doing so.

Both my parents were teachers. While there was some summer work, in no way was it nearly as intense as the school year.

The mere fact that many do take summer jobs is proof of that, IMO.

Alternatively, I have 3 teacher friends coming back from month long vacations right now.

Actually according to http://transparentcalifornia.com/ my daughter's elementary school teacher makes around 130k in a public school.

There are lots of places where teachers easily make 80k or more. Most states also drive additional salary requirements based on the level of education the teacher has. Also, the number of years teaching (though sometimes tied to the number of years in the specific school system/district) include increases too.

Source: a friend who taught elementary school in the Boston area.

I once had it explained by a teacher in highschool (in CA), that the compensation was based on both years worked and additional education they had completed. IIRC, teaching for 20+ years and taking all the education could net you $65k-$85k ~ 20 years ago. That was the upper range though.

There are also teacher unions involved.

That probably includes medical and pension.

Many are faculty sponsors of extracurricular activities. Band directors, for instance, have to stay late for marching/pep band practices and for football/basketball games. Science and math teachers stay late for the academic competition teams. Team sports have coaches.

Where I went to school, teachers with less than five years of tenure essentially had to sponsor at least one extracurricular activity, just to earn enough extra pay to live on.

And then they still have to do grading and planning when the kids aren't there. That can be done away from the school building, but it still counts as work.

Gym teachers don't need to grade papers. Planning probably doesn't take too long for them either.

Especially true for nurses. Very tough job, but there's more money in it than many realize. My friend who already does well for himself is now going to do 1 more year of school to get a CRNA and says he'll likely make 160k in Miami or 220k in SF. Yet a co-worker asked "how can nurses survive here?" SF nurse salaries are public and you can see they can out earn most engineers esp via overtime (which lots of engineers work uncompensated). Still, nursing is a very tough job and can have a low status stigma.

My mother's actually a nurse, and it's been a really great career choice for her, especially as she's aged. Over the last five years or so my parents have had to move several times due to volatility in my dad's career. And yet at every move my mom hasn't had any trouble finding stable and well-paid employment as a nurse.

Nursing is similar to teaching in that you're not likely to get rich off of it, and it's not even an easy job at all, but it is a very stable one which pays a solid middle-class wage for life in pretty much any area of the country, from huge cities to small rural towns in the midwest. And, while the hours are rough as a new nurse fresh out of school, they're not bad at all with experience -- certainly it's a far more family friendly career than many others in healthcare, like being a physician.

If my mom had been a programmer, she definitely wouldn't have weathered the moves they've made as well as she has. In fact, she'd have been the one forcing my dad to move with her, as decent programming jobs simply do not exist where they live.

They may leave at 3:20, but that doesn't mean they are done working. Teachers do lots of work -- lesson planning, grading, etc. -- out of the classroom and outside of "working" hours. Not to mention the money they spend on basic supplies for their job that aren't provided by their employer -- or the time they sirens trying to solicit other people to find that.

Comments like the parent is why our teachers are undervalued. In my younger years, my roommate was a high school math teacher. And the soccer coach. He traveled a lot with the team and drove the bus, stayed late for practices, went in early to to supervise for safety...At nights when he comes home, he comes home tired, passes out, wakes up and grades papers.

Not all, but the one in my example did, and many do: http://www.payscale.com/research/US/Job=High_School_Teacher/...

I am sure that by getting a master's degree, teaching in private schools, being in certain states or cities, teaching classes that are in great demand, etc., teachers can reach higher salaries. But I think we can agree that by becoming teachers in the first place, they pretty much accepted the risk of never earning much.

Likewise, not all programmers in start-ups earn 40k, which is what the example was about.

Similarly, I thought I was rolling in the dough starting out at 65k as a developer right out of a 4 yr degree. Then I met an old friend in the same city who, after a couple years as an apprentice in a rural town, at 21y/o he's now making six figures as a plumber in the city/burbs.

I totally agree. Being a developer is one of the best careers you can have right now. Well paid and high in demand everywhere in the world, very little "soul crushing" (and can even be very fulfilling) compared to most jobs and you can even get a job where you work from home, anywhere you want, with flexible time etc. What other jobs exist out there like it? And if your only complaint is "well my employer makes millions off me and I get only get paid $GOOD_SALARY!", well then go and start your own business! It's, again, the easiest, cheapest and highest possible return of any business you can start in the world today, and it only requires your time. If you don't want do do it (because you'd rather have a stable job, or you don't want or can't risk your savings, etc) at the very least, don't complain you should be making an even better salary. Keep in mind I don't want to imply "just be contempt with whatever salary you have" or "never seek a better job or salary", but by all means, don't complain that "programmers are underpaid" in general, because I think that's just plain not true if we compare all aspects of the job with any job out there. It's pretty much a dream time in history to be a developer right now.

As I understood the article, the gist of the issue is, that besides salary, many/some programmers could also have another form(s) of compensation, so why not negotiate for it?

> Well paid and high in demand everywhere in the world, very little "soul crushing" (and can even be very fulfilling) compared to most jobs and you can even get a job where you work from home, anywhere you want, with flexible time etc.

Assuming you like and are good at a specialty that is in demand, and can convince someone else of that. As someone who does not like web or enterprise CRUD development I don't feel very in-demand, nor do I feel like I can get one of those sweet working arrangements[1] that get discussed here. I have spent the past couple of years wrestling with whether to keep trying to do what I want to do (real-time embedded systems) and be "underpaid" doing it or do something I am good at but really don't like (Java backend systems/"big data") in order to make more money. I think the latter is going to win by default, since I have been out of the embedded game too long at this point.

[1] Not to say my current arrangement isn't better than average with respect to flexibility, vacation, benefits, and such. I think the average HNer would probably consider my fringe benefits kinda crappy.

In my opinion employers should listen to those complaints. Most likely the only way to increase my salary would be to swap jobs, which I'd rather not do, and I don't see it being good for my employer either.

If there are millions to be made from programmers then must it not follow that programmers are actually underpaid (or that the services are over priced)?

s/contempt/content

Yes programmers are well compensated, but they are also in very high demand.

One day at a big family union I got three phonecalls from recruiters. My whole family rolled their eyes, while I politely said no to those recruiters with below average offers. I told them that this is usual, I get a few phonecalls from recruiters every week. None of them who work as doctors, teachers, accounting, geophysicist, even an old CEO of a $200 mill company has ever experienced something like that. They may get a recruiter calling once a year.

Most programmers don't know their real value and way too many say yes to work below average market rate. Younger ones a often preferred as they are easier to manipulate, have no idea about their value, and hardly ever says no to something. And they are brilliant and smart for bargain.

What they lack is experience, but as the technology landscape changes every second year many believe experience doesn't matter. That may be why so many companies are struggling with technical debt.

None of them who work as doctors, teachers, accounting, geophysicist, even an old CEO of a $200 mill company has ever experienced something like that. They may get a recruiter calling once a year.

Those recruiters aren't calling for your benefit tho'. They are calling because they want to sell you like a piece of meat. That's just a sign that nearly everyone connected to the industry who isn't actually an engineer themselves is trying to exploit engineers in some way.

What they lack is experience, but as the technology landscape changes every second year many believe experience doesn't matter

People believe what is to their advantage to believe. Getting an experienced engineer at a knock down rate because they've been tricked into undervaluing their experience suits VCs and managers very well...

> They are calling because they want to sell you like a piece of meat

Compared to..... what?

Calling me because of my good-natured character and my unparalleled virtues?

To be fair, most programmers also have never experienced a recruiter literally cold calling them sight unseen with a job offer. It's usually "hey can we chat, I know of a great company..." which is so different from a job offer it's meaningless.

Right, I get maybe two recruiters contacting me via email per year. Even then it's occasionally asking me if I have any leads for them...

My gf is a physician and she has recruiters contacting her exactly how we get contacted and with the same vein, recruiters are calling about jobs no one wants.

Why do you even empower these people by answering the phone? I never answer when they call.

I know a lot of people don't bother to answer their phone unless it's from a number in their contacts, but not everyone is like that. I almost always answer calls from numbers I don't recognize, and it's often a call that's actually important. A coworker or friend whose number I don't have, the bank calling me about strange activity on my account, a callback about a message I left and forgot about -- who knows? It only takes a few seconds to realize it's a recruiter and say "No thanks, please don't call me again" and I certainly don't want to add their numbers to my contacts list to filter them out. I like being immediately accessible in emergencies, and a minor inconvenience is worth that to me.

Because sometimes they actually have something interesting for me.

My wife is a Physical Therapist. She put her resume on Career Builder (after graduation) on a Sunday Night before bed (11pm-ish), by 7am already had two voicemails, and had more than 8 more voicemails by noon Monday.

Just a data point, but it happens to other fields as well. Also, FWIW, she's making about 80k and if she commuted into Seattle, I see jobs posted there for 100-110k quite frequently, for non-managerial positions as a PT. She claims she could make more (at least hourly) as Home Health or a inpatient retirement home type of situation, but likes outpatient too much.

Granted, that's about it, unless she opens her own clinic or goes into management, where as 110k in Seattle gives me some room for salary growth. She also doesn't get other compensation so my point is more about demand of PTs being pretty comparable.

Well said, but I think you missed the point of the article.

The article itself isn't even about programmers, really (even if the author didn't recognize it). It applies to all employees and founders of start ups, whether they are programmers, designers, or even just a person with an idea but no technical expertise

It's not about how much you make or how much is fair. It's about properly understanding what your compensation is. The soul of the article is in the complexity of non-salary compensations, and how many surprises and pitfalls lurk in the small text, that most non-finance people don't even notice is there. And the author is reminding us to learn about those surprises and pitfalls, so that when the anticipated pay-day comes, our expectations are met properly.

And it's good advice.

> [P]eople complain they are not compensated enough relative to the importance of their work, their intelligence, the hours put in, their title or the length of their education or the risk they take.

Most developers would be wise to understand that with few exceptions, none of these things have anything to do with your compensation. Your compensation is based almost entirely on some amorphous combination of:

  A) Supply of similarly skilled labor (if enough similarly skilled devs are happy to do the work for $80k that gives you a ceiling)
  B) Supply of less skilled labor (if an army of unskilled devs are happy to do the work for $8/hr ...)
  C) Your leverage over your [prospective] employer
  D) How the company has done over the last *n* quarters
  E) Patronage
  F) Nepotism
  G) Luck

I know I'm just repeating most of what you said.

I'd put Luck and Nepotism at the top of the list followed by D. But maybe that's just because I work in finance.

To be fair, nepotism in tech tends to be of the academic type, and most kids who get into Ivy League have worked pretty hard to get there.

So, in some ways, it's not that bad a kind of nepotism.

Most startups are not hiring actual family members :)

> Most startups are not hiring actual family members :)

It's harder to convince your own family to work for you for free with constant overtime and vague promises of great profits in the future. :).

Perhaps patronage covers this, but I would put skill at office politics/ass kissing high on the list.

Also known as: "Works well with others."

