The reason developers are paid a lot is because they're worth a lot. That's it.
IMO If you're a CEO that's what you sign up for. If you can't handle that, find another job.
I know I saved companies millions of dollars but only got $100k/yr doing it.
Neither I or the company secretary I worked with to ever got a word of thanks.
Imagine if as a dev you want to make 100k.. so instead you make 50k guaranteed (base pay), but then bonuses based on how many JIRAs you close. Hit your bug target make 100k. Get stuck on a nasty one? Opps, only 90k.
Managers have been pretty much in control of the narrative about what's happening underneath them when relaying to up the chain, and therefore they could overstate their own self importance -- when really it was the people under them that came up with the ideas, found the savings, made the efficiency gains happen... etc etc. (There are many managers that are good, but there are a god awful lot that are bad.)
So now in 2021, people have figured out they like having their own private bathroom, and a 43" monitor on their desk (because the company won't pay for it), and not doing the brutal commutes anymore.
The reality of the employee's true monetary value in a company is becoming starker and starker by the day.
Also there is a difference between revenue generating and cost reduction.
Example.
Let's say someone in accounting is responsible for combing through invoices, extrapolating data from them, and entering those extrapolations into a spreadsheet, perhaps with some calculations.
That someone is earning $75,000/year (not including benefits and other costs) to do this job. $75,000/year is the market rate for someone experienced enough to do this correctly, and since this is accounting, outsourcing this would be difficult because of US tax law.
This task consumes approx. 10 of their 40 hours/week. There are 261 working days in the 2021 fiscal year. This means that this $75,000/year person costs the company $288/day. Of that $288, it costs $231/day to do this particular task. $231/day * 261 days = $60,291.
You come along. You discover this madness and write a script to do it. You are paid $150,000/year (not fully loaded). Since you're subject to capital-A Agile, you do this in the very little downtime you get between playing stories.
You write the script (with no tests, because you ain't getting time for that) in six hours, or about 3/4 of a day. Since you cost $575/day ($150,000/261 days), this work "cost" the company $431.
However, the script does what the person in accounting did in 30 seconds and does so completely automatically.
In essence, the company "paid" $431 to automate what cost them $60,291 to get done.
_Per person_.
That's where the real savings comes from. Tech can scale so much more efficiently than people can. If this task needed 10 people worth $75,000/year to accomplish, it would have still "cost" the company $431 to automate what is now a $600,000 annual job!
If you were an entrepreneur selling this as a solution, you would probably sell this to the company at, say, $100/month. ($9.99/mo would be too low, and you do have to charge a "throat to choke" premium). That's $1,200/year of super sticky recurring revenue that you can sell to multiple companies with minor refactoring (because big companies generally don't abandon things, especially not things this cheap). Not a bad return on something that took six hours to write!
If you were working for this CEO, you would get scolded by a PM for working on an item that didn't have a story, which would percolate up to a negative mark on your yearly review that shunts your chance at a raise. Sure, you'll still get your 5% bonus of $7,500...but your six hour BS project literally saved the company over $59,000! PER PERSON!
See why what this CEO said is incredibly insulting?
And when reporting those same efficiencies up, many managers will take the credit for any efficiency gain, rather than give credit to the employees that made the gain happen.
And just as you don't pay your cattle much (food, benefits) but you do pay a good herder, similarly you shouldn't pay your employees nearly as much as the manager.
Let's use an arbitrary 1m saving.
If you saved a company (me) a million dollars, you just made 10% (aka 100K). That's a pretty good commission. If you got health care, retirement contributions and anything else on top of that, you have made an exceptional commission.
Because I gather you mention saving you mean on sunk costs. The second year you earn 100K, and if you don't save me money you have now made 20% commission and only saved me 800K (1m - 100K - 100k). And so on and so on, or you need to keep saving me 1m a year and there is a point where my costs will reach $0 and your salary will outpace that, increasing my costs.
This obviously is a very linear representation where you're not adding extra value, nor am I incurring any additional cost/losses by employing you. Cost savings are reflected once in my bottom line but your salary is reflected every year in my in operating costs.
However if you made me an extra 1m a year revenue (and my costs stayed the same), I would make 900K from you every year, and you make 10%. But if my costs increased then that 900K revenue is much smaller, let's say my revenue increased 900K but my costs increased 100K, you make around 12%. Now we are talking about profit.