I think about 50% of the time someone bemoans office politics what they really mean is "I don't have the emotional bandwidth not to be an asshole to people."

H) Age

It is a common belief (especially among startups) is that developers have a "shelf life."

Is a belief in "shelf life" really the problem? Maybe this is really just startups being unwilling to pay for decades of experience, or people with decades of experience not being attracted to the startup culture of long hours, some other confounding factor, or a combination thereof.

One thing I want to mention is related to your last line:

> Programmers in 2016 are generally very well compensated for a low risk, indoor job with a very low barrier to entry.

Most employers don't get it, but Google, Facebook, and others do; programming well has a much higher barrier to entry than people realize.

When I was 10 I could make an HTML page, when I was 14 I started incorporating JavaScript and building websites... A decade later (24), I am still improving and building bigger/better programs (full stack, but mostly data science). I went to school, worked all the way through tutoring for C, C++, and Go, and built websites as well.

Yet there are people making the same salary as me that literally started programing 4 months ago. Those people who just started cannot build a website in a week (or even a few), it takes them months. Even then, thats with help, and it will have loads of bugs.

I know because part of my job is training them. I have to explain how they just tried to access an array outside the bounds. Seriously, the other week I was interviewing a "master software engineer" for an internal role on my team and they failed a basic string flipping question... He's making at least double what I am.

To put this into greater perspective, let's walk through a mental exercise. Say programmer one introduces 1 bug every 10 lines. The second programmer introduces 1 bug every 25 lines. After 10000 lines what do we have?

Programmer #1: 1000

Programmer #2: 400

At an average of 30 minutes a lot of hours of bug fixes:

Programmer #1: 500 hours

Programmer #2: 200 hours

My point, 200 hours is 5 weeks, 500 hours is 12.5 weeks of bug fixes. I'll grant you, this is napkin math, but trust me - this is why some developers think (and probably should) get paid more. Relative to their co-workers if they can make half as many mistakes they save time both upfront, and bug catching. Now compare that to the master software engineer I mentioned, whos already making double what I am... Based on that assessment, I'd likely be underpaid.

All that being said, I generally agree, but coming from a pretty standard office, I can see why people feel underpaid. It's probably because people around them are being over paid.

"> programming well has a much higher barrier to entry than people realize."

"Yet there are people making the same salary as me that literally started programing 4 months ago."

That certainly sounds like a low barrier to entry to me. Compare with the barrier to entry to becoming a doctor, for instance. There, in many locations, you'll be looking at a decade of proving yourself to the club, with hundreds of thousands of dollars in costs to do that, before you are even allowed to start working. Four weeks, and maybe a computer that costs hundreds of dollars, is absolutely nothing in comparison.

> this is why some developers think (and probably should) get paid more. Relative to their co-workers if they can make half as many mistakes they save time both upfront, and bug catching.

But it still boils down to supply an demand, and if employers do not demand those with better bug fixing ability, there is going to be no corresponding premium for finding such people. What your post does indicate to me is that programmers have done a poor job of marketing the importance of bug fixing ability (or whatever features of an experienced developer you think is important) so that employers start demanding the subset of developers who have those skills.

There are always jobs that are worse in some way. If a plumber screws up you might get a wet floor or sewage in the street. If some banking software makes a flaw, you can't just pick up a mop and clean it up.

There are always jobs that come out worse in some category compared to programming. The problem here specifically is that given you have written 50% of the software people are using and investors are making some millions out of it while you make $40K a year, because they sort of lured you into a deal that apparently is not working out too great for you because you were so focussed on getting the lines of code rolling out they sort of took advantage of the situation?

Investors may be taking advantage of your labour but this is the nature of every business. The business owners take advantage of employee labour to make a lot more money than the employees. I find the entitlement to better terms than people inother fields that frequently crops up here incredibly pretentious and self righteous.

I think that's a disingenuous comparison. If you're comparing to banking software, imagine a plumber that causes four floors of a high-rise to get flooded, leading to 5-figures of damage and additional lost time. Or perhaps an underwater plumber, where the cost to fix the leak is high.

If we're looking at house plumbing, it might be more fair to compare it to a CRUD app that facilitates iguana breeding (unsolved problem here, folks!).

BOSS: Uh, Bob, you forgot to close a loop in your code so we've got a bit of an iguana problem...

PROGRAMMER: What kind of problem?

BOSS: Call the Pentagon.

... or perhaps the Laundry

> What about the risk of work injuries faced by construction workers every day. That's real risk.

I hear you, but the negative health effects of working insane hours developing in a high stress "start-up" environment for many years should not be understated.

Hubris: http://www.bloomberg.com/graphics/2015-dangerous-jobs/

Taxi drivers more likely to die from homicide than a traffic accident! That's shocking. I wonder what explains this. Is it armed robberies gone wrong?

I think that is correct, though I'm not sure if there is anyone who tracks the exact cause, maybe it would surprise us.

Last time I heard about a violence against a taxi driver they were shot in the back in a carjacking, and then the assailant was not able to bypass some interlock device to actually restart the cab. So the cab company makes it hard to actually get away with the car, but the driver is probably carrying a lot of cash.

Exactly, in fact I think that if you want to stay healthy then working as a construction worker is great: you get physical excercise, fresh air, low stress level. Risk of injury is pretty low, and wages are pretty good.

In contrast, being software developer will probably get you heart attack, or problems with your spine, or eyes, or hands or all of the above.

Are you sure this is true?

You think the added risk of heart attack from software development is greater than the risk of death in construction?

You think the rate of spine, eye, or hand injuries from typing all day is greater than the risk of bodily injury in construction?

I find it difficult to find stats for this about software development, but 899 construction workers died on the job in 2014, and construction workers do get these small RSI issues in their shoulders and hands like you were describing for software development, but they are also regularly injured, but not killed, by falling, being crushed, and being cut.

But don't you know that software developers are the best and most noble population in the world, bravely suffering for the good of humanity? </sarcasm>

I would love someone to try and complain about RSI to someone who's been a construction worker for 20 years. "But you get fresh air and exercise!" Ha! According to this source, 8.2% of construction workers have carpal tunnel: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4476336/ And CTS is generally the least of their worries!

Exactly.

Actual construction work == Moldy crawlspaces. Hot attics. Slippery roofs. Muddy trenches. Asbestos & fiberglass dust (yay for silicon fibrosis!). Lead paint. pneumatic paint sprayers, heavy equipment, nail guns, projection injuries, cuts/scrapes/falls/broken bones, temperature range extremes, noise (hearing loss), eye injury due to projectiles, etc. etc.

Run a belt sander for an hour. Numb hands for the next half hour. Or a jackhammer for "just" 15 minutes. makes Carpal tunnel seem tame.

Spend a year doing HVAC work bent over in crawlspaces. Or try working as a brick mason standing in a muddy ditch or climbing scaffolding with thousands of pounds of block and mortar. Or roofing. Or framing straddling a rafter. It's no health tonic.

My guess is that most desk jockeys would beg for the safety of an Aeron chair and a mouse after just one week.

Don't get me wrong, there is a lot of satsifaction to having a hands-on job and getting things done, being able to show actual achievements per day. However, it is TOUGH work aAnd I think all those aches and pains are the reason so many construction workers self-medicate with alcohol.

I removed this from my (grand)parent post, since it was irrelevant, but since we're here:

I had to help with dad's business every school break from age 13-21. Mainly renovation, a spec home, some sheds, rarely roofing. Small town stuff. I'm sure I was a terrible worker, but it was shocking and alienating that my first job out of college I made triple what my dad did. And maybe from my own children I will hear comments like these in this thread, which I think are a bit disconnected from the reality of labor.

And I guess that's fine, just don't quit programming for construction if you are trying to avoid injury. My dad is in great shape in terms of cardio and strength for 60, but he can't raise his shoulder, or move some fingers, but the overall joint pain isn't bad most days, and he thinks he's gotten off pretty lucky. If he had fallen off that scaffold slightly differently when I was 5, he might be dead.

Also, another small satisfaction is if you can get the radio tuned to a good station, and do something straightforward, like, uh, nailing a subfloor or something. You can just sort of get into a groove with good music or interesting talk and have your day fly by, whereas I mainly get nothing done with the radio on while programming.

> Exactly, in fact I think that if you want to stay healthy then working as a construction worker is great: you get physical excercise, fresh air, low stress level. Risk of injury is pretty low, and wages are pretty good.

There's a pretty significant risk of DEATH (guys falling off from scaffolding, someone accidentally driving over you with an excavator etc.), you need to be on your toes a lot of the time or you'll hurt yourself, you work in heat, in cold, in dusty or moldy environments, in noise, with chemicals. On top of that, your boss is often an asshole (there's none of the white collar world politeness). Consider that construction work can pay pretty well even to people who hardly speak the country's language and have only moderate skills - I think it's largely because it's just shit.

There's degrees of risk associated with the type of construction work you do. I know someone who used to be a pipe fitter. Unless he showed up drunk at the job site (which may have happened a few times, hah) I don't think he was ever at risk of being run over by a backhoe or having something dropped on his head.

Roofers, on the other hand, have extremely high risk of severe injury and death. Those guys are nuts! If I was in charge of OSHA regulations for roofers I'd make sure that no one was allowed to get on to a roof without being attached to some kind of harness that would catch them if they fell. Or surround the home with airbags or something. It seems far too easy to slip, trip, or just plain ol' fall in that job.

I've personally witnessed a young man (roofer) fall from a roof once (on to a big pile of bricks). I found out later that he wound up paralyzed.

Electricians and plumbers are also relatively low risk depending on the work they do. You'd think working with high-voltage electricity would be higher risk than it is but with modern (insulated) tools and training it's quite safe.

On the other hand, I've recently seen a wall painter balance on a thin and wobbly piece of wood stretched over a stairway (if he falls, it's going to be about 4 meters down and onto concrete stairs). That was apparently necessary to reach some parts of the ceiling. I wouldn't be surprised if electricians or plumbers had to do to this kind of (to me) completely crazy shit from time to time.

> On top of that, your boss is often an asshole (there's none of the white collar world politeness).

Being an asshole has very little to do with crude language.

I actually didn't meant the language only. I think white collar workers (well developers at least) are pampered. Almost every boss I had paid at least some attention to my wellbeing on the job. I don't think that's true in blue collar world where, by nature of the job, you're just expected to "tough it out".

So... don't do that?

There's plenty of programming/IT jobs that aren't in start-ups.

Can I ask, are you a programmer? My guess is you are not. If you were you would understand the real physical strain and mental toll it takes to be good. If you want to excel, it is a never-ending battle to stay current and there is little to no reward for experience (even though it matters a great deal and must be accomplished on and off the clock). There is limited time to make money before you either burn out or are perceived to be too old to stay relevant. So, yes, there is a lot of risk putting the best earning years into companies that promise one thing and deliver another.

I am not. Programming is just a hobby and I am not very good at it. I am a lawyer, and my comments would apply to law as well (except that the barrier to entry is a bit higher since regulation forces people to go through law school). Your comments about physical strain, mental toll, risk of burning out etc. describe my field well, though. And I doubt salaries for lawyers and programmers are that different anymore.

The difference being, the older you get the more you will be perceived an expert at law. Your experience ages like a fine wine. Experience in tech ages more like a ripe watermelon sitting in the sun. Your earning potential will only go up the longer you are a lawyer. That is not true for those that stay developers their entire career.

P.S. I also spent a great deal of time getting degrees. B.S. in computer science and a Master's in Software Engineering. It is often not required to get a job, but it is still a barrier for many openings.

Let's see.

In 20 years your field might have made large parts of my field redundant. I truly hope so :-)

Programming is still a young profession and it's growing at a tremendous pace. The population pyramid of Programmers' Land actually looks like a pyramid which might cause programmers to think that older people can't make it.

I know many older folks in IT who are still active. My old man continued until he was 70. They may not know the newest tricks in node.js or machine learning but they are the only ones who know the old legacy code that lock-in users and protect their jobs.

I bet you and most of your colleagues will be active until retirement. Just like lawyers may continue as partners (partially or mostly doing managing or marketing) many programmers might transfer to management.

A lot of programmers have long formal education but the market for programmers without education is still huge and the salaries for programmers without formal training easily beat almost any other professions where there are no educational requirements and a lot of professions with educational requirements. In which other profession can you realistically hope to start with salaries of 60-80k after a few months of online courses?

I think we've lost sight of the argument. I do not disagree that people taking a few months of online courses are being paid well (or above) what they should be earning as a programmer.

Maybe in the Valley startup culture but I live very far from the Valley and that's not even close to my experience at all. What kind of "physical strain" does typing code result in? I seriously have one of the most flexible and lowest stress job than anyone I know.

Sitting in one position while making only minute movements and staring at a screen causes significant strain if you don't balance it out with exercise.

My favorite improvement that our agency made to our workspace isn't the dual monitors, isn't the shorter hardware upgrade cycle; my favorite improvement is the sit-stand desk. Seriously. I think every desk worker should get something like this.

I used to have all sorts of minor aches and pains from sitting most of the day. Now I spent an hour standing, an hour sitting, plus the usual breaks, etc. I'm more productive and happier. If your company won't buy one for you, buy it yourself. It's worth it.

Once try to solve a bug, from a program of size 100mb. Then you will probably known what happens to your brain. Try to continue a project, which is huge, without any documentation, it takes years of efforts, to do so.

Call me a fanboy, but my Apple Watch's hourly reminders to get up and walk around have helped immensely.

Hmmm, "And if you go in on a Saturday afternoon, I can tell you which start-ups will succeed, without even knowing what they do. Being there on the weekend is a huge indicator of success" - Marissa Mayer

Maybe you can get away with doing just your job and going home to relax. I would wager, you may have difficulty finding your next job however. Have you never programmed so much you start having dreams that it takes steps to breath and you subsequently have a difficult time breathing? The physical toll takes years to manifest. I am in my 30s. If I did not exercise at least every other day I would not be able to continue doing what I do. You are most likely in your early 20s. Wait and see what a lifetime of programming does to your nervous system. I would not be surprised if a study reveals programming causes brain damage.

>Maybe you can get away with doing just your job and going home to relax. I would wager, you may have difficulty finding your next job however.

That's just not how it works outside the Valley. I've only crammed extra hours in to meet a deadline a few days a year, and only at one company. I've worked at 3 different companies in two different cities 400 miles away. Nobody expected 80 hours a week or whatever and I, quite frankly, wouldn't do it because I value time with my family and I'm not productive 80 hours a week. We also highly value experienced programmers and they command a higher salary. I don't have a government job either and I never have. "Valley culture" isn't synonymous with programming as a profession.

Any Marissa Mayer? Isn't she mocked for her poor leadership?

There's a lot more to running a successful business than people being physically present on Saturdays.

You're running into quite the hyperbole. If programming literally makes your lungs stop working why keep doing it?

>You are most likely in your early 20s.

I am in my late 30s.

Programming in general is a really good cushy job. Valley culture is what is toxic. I'm sure it you worked construction 80 hours a week for however many years you'd be in much worse shape than if you were getting paid a large salary to write some CRUD app.

This. So true. No disrespect to the author of (grand-) parent comment, but working in SV or a startup is not always refelective of working elsewhere (in the US or further afield). I'm based in the UK, and had to endure long working hours/insane deadlines early in my career while working for various consultancy firms. Once I moved away from these 'churn and burn' factories, I made a point of working for employers who take care of their employees. Since then I rarely work weekends (never in my current role), and would rarely work more than the required 45 hours a week. Despite this, I find I'm more productive, and achieve more than I ever did earlier in my career when I was working long hours.

Value creation is by far the pre-dominant variable when one thinks about compensation. Arguably, there is more value creation in the process of programming (infinite distribution) than there is in let's say plumbing or some of the other analogies you make here.

The more democratized a field is and the more systematic efficiencies there are to be gained, the more easy it will be to both create and capture value and hence, resulting in a more even playing field for expected compensations. This has historically been true for entrepreneurship, modern-day programming is also a good example of this effect.

That is what programmers like to say (when they are comparing their salaries with the value they say they have created).

The reality,of course, is that most of the value created is attributable to the franchise value of the company, not the programmer.

>I would argue that plumbers, sewage workers and farmers should be paid higher than programmers.

Self-employed plumbers are paid higher than programmers. Every plumber I reached out to quoted $130/hr and they are all booked for weeks in advance.

Plumbers have to spend unbillable time driving from place to place. $130 per hour is great but if each job takes 1-2 hours it could magically halve.

Ever walk into a half empty restaurant and get turned away because they're fully booked?

The ones I talked to were not interested in taking on projects further than a 10-15 mins drive. Please note that plumbers also add markups on the products they install (water heaters, etc) and charge higher rates for weekend/after hours emergencies. Nothing wrong with it, they just take advantage of the good market.

Not picking on plumbers, just pointing out that jobs in the software industry are not as plum as they seem to some posters here, compared to other jobs.

You're still underestimating the hours that are not billable. That plumber drives 15 minutes each way for a two hour job. That's a 20% loss of time. Plus it's not billable when the plumber has to go pick up materials from a hardware store. Nor is it billable when they deal with the overhead of running a business, maintaining accounts, dealing with bills, providing quotes, etc. Plus benefits are coming out of that $130. A self employed plumber working 40 billable hours/week is likely working more like 60 hours/week.

A lot of self-employed consultant/freelance programmers charge that or more, and are booked for months (on the same project..)

True, but most plumbers are self-employed, most programmers are not...

Yeah, this is quite true. Even if it doesn't seem like it, the fact that programmers have a relatively stable job and stable income -- worrying about getting the right about of pay vs equity is much different than worrying, "Will I get paid?" -- it show some lack of self awareness to even complain about these kinds of topics. Yes, you might have a difficult time making ends meet in SF with a $100k job in a nice apartment, but you can always move to a city that doesn't have obscene rent and living costs and live more comfortably, and most likely be able to afford the associated moving costs, something many, many people can't even begin to think about.

Barring those comments, I think this article is actually good advice for software developers who don't know that much about how this works and what to ask, and could be burned in the end. Many people don't think about the specifics and if they have less than scrupulous founders, if they're not careful they can be in for a lot of trouble. I actually wish this would touch on the more psychological aspects of this topic, because you might want to understand these things, but might be worried about pressing buttons when applying them, and shouldn't be. For example, when you initially interview, don't be afraid to negotiate and definitely don't be afraid to leave if the terms aren't to your liking. If the company is profitable or is "awesome and will be worth tons of money, we promise!" they should put their money where their mouth is and compensate well, not just with equity. If you're not getting paid what you should be, or not getting the equity you think you should be getting, talk to the founders or whomever you can, and don't be afraid to leave if the situation is toxic or isn't acceptable (of course, this is mostly startup advice; when at a larger company you might get some say in the compensation package, but it's likely mostly up to bureaucratic processes unless you're being hired way up like VP/P/C level). It's not necessarily true that they need you more than need them, what's probably more truthful is that neither party needs the other.

> importance of their work, their intelligence, the hours put in, their title or the length of their education or the risk

Well one of these is not like the others. The article clearly focuses on the financial risks. It's destructive to suggest that risk and especially deceptive risk presentation is somehow ignorable and not to worry about it. You can't just let the supply and demand model play itself out. Hostile actors work against you and exploit information advantage to skew the supply and demand [1]. Teachers, construction workers or software engineers - it doesn't matter what your job is. Here we talk about stakeholders in a company. It just happens some software engineers are, and as such you should understand where the numbers come from and what's the value of all that since it's part of the compensation. There are plenty of devs out there who work for no money at all. It's pointless to go into philosophical discussion about jobs, it's outside the scope. This is purely a subject for stakeholders.

[1] http://www.borooah.com/Teaching/Post%20Graduate%20Microecono...

Compensation is a market. It's not about what you "deserve" or how smart you are, or even your job performance. Your comp is driven by what the market will bear, in other words "what you can make elsewhere." Just like the price of a gadget is not based on the cost of its parts, or how much value the customer derives from it. It's based on what the market will bear.

The point of the article is not so much about what should be the right level of compensation for technical people but rather the issue of technical people not bothering to understand the terms of the financial agreements they get into.

If they did examine the terms, as you said supply and demand would ensure the terms are fair.

> If they did examine the terms, as you said supply and demand would ensure the terms are fair.

Only if all parties have all the information. The person being hired has now idea how desperate the company is for their skills, how much they're willing to spend, or even if the pay being offered is good for the location/position in a lot of cases.

And the company has no idea of whether the person being hire is as good as he pretends to be. This uncertainty goes both ways.

I would add "police" to the list of critically important yet comically underpaid professions.

Well there is a paradox at work here. You need to pay any sort official enough that they aren't desperate for bribes, but not so much that you attract people into the job motivated by personal enrichment. Read "Systems of Survival" by Jane Jacobs for a good study of this.

I agree. In return for the higher pay, I'm in favour of much stronger selection, screening and higher penalties for wrong-doing.

Which is better motivation for a police officer? Personal enrichment, or the chance to use weapons, violence, and deception for advantage--once common delights now so rare!

Being a policeman can be a tough, dangerous job. But I don't think they are underpaid, at least not in Massachusetts - Police Trooper, 1st class can make $130K-$180K. They also get generous pensions (state employees).

Yea, top ones. This sounds like the same old argument: "A handful of top programmers at Google make $300k! Therefore programmers in general make a lot."

This does not look underpaid at all to me:

http://www.sjpd.org/joinsjpdblue/SalaryBenefits.html

They are well compensated but to not push for better upside more when the investors and founders have a lot of upside seems naive.

Life is expensive if you plan to have children and give them a good start. Being smart about investments is essential to ensure a secure future.

Just because a plumber earns less is irrelevant. Many people in trades go on to apply their knowledge to renovations anyway. Is a plumber more important? Impossible to quantify. Maybe a programmer works on a cad application that helps design a faucet that doesn't leak. The programmer is now indirectly a plumber.

Not sure aniut the low barrier to entry. Take 1000 programmers, how many can be made into decent plumbers in 6 months? Now take 1000 plumbers, how many can be made ibto decent programmers in 6 months? Also, I am nit aware how often tevhnology materials and tooling changes for plumbers (I guess some of these spsn generations), but I am aware that platform I have been working full time for 4 years did not exist 8 years ago, and the language I write my code in did not exist three years ago.

The barrier to entry in the trades isn't the difficulty of the work. If you trained 1000 programmers for six months, a good number of them would be competent, but none of them would be able to get licensed. Every single one of them would need to work as an apprentice to a licensed plumber as part of the licensing requirements.

On the flip side, all you need to do to get a job programming is an internet connection and the desire to learn it. Anyone can teach themselves and if you can code enough BS on a whiteboard, somebody will hire you.

Most programmers would be able to do usual plumbing stuff like connecting the sink or dishwasher to water pipes with almost no prior learning, just by looking how things are done, maybe asking a few basic questions at the plumbing supplies store, and reading the attached instructions. These things are no rocket-science really. Sure, an experienced plumber would do all of these things much faster and probably better, that's why we call them. But the barrier to entry is definitely much lower - that's a no-brainer to me.

While I agree that the barrier to entry is lower, I feel like you may be overestimating the average programmer’s “hands-on” abilities as well as the simplicity of being a plumber. Sure, most programmers have the problem solving skills to get the job done, but when it comes to actually doing it, things are sometimes different. In my own personal experience, only a small percentage of the programmers that I know (myself included) actually know how to turn a wrench, figuratively speaking.

Another example is welding. I know how to weld, but I am not good at it. The only way I would get better is to keep practicing, which I never really have a chance to do since it’s not my day job. This is a slightly more extreme example than plumbing, but a similar concept.

I would consider the usual plumbing stuff to be more along the lines of sweating copper pipes, using lead and oakum to connect cast iron sewage pipes, installing toilet flanges, etc... I feel like connecting a dishwasher is more along the lines of a handy man.

:-) where are the jokes that plumbing is a hardware problem, not a software one?

But most programmers are basically plumbers (for data as opposed to water/sewage) :)

Not true. Plumbers work reasonable hours, are paid overtime, don't have to deal with ageism, their skills stay relevant regardless of fashion trends, and their jobs will never be offshored.

I hope we can both agree that your language's garbage collection is ultimately less important than your toilet's garbage collection.

Not really. Most programmers I know design systems, not just mechanically program them according to the specs. Plumbers do not design - they just execute designs created by plumbing engineers. And plumbing or mechanical engineers are paid much, much higher (in this region where I live probably not as much as programmers, but close enough).

Hayek's short 'Social' or Distributive Justice [0] neatly shows the disconnection between value and virtue, and that no market system rewards them in lockstep.

And that no such system can function if you try to force it to reward them in lockstep.

[0] Either as a chapter in the second volume of Law, Legislation and Liberty or as a standalone essay in The Essence of Hayek.

Downvoted. Your response did not make much sense to me given the article. The article just states that programmers should understand the intricate details of their compensation and make a balanced judgment (whether to take an offer or not) based on that. (edit) The article does not make a judgment on whether programmers are well compensated or not.

>I think it's mostly supply and demand, timing and where you live. But those are the factors we rarely talk about.

I think those are the exact factors constantly mentioned by the HackerNews community.

The measure of "importance" that results in programmers being paid a lot of money is the ability to do something once and have it benefit millions of people.

I don't think that's true because a) lots of people do that kind of work, in the physical world too, such as the guy who paints lines on the roads, and b) you don't do it once, you do it again and again every time a new JS framework comes out...

I know a water treatment plant worker, two plumbers, and an electrician in the Kansas City area, and they all make as much, if not more than my programming contemporaries. For instance, a friend tried to get me to work at Cerner for ~75-80k (good money in the Midwest), but those plumbers were making that plus some (45 dollars an hour, so in some cases would make more depending on overtime), the Electrician worked for himself and though I don't know his yearly earnings, he was making closer to 60/hr (based on a quote to install a ceiling fan, and since he was a HS buddy, he probably gave me a discount). The wastewater plant worker? He's a manager now making 100k or so, but started out at 60k, not bad for the midwest as well.

I'd not trade my cushy, indoor job for that, mind you, just the idea that trade workers necessarily make peanuts, I believe, is without merit.

> If it were about intelligence, most physicists I know are underpaid and programmers are generally compensated fairly.

Most physicists I know are searching for stuff that already exists, whereas most programmers I know are actually building new stuff.

New stuff = this week's rip of another game, Snapchat feature, or productivity app. Yippee.

All programs also exist, in the sense you can program a computer to generate one by one all possible valid x86 instruction sequences. What programmers are doing is searching for one program among them that will solve their problem.

It's really quite simple: you assume it's all worthless, because that's how it starts and that's how it generally ends. Even if it were going to be worth something, you'd have been better off taking the money up front and investing it however you wanted in the meantime.

But it doesn't really matter, because you have no control over this anyway. All you have to do is decide whether the salary is high enough; the rest is irrelevant.

Some people really enjoy playing the lottery. If that's you, well, knock yourself out getting into the details of the options package! Just don't kid yourself or make any serious life plans based on your hopes about that stuff.

This can be applied to everything why bother making an informed decision about choice of University or Spouse or anything else.

Your explanation is a self fullfiling prophecy disguised as if it was some wise advice.

In reality employees can and should make informed decisions, this advice is equivalent of covering ears and screaming bla bla bla.

Power is given to those who demand it. If you start with assumption of being treated like meek, you are simply setting yourself up for a defeat.

The point is that the majority of regular employees are never going to get options that are worth a damn thing. When most companies are run by founders who don't even have access to priority shares because all the equity is locked up with investors, you can bet developers and even executive employees (CTO, CFO, et al) sure as hell aren't going to receive anything worth its weight in air.

Yes, it's important to try and understand your stake and whatever choices may actually be available to you. It's also important to realize that you are likely part of the 99% of employees who have been handed a worthless piece of paper, which just might convert into something valuable under a very specific and extremely unlikely set of circumstances.

On top of everything is the fact that not all financial advisers are equally knowledgeable or caring about their profession. Given the same documents to review, some will be overly optimistic or just plain incompetent while others will actually be able to explain just what you have lined up. How many stories of "I was advised X, so I spent money, and now I'm broke and losing my home" stories do we need to read to understand this?

Your salary is your compensation, and you base all financial decisions solely on that income. You figure out your cash-out options, and when the time comes that you convert to hard cash, now you have more money. Until then, keep your dreams of a windfall with you at night under your covers. It's foolish to plan out your life expecting to yes, win the lottery.

If you walk into a casino you're going to lose money. I don't even know the rules of any of the games and I can tell you that. Some situations are so tilted in favour of one side or the other that it's not worth trying to compete on that playing field.

Valuing the options at zero and demanding adequate salary without them is the opposite of meekness.

Rather than loudly proclaiming your ignorance about casions and options, you should introspect.

I know several people who successfully negotiated better terms. Demanding "adequate" salary and valueing options at "zero" are two seperate tasks. You assume latter (options not valued at 0) implies former (salary not adequate) its a statement about your risk averse world view, not a statememt of fact.

As far as meekness, loudly proclaiming that you are valuing options at zero is great way of letting your co workers and others know of your level of interest in the success of company. At which point if not meek you would surely come across as contemptuous, lest the company suceed and your coworkers end up better off than you.

> I know several people...

And for every person you know there are dozens of stories about people who didn't even come close to recouping their salary differential. And those are just the "successful" startups that had some sort of exit. So the risk is (obviously) real.

> its a statement about your risk averse world view, not a statememt of fact.

No, it's a (true) statistical statement that you're misrepresenting as a categorical one.

> loudly proclaiming that you are valuing options at zero is great way of letting your co workers and others know of your level of interest in the success of company

Does the VC who's investing in a profile of N other companies also not have much interest in the success of the company? I mean, if they REALLY believed in the success of the company, then why aren't they just throwing all N at the company?

The only difference between the VC and the employee is that the employee is providing a limited resource (time) that can't be split among N bets, while the VC has enough cash to afford to make risky bets.

So it's entirely possible that the company has an negative expected value for an employee and also a positive expected value for the VC (and founder, but for different reasons).

> So it's entirely possible that the company has an negative expected value for an employee and also a positive expected value for the VC

Which is exactly the scenario the article is warning about: share dilution, refinancing, and all those other strange terms, often rendering the employees' options worthless over time (but not the VC's of course)

> As far as meekness, loudly proclaiming that you are valuing options at zero is great way of letting your co workers and others know of your level of interest in the success of company. At which point if not meek you would surely come across as contemptuous, lest the company suceed and your coworkers end up better off than you.

You don't have to be contemptuous to be confident in your own worth and realistic about how much you can influence the company's chances. By working for a company you are already long that company; you should be looking to diversify. The people who "drink the kool-aid" and get extremely personally devoted to their company are not exactly respected, IME.

Au contraire; it's a rule of thumb distilling 20+ years of industry experiences and observations into a simple bit of advice. If I'd followed this advice throughout my career, I'd be happier and considerably wealthier today. Chasing the big stock payout has always been the wrong choice for me.

You do whatever you like. If this stuff is interesting, go learn about it! There's nothing wrong with that. But all I've discovered, the more I've learned about the world of VC and options and equity compensation, is that it's a rich man's game and I've been wasting my time trying to play.

This is really wrong.

You can very well assume that it's worthless. If you do, chances are you will not do your research on things like early exercise and 83(b) filing (whether, for example, you work at a company that even allows things like that).

Then, in the very small chance that your equity is actually worth something, you will be kicking yourself really hard because if you'd only prepared, you could've been paying LTCG on the whole spread, rather than dealing with AMT and trying to find a private buyer for your illiquid stock to pay off the IRS and the CA FTB.

> you will be kicking yourself really hard because if you'd only prepared, you could've been paying LTCG... AMT... illiquid stock... IRS... CA FTB... ACME... Road Runner...

Look, I won't be kicking myself neither hard not soft, because I made a conscious decision to study and become proficient in another field.

You finance people work under the assumption that everybody cares—or should care—about the underlying concepts of your field, not to mention the details such as jargon and acronyms, just because we have to use money to conduct our daily life. That's demonstrably false.

It would be like assuming everybody who uses a smartphone should care and become proficient on TCP, signals, sockets, PIDs, scheduler priorities, and what not. In a word, foolish.

Considering the stock options you're given basically worthless, unless fortuitously proven otherwise, and making your employment decisions based on salary alone (and other non-monetary factors) is a valid strategy, because it allows you to avoid having to invest time into studying and understanding all those foreign concepts. Since time is a finite resource, choosing how to spend it while still having your butt covered is great advice.

On the other hand, if you are a founder of have otherwise invested a considerable amount of time and energy into those shares, it would be foolish not to seek professional advice on their management, as the article rightly points out.

You finance people work under the assumption that everybody cares—or should care—about the underlying concepts of your field

Those aren't finance terms, they are taxpayer terms! Long term capital gains, alternative minimum tax, everyone knows who the IRS are...

But those acronyms are vague and I had no idea what they were until you spelled them out.

That's the point of the article.

Understanding how much you owe the IRS in taxes is personal finance, which isn't the same thing as business finance.

This is tax jargon. Death and taxes, everyone should care about those two.

I care about taxes, sure; that's why I delegate the problem to a competent professional.

That all sounds like a fancy way of saying "playing the lottery".

Thats like saying programming is fancy way of saying "banging fingers on keyboard".

Let me paraphrase the parent:

"fiscal gibberish, fiscal gibberish, Then, in the very small chance that your equity is actually worth something [sic], fiscal gibberish, fiscal gibberish"

Sounds almost like the definition of a lottery to me.

> Thats like saying programming is fancy way of saying "banging fingers on keyboard".

perhaps you were referring to the 'infinite monkey theorem' ? i would rather believe programming to be nothing like that.

test driven development seems to encourage that. Bang away until it turns green.

No, it really isn't. I agree roughly with the claim that you should plan your life based on the assumption that your stock options are quite likely to be worthless, but the comment you replied to is making specific and highly meaningful points that anyone receiving options really needs to understand.

The odds aren't THAT short.

The default should be working for a big public company that offers a big salary package. Anyone can code some cool stuff in his/her free time anyways. The startups don't generally compensate for the risks, just try to keep the best-case scenario better than multiple promotions at a big company (which is still hard)

Absolutely this. All comp evaluations should start from what you could reasonably expect (salary + annualized stock) at a public company.

Startup comp is a little different; salary + the value of equity at (a reasonable) exit (but derated by a healthy 80%, because 80% of all startups fail, right?) It might also be wise to discount for any difference in preferred shares vs. common stock.

This might just be my personal experience, but I feel like a lot of people don't derate startup equity for (the statistically expected) failure correctly.

If it's worthless, and you're taking below a market salary, and you're working much harder than you would have to at a company paying you that market salary... then you're getting a raw deal.

Better to get the market salary for a 50 hour a week job and do your own startup on the side as a side project.

The thing is, early employees (first 1-4 years) put in as much effort and take as much risk as founders, and take a lot more risk than investors (who can spread their bets over a dozen other investments) yet generally get poor terms in their options packages.

Options do have a calculable value, if you can determine the risk of failure for the company. I think they correct answer is to get RSUs that vest and have the same terms as the investors do. That's a lot more fair- investors still get to spread their bets around and have less risk, but employees have reasonable participation in all outcomes in that case (and the RSUs vest like options would.)

>> Options do have a calculable value, if you can determine the risk of failure for the company.

Yes, because every company that has ever failed was predetermined to be a failure long before they went out of business. Give me a break. I've watched companies of varying sizes do extremely well for several years, which then fall apart into ashes in a matter of a month or two. You can't assign value to options unless you are in the process of cashing them out.

There are multiple types of value. Some of which that you often see in startups is calculable. For instance if the strike price is X and the last funding was at Y then there's an intrinsic value to the options of Y-X. If that's positive you can make an estimate of the likelihood of the company being viable long enough to realize that value and then discount that value by that amount.

EVERYTHING involves risk. A risk adjusted calculation isn't a guarantee but it's also not irrelevant simply because there's risk.

If I will pay you $1 for every number that comes up on the dice, unless its a 1 in which case I pay you nothing, would you ante up $0.50? You seem to be arguing that because there's a chance a 1 could come up, that a ticket for that game isn't worth $0.50.

"Estimate", "likelihood", "viable long enough", "realize that value", "risk", "adjusted calculation", "isn't a guarantee". These words and phrases do not inspire confidence.

Also, your analogy if full of it. You make it sound like options will pay out 5/6ths of the time. Adjust your analogy to rolling a 100,000-sided die with a couple of numbers that pay out, and we might be closer to the reality. With those adjusted numbers, no you cannot have my $0.50.

You can take the outside view on the company. There are N companies in a comparable situation, and of those companies M of them failed. M/N is approximately what you should believe the failure risk to be.

> All you have to do is decide whether the salary is high enough; the rest is irrelevant.

You mean feign interest in the company for two years longer than every VC that passed them over?

I'm being cynical, but I am baffled how Silicon Valley companies think they are going to be privileged enough to hire engineers that are actually interested in their company's ambiguous mission, amongst the subset of engineers randomly on the market at any given time

How many VCs weren't interested again?

As an employee you can also have a positive effect on the outcome of the company.

So as a non-owner, I am in a great position to give charity to the owners.

No way. I have been screwed often enough by companies that I am no longer going to put in uncompensated additional effort more than once per employer. If I want to do charitable work, there is no shortage of open-source projects out there that would pay in gratitude or reputation.

When I am "at will" in a company with zero actual ownership, I have no interest whatsoever in seeing the company succeed or fail. It makes no difference to me whether the job disappears because the company goes under, or because the CEO doesn't like my face, or because the owners sell out and the new bosses clean house. Any non-cash incentives will have no effect on me until they are actually in my possession. A promise that can be broken without consequence at any moment before the expected delivery date is no promise at all.

As an employee-owner, I can have a positive effect on the outcome of the company. But not once has any of my employers fully upheld any promise related to ownership made at or before hiring. So now all my accounting is by what I have in hand. If what I have is a load of tissue-thin promises that I have no means to enforce, that's great for wiping my backside with. I believe it was put more delicately some time ago as "don't count your chickens before they're hatched," and "a bird in the hand is worth two in the bush."

If you can't meaningfully enforce the promise, it is worth nothing. If you have a vesting schedule, and the employer can change it by firing you without cause, it is worth nothing. Analyze your proposed compensation defensively; pretend that the company is out to screw you without you even noticing it, because sometimes they are.

People who care about money will always have trouble understanding people that don't care about money - and vice-versa. (Obviously, the context here is a milieu in which everybody has enough for basic needs.)

It's all about head space. Caring about money is quite a binary thing: once you engage with it, it's a huge commitment - intellectually and emotionally. People who don't care about money understand that they're only inches away from caring - and that the moment they cross that line their whole attitude is going to have to change. That's why they're wilfully disengaged from these issues. They don't want to set that process in motion. Money has a gravity all its own - it sucks you in.

People who do care about money don't have a problem. Money proves its own importance in a very material way. So the commitment always seems justified.

I don't see why it should be so polarized. You can care enough about money to understand the components of your compensation. You can also care about quality of life enough to make decisions that trade money earned for other goals.

There's an attitude of "money is unpure" that is destructive. Even if you are not motivated mainly by money, you will need to understand it so that you aren't taken advantage of by people who are motivated and fluent. Thinking you are above this is just an excuse for laziness - it's about as realistic as saying you're above eating healthy and exercising.

I think this largely depends on how much money you are chasing and your aspirations.

I care about money not because I want to have lots of things but because I want the freedom to work on my own ideas (without selling my soul to a VC). A certain amount of money early in life can greatly change your trajectory, for better or for worse. It just takes discipline.

That still needs to be balanced, though. As you get older, you'll lose time to other things. You may get sick, injured, or die. There is no guarantee that you will have a "later".

So find the balance - live enough to be happy with today, but work enough to be prepared for tomorrow.

But more money is always better - if you don't need it, donate it to an animal shelter or something.

What do you think happens to money that you leave on the table? Someone else takes it, and they might spend it less responsibly than you would. So if it's there take it and then at least you can control it.

There is a cost to gathering up the money left on the table. That's the whole point.

That is abdicating your responsibility. Think of the kittens!

Many people were raised under a stigma of any conversation of money, and any self directed acquisition of it being sketchy

So they get taken advantage of by people that don't have that stigma

    > That's why [those who don't care about money are] 
    > willfully disengaged from these issues.

One can argue that it's irresponsible for those who have access to power to refuse to wield it. After all, not deciding is essentially a decision to support the status quo.

Misleading title and premise: The author makes it seem as if something will be explained for people who are not 'financially-savvy', but nothing is explained. In fact it is made more complex. Which is fine, but still it was kind of misleading. Solid advice to get financial advice nonetheless.

Can someone explain this part to my/some-of-us like I am five?:

"Which muppets advised them to spend hard-earned cash to exercise a non-liquid, highly volatile financial instrument? There is no world where the (relatively) small tax breaks involved justify the expected value equation, given that Good Technology was nowhere near exit."

I have no idea what it says here.

> exercise a non-liquid, highly volatile financial instrument?

Buy something that can't be converted quickly and easily back into cash (non-liquid), and whose value changes a lot (highly volatile). This means if it starts to go down, you can't get rid of it fast enough and you stand to lose a lot.

> the expected value equation, given that Good Technology was nowhere near exit

The value equation would be, the outcome ($) times the likelihood of that outcome. So the outcome might be big, but the chance for it is perceived to be small (given that they were nowhere near exit), so the expected value is not very high.

Boils down to they spent their hard-earned cash buying something that might lose a lot of value, is unlikely to be a big win, and that they, once they buy it, are basically stuck with it. No wonder he disses the advisors (note all of this is just explanation of what is said, without judging if his premises are correct).

Thank you for the explanation. Would 'buy something' in this case mean to choose options over 'normal' compensation (salary)? Or were employees advised to buy extra options in the company at some point?

Also, I thought there was a difference between options and equity and the assumption I have heard some people have is that 'equity' is safer than 'options', but if I think about it now it seems as if options are just what equity consists of. Is there a difference and does one consist of the other? While I understand that I should probably consult Duck Duck Go on this some more, I still ask seeing as you seem to be knowledgeable on the subject.

I thought the same. The post does not explain anything at all, just dumps a lot of jargon.

I think it says employees are convinced to spend their money on options/equity in the startup they work for, but a startup is a gamble, most don't work out. Specifically, in the Good Technology the author feels the valuation given in the buy was nowhere near the point at which the investors/founders had hoped to exit?

There is a nice glossary of terms here: https://github.com/jlevy/og-equity-compensation

> I have no idea what it says here.

i would _guess_ it means that (in this specific scenario): folks miscalculated the perceived tax-break benefits offered (due to option exercise at the time of vesting) vis-a-vis using their money more profitably somewhere else.

The point he's making is that if that's part of your compensation, and you don't understand it, then you might as well be being paid in magic beans.

Options have a much higher "total cost of understanding" than regular compensation, and understanding liquidity and volatility is part of that.

But if you assign your options the same value as magic beans (ie. zero) and find that the job is worth doing anyway, then you can avoid filling your head with a lot of financial mumbo jumbo.

"advised to exercise their stock options"

The option is free. Exercising them is not. You won't get from having the option to jump into the water, you only get wet if you actually do it.

Finance is evil. Day trading, investment banking, venture capital; they don't produce anything for society, they just sit at the intersection of various people, companies and industries and they capture big chunks of the money that flows between them - They rely on information asymmetry and market manipulation to do so; but 'information asymmetry' is just a euphemism for 'deception'.

Even startups which are doing well and generate profit tend to go on to raise money from VCs - This sounds ridiculous; they don't need the VC money but they raise money from the VC anyway because: 1. They need the connections and 2. They need the tech 'media' to promote them with a headline like "W raises $X millions from Y to disrupt/democratize Z!".

This highlights the fact that VCs have an oligolopy when it comes to economic connections and the media and they leverage it for their own needs.

Also the fact that crowdfunding was essentially illegal for so long is also scandalous - Not only do they hoard all important social connections and the media but they also have a stranglehold on politics.

Capital and finance isn't evil. It is a tool, a unified currency to allocate resources. A tool is apathetic to the motivation of the hand that wields it.

Machines for logging = capital

labor = capital

software = capital.

A VCs business model is that of investing and profit. It's not altruistic, its a business. As such it is interested in profit. There are other methods to raise capital for a business but a VC may be a better option.

Finance isn't evil; day trading, investment banking, venture capital are all sharing information with the world and trying to move money to places where its more valuable.

There is a case to be made about "negative externalities"[1] but talking about the whole of finance as unnecessary is throwing out the baby with the bath water.

[1] costs that aren't borne by the producer

Valuable for what?

Valuable for satisfying human desires

The theory is that people spend money on what they desire, and so companies that generate more money satisfy more human values.

You will always find outliers and exceptions (caused by negative externalities usually), but this is true in general.

The allocation of resources is a non-trivial problem and financing, while on the surface can be corrupt, does have value in the world.

Finance is bad, but it's kind of a least-worst situation. What's the alternative that doesn't rely on philosopher-kings or omniscient omnibenevolent central planners?

>What's the alternative that doesn't rely on philosopher-kings or omniscient omnibenevolent central planners?

Distributed sharing economies, like that of most tribal organizations.

I'd like to see your anthropology cites for "tribal organisations", please. Especially for those larger than a hundred thousand members.

>I'd like to see your anthropology cites for "tribal organisations"

Look at any hunter gatherer tribe.

The key word here is "distributed". Distributed tribes are light weight and mobile by design. So they are rarely ever grouped into concentrations of 100,000+ members except for the occasional festival-like gatherings.

How do those systems manage capital-intensive projects? Bridges and dams and airliners and power grids and so on...

>How do those systems manage capital-intensive projects?

The use of the word "capital" here indicates a misunderstanding of the social dynamics of tribal economies.

They produce and consume that which they need together because of shared benefit.

Large scale centralized constructions like the Golden Gate Bridge, the Hoover Dam, or power grids are built to serve the stationary needs of the big city not the small, distributed, mobile tribe.

> Finance is evil

that's a pretty strong viewpoint to take. have you looked at 'the ascent of money' by niall-ferguson to get a more historical perspective on how we got here ?

>Even startups which are doing well and generate profit tend to go on to raise money from VCs - This sounds ridiculous

So how does one expand a profitable business? Save up those earnings until you can buy a factory outright? Good luck with that. Meanwhile, I'll be financing the cost and leaving you in the dust.

This use case you describe sounds reasonable because in that case, to produce the goods, you actually need to have a factory, and for that to happen, you need money.

But how often does such a use case actually come up in the real world (in the tech industry particularly)? Not saying it doesn't happen from time to time but it doesn't seem like the standard case these days.

It seems like a lot of time, VCs are just throwing money at specific companies in order to 'outfund' competitors who are also receiving money from a different set of VCs (they're all trying to run each other into the ground by artificially lowering profit margins).

Eventually, everyone realizes that the funding ultimately did nothing to neutralize the competition; most of the competitors are still alive and kicking (and new ones have since spawned up) - And the market is simply not big enough to meet everyone's projections/expectations.

>I find this lack of diligence infuriating. These intellectuals — much smarter than me — imagine block chain technology for cryptocurrencies and how to cure diseases, but don’t put in the effort to comprehend ownership percentages or what a ratchet means in a down round. Why?

Nice victim-blaming here. Why don't people spend tons of effort on a lot more things? They haven't got the time and don't want the stress. Don't blame them for being trusting, loving souls. Blame the company for screwing them over with over-complicated rewards schemes designed to screw them from the start.

This.

If anyone is interested in learning more about compensations and about salary negotiations, here are some previous discussions on Hacker News.

Open Guide to Equity Compensation (github.com)[1]

Salary Negotiation (kalzumeus.com)[2]

Ten Rules for Negotiating a Job Offer (freecodecamp.com)[3]

An interesting anecdote about negotiation [4] [1]: https://news.ycombinator.com/item?id=10880726

[2]: https://news.ycombinator.com/item?id=11830598

[3]: https://news.ycombinator.com/item?id=12197795

[4]: https://news.ycombinator.com/item?id=11552780

> So talk to the CFO about the numbers — when you’re hired, when it’s fundraising time, and any time in between.

Hahahaha, oh man so here's the part where I just dump all my emails about the answers I have gotten back from CFOs over the last decade:

- "common stock shareholders aren't privy to financial details"

- "we don't share that information"

- "I discussed it with the board [consisting of myself] and they decided not to release valuation information"

- "The stock options are just to retain employees!" and other awkward non-sequiturs that are distinctly not a financial statement.

So do ya'll want to unionize or nah, I have a feeling Peter Thiel and Andreesen would totally support it and we already make enough to make union dues negligible.

One time I had the privilege of getting the CEO's assistant to read me over the phone a prepared high level summary of company financials. She read very quickly and refused to pause or repeat anything.

> common stock shareholders aren't privy to financial details

Delaware law lets you make a Section 220 request [1] to inspect a corporation's books and records for a proper purpose, e.g. to identify potential buyers and sellers or for investment valuation purposes.

[1] http://www.pepperlaw.com/publications/what-every-corporate-c...

Thanks! Now is there any trendy company that streamlines this service?

(Noob here) Don't most startups offer stock options and not actual stock nowadays? Is the owner of options classified as a stockholder under the law?

Even if not, couldn't you exercise a single option before making your request?

No, I have no interest in being a part of a union and have absolutely no doubt that I can negotiate on behalf of myself better than a giant body responding to the wants of many.

Perhaps a guild might be more to your liking? Until something is done professional VCs will continue to hold undue, exploitative power over engineers due to their flim-flammery.

Adam Smith's five reasons to get paid more:

1. Skill. Over the long run, jobs that require higher skill will attract higher wages, or else people won't bother to spend the costs acquire the skills for the job.

2. Accountability. All equal, you'll take the job without personal consequences when things go bad.

3. Wholesomeness. Undertakers get paid more. Butchers get paid more than bakers. If it sounds cool at a party, expect to get paid less. Supply and demand.

4. Job security. Essentially, you need a higher wage for an unstable job than a stable job. Risk premium.

5. Physical danger. Yes, a lumberjack will get more danger money than a programmer. However, you'll demand a higher wage for a programming job with crazy hours and the only food in the building is a snack machine with cinnamon buns which have no expiry dates.

For those wishing to take up the author's claim of understanding their compensation, Brian Krausz gave a great talk about this subject, titled "Demystifying Startup Job Offers"

https://www.youtube.com/watch?v=y13tqllSros

Worth watching if you're looking for a nice starting off point for some of these areas.

In a capitalist system, you actually have an obligation to get as much of the pie as you can. Fuck being seen as greedy; greed is the entire basis of capitalism. This doesn't mean resorting to illegal / unethical measures; but it does mean always negotiating to get a better deal. This goes from the top of the economy all the way down to the bottom. I'll admit it can be hard when you don't have leverage; but you also have a stronger incentive to fight than some VC or PE who is really just playing for points.

More companies should really encourage this with their employees and arm them with the information they need to negotiate effectively. True; compensation would probably rise, but so would job satisfaction (and its attendant effect on employee turnover -- important in knowledge work where recruiting costs run upwards of $60,000-100,000 per hire). It's probably a wash in the end dollars-wise, but it makes it a lot easier to keep high-performing teams together.

If you don't want to be greedy, give all your money away to whatever charities you want after you earn it and live a modest lifestyle. But the whole system functions better when everyone has the ability -- and the expectation -- to fight for the best deal they can get.

Self interest is the entire basis of capitalism, not greed. You are not greedy for defending your interest, i.e. getting paid as much as you can.

Exactly my point. Greed is a false construct.

> one of the reasons I chose to work on Wall Street prior to joining a start-up was to fully grasp the financing terms of the companies for which I would later work.

And this is also the reason why I'm very wary about equity. I'd certainly want to work for a company that's going to do well financially, regardless of how I'm being compensated, but I have only a layman's understanding of business and finance. I'm simply not equipped to judge the financial health of a potential employer and how much its equity is really worth.

Then you should educate yourself. Take a class or two at your local community college or do some research online. It's extremely vital that you have a good understanding of the financial world we live in. Knowing a thing or two about some of the basics will help you in the long run, regardless of whether it's related to compensation or equity.

Is that really enough? When I accept equity as compensation, I'm essentially investing in the company I work for. People who invest for a living typically have more education on the subject than a handful of community college courses.

Honestly what's wrong with just paying people a lot of cash? Why the swindling with securities?

Because that's all it is -- look at a 10 year timespan between two developers, one making cash and one making cash+options, and you will see a difference in how much they take home.

Stock options are all smoke and mirrors, nine times out of ten.

I'm all for giving people more financial opportunities that integrate with their lifestyle and risk tolerance but come on, people are being ripped off on the promise of "options" and gauging how much "faith" someone has in a company. Screw faith, just give me cold hard cash!

>Honestly what's wrong with just paying people a lot of cash?

The context of the blog post is "startups". Startups without significant revenue don't have a lot of cash to pay high salaries.

Another reason for stock compensation is to tap into the power of incentives. Hopefully, the potential equity upside attracts employees who think their work contributions can boost the value of the company (and hence their stock options) rather than mercenaries who just want a paycheck. Paying with 100% cash doesn't easily differentiate those 2 groups.

> Hopefully, the potential equity upside attracts employees who think their work contributions can boost the value of the company (and hence their stock options) rather than mercenaries who just want a paycheck.

It's hard to believe companies genuinely want this when offering 0.025% of common stock to your early engineering hires has become common practice.

> offering 0.025% of common stock to your early engineering hires has become common practice.

Well, you have to add extra information to that 0.025% figure to determine if that seemingly "low percentage" of equity became decent money.

As an example, it looks like Chris Cox, an early 2005 hire of Facebook[1] and now Chief Product Officer got ~0.025% of Facebook stock. (~600k of 2.5 billion shares.) He started unloading some of them in 2014 (2 years after the IPO).[2]

That 0.025% in 2016 now worth ~$77 million.

Of course, not every startup will become a Facebook with a market cap of $350 billion. So instead, let's say we can work backwards from a "nice" target number such as $5 million. For 0.025% stake to be worth $5 million, the company has to grow to a $20 billion valuation. That's still a big number but building a company worth multiple billions is an aspiration for many startups. The pontential employees have to consider if the "lottery tickets" with a payout of $0 to millions is worth the lower salaries.

If a startup sets aside 10% stock for employees' pool, have other companies proven that you'll get better results by granting more than 0.025%? Should they have given Chris Cox 1% so other subsequent employees get less % or none at all? Lots of potential game theory questions to ponder.

[1]https://en.wikipedia.org/wiki/Chris_Cox_(Facebook)

[2]https://www.insidermole.com/insider/cox-christopher-k/transa...

So what if there is a lack of cash? Keep demanding more.

If and when the cash comes, will your real salary increase? No! Of course not!

You will be the last to know and this information asymmetry is the reason the rules are stacked against you, which is why you should never stop asking for more money. If the company tanks then so what? Not your problem, you're a developer.

The premise of my argument is that the separation between the two groups you mentioned is so temporary that it doesn't even matter -- and not only that but whether you're a mercenary is not up to you, it's up to your employer. You might as well get paid fairly to reduce your risk surface.

>So what if there is a lack of cash? Keep demanding more.

That's fine, but you're changing the subtopic of your text that I was specifically responding to. You asked, "what's wrong with paying a lot of cash?"

What's wrong with it is that the fledgling startups do not have "lots of cash" to pay so playing dumb about why they aren't paying it is a non-productive conversation. Sure, as a future potential employee, demand all you want -- and renegotiate for higher salary next year -- or quit for a better job -- or start your own damn company -- or don't take the job at all. All that empowerment cheerleading is fine but it's from the perspective of the "employEE" so it's changing the subject. My answer was specifically explaining the perspective of the "startup employER" -- and that's who you had asked about.

>The premise of my argument is that the separation between the two groups you mentioned is so temporary that it doesn't even matter

It can take several years for startups to receive revenue and profitability and therefore, the recruiting mindset will favor one group vs the other over a long ramp up period. This hiring strategy is unavoidable when the startup does not have a lot of cash.

>whether you're a mercenary is not up to you, it's up to your employer.

Btw, I wasn't using "mercenary" in a derogatory manner. It's a label I often proudly wear and being fabulously compensated with cash never flipped a switch in my head from mercenary to loyal employee. I was mercenary to the bone.

Anyway, I make the distinction about mercenaries to highlight that some employees' incentives may not be aligned optimally for a cash-strapped startup. Therefore, perhaps the mercenary should restrict his criteria for employers to be the more mature companies who pay high market-rate salaries and very little in stock. That strategy seems more productive than wondering why Microsoft pays "lots of cash" but startup XYZ does not.

The blog was about startups and not companies like Microsoft/IBM.

Forget about equity, at least get the salary part right. Keep interviewing to check how much the market is willing to pay you and you will be surprised to know that "loyalty" does not pay much in America unless the employer is willing to offer you substantial amount of money to spend like 4 years at the company.

Let's be honest, the only reason companies aren't transparent about these things is because of investor/founder greed. Whether or not the numbers are 'fair' isn't even relevant until employees fully understand their compensation. It's basically like how landlords in SF take advantage of the housing market by unnecessarily raising rent to absurd levels just because they can - it's the same with investors. They have the money so they try and scalp those who need it under the guise of taking on risk. In reality, if an investor lost the 10M he/she invested in a company, it probably wouldn't change their life at all.

I don't understand most of the financial terms used in this article. Where do I start?

I hope the following is helpful rather than confusing - feel free to ask any clarifying questions. Also, I will preface this with the fact that I am an engineer and not a finance person. I may be subtly wrong on some points and I am happy to be corrected by those with more knowledge on these topics.

Liquidity preferences - Also described in the article as "investors escape safely on Preference stacks", investors usually have terms which state that when the company is sold, they get paid first so that they can at least recoup their investment before anyone else gets paid. Usually they get paid again with everyone else, resulting in a "double dip" into the sale proceeds.

Reverse-merger IPO - this is a rare (for tech companies) deal structure where private company A merges with public company B. The resulting merged company is now publicly listed because company B has already gone through the IPO process.

Dilution - described in the article as "over-dilution" and "dilutive financing", if there are X shares of a company and you own Y shares, then you own Y/X % of the company. If the company then creates Z shares to sell to investors, you own Y/(X + Z) % of the company. The difference between these percentages is dilution. Often, existing investors have anti-dilution provisions. They are able to buy additional shares in the round up to their existing percentage. Founders and employees usually have no such luck.

Ratchet in a down round - Admittedly, I don't know what a ratchet is. I would guess that it is a protection of some sort for investors from a down round and thus bad for founders and employees.

Non-liquid - (nearly) impossible to sell

Highly volatile - a plot of price over time looks like a rollercoaster

Anti-dilution provision - see the latter part of "dilution" above

IPO protections - Also have no idea what these could be. I would guess at something to protect investors who invest at a high valuation where the public valuation is lower.

409-A pricing - How the shares are assigned a value for tax purposes

Hi Uiri - excellent summary. To add:

Ratchet - when companies raise a down round, investors who invested at a higher valuation get issued additional shares. This effectively adjusts the price/valuation they paid. The number of shares issued depends on the type of 'ratchet' investors have. There are two main types of ratchets: 'weighted-average' and 'full-ratchet'; the latter is not company/employee friendly and is no longer common. For employees, what this means is that if there is a down round their equity will get more heavily diluted than they expect, because additional shares are issued to compensate investors who invested at a higher valuation.

IPO protections - you are correct. In late stage/pre-IPO financings, these protect investors from an IPO occurring at a lower valuation than they came in at, either through outright 'blocking rights' (preventing such an IPO from happening) or, as above, through ratchets that adjust their share price/valuation. Such IPO protection terms have increased in 2015/2016.

Thank you. The jargon seems to be the biggest stumbling block here, the concepts make sense. If there is a "Finance for Hackers" out there I would love to read it.

"Finance for Dummies"

A better idea.

What is a "down round"?

Suppose a company raised money at some implied valuation. If they raise money again at a lower implied value, you call it a down round.

The basic thing to understand is the concept of "dilution". Companies can issue new stock in exchange for new investment funding, driving down the value of existing stock. Sizable dilution is rare in publicly held companies, but common in privately held ones. There are often contractual terms which protect some parties against dilution. Founders and early stage investors may be protected, while other employees are not. Sometimes founders don't have anti-dilution protection.

For an overview, see [1].

This is historically unusual. Up to the last decade, companies tended to become profitable and go public much earlier. Now we have round after round of private financing going into money-losing companies to fuel rapid growth, in hopes that, somehow, they'll dominate the industry and make the money back someday.

That may not happen. Twitter won on market share and still can't make money. Uber may be next.

[1] https://techcrunch.com/2011/10/13/understanding-how-dilution...

I think its rare to have any anti dilution protection for anyone in a high growth company.

At most you have then option to buy into further rounds, so you keep your percentage the same.

I've seen anti-dilution clauses in founder documents, and really you should have one that limits dilution under certain circumstances (so you don't get arbitrarily or selectively diluted out.)

They are probably extremely rare for general employees, but they are not rare for people who have negotiating power (eg: C level executives.)

====

Apparently I am blocked from responding too often as a new account, so adding here because I can't add a new comment to the parents parent:

It really is quite shocking how often people act like these things are not the business of employees. On one hand they want you to take a lower salary, and they claim that options will make up for it, but on the other hand they think it is somehow unreasonable for you to ask basic questions necessary to value the options?

I recently had a CFO act incredulous when I requested a copy of the Stock Option plan. Like I didn't deserve to have a copy of it, even though he was requiring me to sign a contract agreeing to its terms.

At that point I basically wrote off the options, and have written off the company and am on my way out.

The reason they get away with this kind of obfuscation is, I think, that most engineers just go along to get along and aren't too demanding.

Unions would be worse, but we need to start sticking up for ourselves a lot more.

This showed up on HN last year: https://github.com/jlevy/og-equity-compensation

It's got advice on where to start, common gotchas to look out for (in the US), and definitions of everything.

Eh, the gist is employees take on very little risk. We get paid every two weeks up to layoff or retirement. It's different when you are looking for investors.

Employees take more risk. Each one is putting in an amount of money equal to an angel, often with options that give them far less compensation compared to that angel. You can't work for 10 companies so all your eggs are in one basket.

You would be right if the employees were getting market salary and working a market/normal work week of say 50 hours.

I read it as; if you take shares instead of your marketvalue in cash then you need to understand what you are doing. A lot of people do not.

Term sheets and contracts by investors usually contain things that benefits only them, especially when the company does not work as expected.

This was my take, and I'm pretty sure I belong to the group that does not.

This is a good article, and the same thing could be said with regard to offshoring, H1Bs, etc.

Very profitable companies have gotten away for years with the tired argument of not enough talent. It is easy for engineers to fall for the line, since it pushes our egos in the right way: only really talented people can do what we do.

The truth is, tech companies are spoiled. They all want the top 5%, but don't want to pay the premium. And they've found that since they can't always get these 5% for cheap, they might as well get the bottom 50% for a discount via H1B indentured servants.

I like software engineering a lot. But the older I get, the more I know that it is a dead end, and I'm preparing my pivot. Not because there isn't a demand for software, but simply because the tech field is full of naive and professionally weak workers that allow the whole industry to be exploited far more than other professions.

Globalization, offshoring, etc. is not something that can be easily countered. Even lawyers, journalists, and nurses - typically very politically savvy professionals - have not been able to counter it 100%.

But tech workers are really at the bottom of the barrel as we not only lose to offshoring, but also allow ourselves to be arbitraged and later replaced by foreign workers in our own countries (from what I've seen, Western Europe is catching up with the US with its 'blau karte' and other schemes).

I take offense with " the bottom 50% for a discount via H1B indentured servants."

There's probably a mix of talent in H1B visa workers, but I know several and they're among the top talent in the U.S. Some H1B visa holders have gone on to found multibillion-dollar companies.

I don't live in the U.S. and don't face H1B visa competition (we do have Venezuelan and Cuban and Spanish engineers coming here to Uruguay so something similar), but it shouldn't be seen as so black-and-white. They can help grow the pie, they're not out to take a slice of the pie from native-born engineers. Maybe you should help them negotiate better rates, or a better visa that allows them to do so.

One of the cases where jwz is spot on : it's a lottery ticket, nothing more.

Except that you can pay $1 for a lottery ticket with long odds of a $100M return, here you are paying $70k for a $1M lottery ticket with equally long odds of return.

> ... here you are paying $70k for a $1M lottery ticket ...

care to elaborate a bit on how you got that ? thanks !

If the difference between what you can make in total compensation at BigCompany and your salary at Startup is $70K, then you're essentially buying a lottery ticket for $70K... PER YEAR.

...and if your options are for %0.1 of the company, they have to be a unicorn for you to make a million bucks (assuming that $1M is "lottery ticket" paying off.)

There is a bigger picture than money. I know I could have more wealth. But I'm pretty happy with my life, despite not having maximized my income and investments. I have enough money to pay my bills, enjoy my life, and still have enough extra to have the first-world problem of where to invest it. Would having focused my energies on making even more make me a happier person? Or a better father to my kids? Doubtful.

Startups give stock options because they feel they have to in order to attract talent. The startups can't compete with Google/Apple/Microsoft when it comes to the base salary, they simply don't have the cash or revenues to do so yet.

But what if the startups offered something else that most of the big companies can't or won't? How about 100% remote work, real work life balance (less than 40h weeks), 4+ weeks of vacation out the gate, 4 day weeks during summer (like Basecamp) etc. Basically, given conflicting choices, always optimize towards what makes a great place to work. Would that attract top talent (not necessarily only the SV talent)? What if there were no stock options involved at all, would that make you less psychologically invested in the company?

I think of stock options and the like as lottery tickets. And I never win the lottery. If I'm offered stock options, I'll gladly take them, but I want real money, too.

So, I've been working for startups for a long time. Finally I've reached two "rules"- - Be a founder - Restricted Stock Units or Preferred Shares are the only way to go.

Options are way slanted against employees. If you have a market value of $150k and you take $80k in salary, you're giving up $70k of real money each year. The value of your options in most situations that work out well (Eg: base hits) are going to be less than that (when accounting for risk).

If you get fired in the 11th month, you've lost about $70k and get nothing.

IF you get fired in the 13th month, you have 1 year and one month vested, and 90 days (most likely) to spend real money to turn those options -- which you've already paid for by giving up market salary-- into something valuable.

Options are basically a raw deal, and I'm not even getting into liquidation preferences.

IF you give up real salary of $70k a year, that is the same, literally, as the angel who puts $70k into your A round.

You should be getting the same terms as the A round in that case.

That you don't is part of how the game is rigged. You should vest almost from the beginning.

I think 90 days of trial period with a cliff (Eg: you vest 90 days on your 91st day then every 30 days after that you vest another 30 days) is ok. You don't want the cap table to be too complex.

Yes, Venture Capitalists wouldn't like this. Of course, because it's fair rather than tilted towards them.

I know this won't become popular because engineers are too easy to manipulate. They read some self serving VC blog about why liquidation preferences are perfectly acceptable and they buy it.

But if you're there the year before the VC you took a lot more risk than they did. You're investing your real salary that you're not getting and could be getting by working for a fully developed company, while they are investing other people's money.

I've heard of programs called Slicing Pie and the like that make this easy.

Why you want to be a founder?

Well, after over 20 years working for startups, I have spent al to of time asking CEOs and CFOs specific pointed financial questions. I have gotten the runaround from them, and that's a flag that makes it easy to pass on the company. But when I haven't gotten the run around, way too often what they have told me was false.

Many times the CFO when asked for the number of authorized shares or the total shares on a fully diluted basis would give me some BS number. I don't know if he didn't actually know. (Many times the startup doesn't even have a CFO at that point.)

Many times I've been told that options accelerate, on acquisition, only to find out that the founders deal was that way but they wrote a new option plan for later employees that didn't have as nice of terms.

Just recently I saw a plan that gave the "compensation committee" the ability to do anything they wanted including cancelling all outstanding options grants, in the event of an acquisition.

I really don't know who wrote that document but I think it was one of the investors, and the "executive management" of the company never actually read it. They didn't believe it said that when I pointed it out. (Who am I, I'm just an engineer (this time, been a founder in the past, but I thought this company had reduced a lot of risk and so the tradeoff was worth it.)

So, another piece of advice- work for a company where the founders are hard asses when it comes to investment and terms. These people didn't even read the stock option plan (and weren't going to give it to me, despite requiring all of us employees to sign an agreement agreeing to its terms, because our CFO didn't realize that there was a separate plan document- he kept saying (or thought) that the agreements were the plan!)

This kind of lack of attention to detail is very common, in my experience in startups.

Working for a startup that fails is pretty lame, but working for a startup that succeeds and you get screwed out of the upside is much, much worse.

I think a main take-away can be: If you're interviewing for a start-up and the founder is cagey about the company's financials, their investors' stakes, their liquidation preference, overall what the cap table looks like, the number of shares outstanding, etc. that should be a big red flag.

A founder should know those things cold.

Also all compensation promised you during interviews should be in place within 60 days of joining. I've seen companies drag their feet for months, only to come up with an option plan significantly worse than the deal that was pitched to you (which the founders and early employees got. And thus you should have got, but they decided to be greedy, and then it took 6 months to come up with a plan.)

"There is only a single liquidation preference" - that's not ideal, but it's ok. "I think there's just one liquidation preference" - that means there are probably two, only one of which is called an LP, and the guy doesn't know terms well enough to avoid getting screwed in a liquidity event.

Of course all of this is less significant than the analysis of whether you think there ever will be a liquidity event or not... but having been around a couple decades and gone thru a couple of them, the founders made out well, even though they got screwed, and the employees didn't make a good risk adjusted return on what they gave up.

Of course, I didn't work for any unicorns. In that case the results are much better.

Problem is that options plans and even employe compensation plans at startups are built to only make sense assuming the company is a unicorn.

Most startups are not unicorns.

Yep, I've worked for quite a few companies, some offering real stock and others offering options, and I've only ever made any money (and only a very, very small amount) with real stock. Unless you're in one of those rare unicorns, your options are likely worthless.

"In business, you don't get what you deserve, you get what you negotiate" - Chester L. Karrass

"Please talk to a financially savvy individual to avoid missteps that could impact your long-term wealth." -- this strikes me, everything said makes common sense, and most engineers will agree, but the difficult lies in this sentence, how/where to find this resource _easily_ while working 7*24 on startups?

It is extremely difficult to find a real person, or a nice website, to make the ownership/stock-options/shares/etc straightforward and easy to follow, those jargon/terms are made to confuse any ordinary typical person.

I wish there is a website providing such service, say, charge $100 a hour to analyze my financial situation thoroughly or something like that. And no, I'm not saying a financial professional from Fidelity that is trying to sell me some funds.

I understand that a thing is worth what someone will pay for it, but to balance that out a bit, no conversation about compensation is complete without consideration of actual needs.

When colleagues, whose compensation is as wildly out of proportion to their needs as mine is, complain that they're entitled to more, it's at best a negotiating stance and at worst a black hole of insatiable greed.

Obviously this is some game theory mojo, and we'll never get everyone on board with it, but imagine for a second a world where everyone isn't vying for "more", but for "enough".

In the zero sum game we have here, compensation becomes a moral issue.

Not all people are motivated my money. Some people really just don't care about their compensations. They are just motivated either by the idea, the people, the leader, the industry, etc.

Even if one is not motivated by money, one should at least still have the self-respect to make sure they are being fairly compensated for their time.

> I would argue that plumbers, sewage workers and farmers should be paid higher than programmers.

Then, of course, the plumber et. al. should consider moving into programming. No one is stopping them from training themselves and learning what it takes to make the switch.

The programmer getting $80,000, who developed a key technology to start a multi-million organisation, if she finds she is not compensated appropriately, should consider teaming up and starting something on her own probably.

I don't get why everyone is criticizing this article. I think the main point is simply: Understand your compensation. And this is important. For instance, it makes a huge difference if you're allowed to sell your shares on the secondary market or not. That way a friend-of-a-friend made a bunch of money while other employees who joined a few month later can't and probably won't ever be able to sell those shares at a good price.

I've seen bite-sized blog posts and conference talks on the subject, yet I've never found a truly thorough resource. Can anyone recommend a book or two?

Having seen these types of articles crop up a number of times now, I've started wondering if the issue of preferred stock vs. regular stock vs. options is something that is specific to how stock ownership works in the US or if this also applies to other countries.

In particular, I would be interested in information on stock ownership in British ltds and how things work in the EU in general. Can anybody with experience in those markets clue me in?

Couple of interesting quotes that resonate with this.

1. "Company doesn't care about you (employee), and you shouldn't care about the company"

For few years this resonated in my head and I disbelieved it for obvious reasons. Its just demotivating. But after more than a decade I know this is completely true.

2. "Customers don't care how good the code is"

True. As far as the functionality is reliable and acceptable quality. Good code is only a value-enabler.

To provide a counterpoint...do I really have to care all that much. I know many people that obsess over money but quite frankly I feel like it's mostly a hygiene factor. As long as grave injustices are avoided interesting work trumps interesting compensation (imo)

I think the main thing that most IT workers fail to understand is employment contracts or agreements. Far too often a person needs a job, so too quickly agrees to terms that end up biting them later or causing resentment.

I'm reminded of the guy who outsourced his job to china and just surfed reddit all day. The problem is indicated of a larger issue not really talked about though, and thats the destruction of the middle class and increasing income inequality. I have started heavily referencing cost of living statistics when trying to understand macroeconomics, and when, in one of the most insulated areas from the 08 crash in Texas, with some of the lowest cost of living, and 49k is the living wage, which is almost impossible to get, I see a large storm brewing over the country that hardly anyone else seems to notice.

The true bottom line is that employers have far too much power, and employees need to start expanding theirs, before the neofuedal state kicks in fully and shit gets really fucked.

To give a quick example of bad compensation, I used to contract for some of the best law firms in town, and I got to know the secretaries and paralegals pretty well. well, come to find out, apparently the office managers from the various firms call each other to price fix salaries and compensation for them so they dont want to leave etc. Its blatantly illegal, but what are they gonna do, sue the best lawyers in town who are "good christian men" and "paragons of the community"? So most of them just grin and bear it.

Not to mention the fact that some of them bring in well over 4,5,6 times their salary in client billing themselves (eg not their attorneys) yet they still get a measly 1k christmas bonus.

Econimic warfare is real, and as W Buffett said, the rich are winning.

Far too many people out there are looking to make a buck on someone else's hard work than their own.

You can't make lots of bucks solely on the basis of your own hard work. The whole point of being an entrepreneur is to make a buck off of someone else's hard work in addition to your own.

I think it's fair for a programmer to evaluate himself (and, surevaluate himself) just like start up founders, investors, evaluate their start ups when they try to sell them...

I think I'm worth millions right now. Hire me, I'm such a huge opportunity !

Complain time!

Before I joined my last company, the recruiter said my shares were worth $1 each. After I joined I found out they were 50 cents per share. I don't think the recruiter intentionally mislead me. Probably lazy and uninformed.

I don't feel like going to Wall Street to learn about all this.

I am sure there is an element of experiential component, but which books or resources can I peruse to get myself acquainted?

This bad and good.

Bad because people who don't think about this will probably get less money than they deserve.

Good because everyone can try to get as much as possible without being a 10x engineer.

I don't like the tone that equity is a "compensation". In no means it's a compensation, it's not even a bonus. It's just something on top.

It's a lottery ticket. You say thanks when you're given one, but you don't use it to justify a lack of real compensation. Because in the end, you can't pay bills with lottery tickets.

Look up the definition of compensation.

In simple words, you should work for money/salary, not for promises/equity.

This way you'll always get a fair compensation, regardless of what happens to the company.

Low risk, low reward. If everyone thought this way then entrepreneurs wouldn't exist

On the other hand, how many companies stonewall potential new hires that try to perform due diligence on the options package offered?

Is there a MOOC or other similar teaching system that I can learn this type of information? Thanks!

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