Yes, the operational costs can be substantial.
On the other hand, an investor who gives the company $1M normally expects to get more than 100% of that back (with some risks, of course). Or would you say that an investment where you pay $1M to get $100K back is a good investment?
If you generate 1m of profit, I don't think 10% is that bad. If you generate 1m of revenue then 10% is pretty good depending on operational costs. If you're talking about 1m of saving 10% is not bad. That 10% is paid in a salary.
> You call it a "commission" as if this was a salesman getting a cut of the cost of the product they sold
You can call it whatever you want, salary, bonus, commission etc. I use the word commission because it is easy to relate the concept, if you generate 4m for example what is your worth, and it is probably easier to count that as a percentage.
But fell free to use whatever nomenclature you want.
> but a salesperson selling a $1M product is not providing $1M to the company
If you are not producing sales or a product which is sold, or reducing costs just how are you adding 1m of value. By this I mean tangible value, value which you can be paid for. Because that is what we are actually talking about monetary value being added somewhere.
> On the other hand, an investor who gives the company $1M normally expects to get more than 100% of that back (with some risks, of course). Or would you say that an investment where you pay $1M to get $100K back is a good investment?
Why would I ever say investing 1m to get 100k back is a good investment, getting 1.1m back might be a good investment depending on risk though, sticking 1m in a bank I am unlikely to get that rate of return for example. But I don't understand this part at all.
The precise mechanism isn't that important, but if it helps, imagine the following artifical scenario: a small startup buys 2 1000$ computers and hires a programmer and a salesperson, for 10k$ a month each. The programmer produces an app in 6 months, and the salesperson sells it for $3M. The two together have brought the company $3M in worth, minus $130k that they cost. Exactly how much esch contributed to the $2.8M is harder to say, but certainly each only contributed a portion of the $2.8M - even though the salesperson actually caused the revenue to flow in, they are not solely responsible; and neither is the programmer, even though they single-handedly created the product.
> Why would I ever say investing 1m to get 100k back is a good investment, getting 1.1m back might be a good investment depending on risk though, sticking 1m in a bank I am unlikely to get that rate of return for example. But I don't understand this part at all.
Well, a worker who, through their time and expertise, is adding $1M to the company's value is almost precisely equivalent to the investor investing $1M. However, you believe that the worker should get back 10% of what they invested, while the investor should get back 110% of what they invested. Do you see the double standard?
This would be a rare occurrence, but let's run with it. I don't think anywhere I have alluded to anything which could be considered as making such judgement on whom is worth more but rather the idea that businesses are systems with many actors.
But I think we are running around the obvious question, out of $2.8m, and ignoring any other costs and expenses like taxes for example (21% in the US), how much should the programmer get paid, how much should the sales person be paid?
If I had a company and I had 1 person sewing t-shirts which sold for $5, and another person sewing the same amount of t-shirts, same skill level, same quality of work but they were supreme t-shirts selling for $38. Should I pay the second work many times more, since they make me 7+ times more doing the same job. I don't think the market would say I would. Unless you have a unique skill or go beyond the level of the second employee, the rate would be the same. Even your software selling for 3m is set by the market, you cannot stick a price on it and say it is worth 50m and it's worth 50m.
The same argument goes for developers, it's a generic pool of skilled workers. While there maybe an argument for paying a high profit generating developer more, the majority of developers are likely to be the lower end. Maybe some people just get lucky, for example it is probably easier generating 1m of revenue working at Facebook (developer A), than it would be working at a small boutique development firm (developer B), developer A being no different than developer B, should developer A get paid more just because of the opportunity they have.
> Well, a worker who, through their time and expertise, is adding $1M to the company's value is almost precisely equivalent to the investor investing $1M. However, you believe that the worker should get back 10% of what they invested, while the investor should get back 110% of what they invested. Do you see the double standard?
There is no double standard, and they are not equivalent. The employee earns a salary, the invest earns via capital gains (excluding cases of dividends and profit shares). An investor can lose everything, while an employee gets paid.
If you think an employee == investor then you should not expect a salary at all, you getting paid depends on whether the company makes a profit and if there are capital gains to be had.
I think you should consider that employees are more like businesses, you are selling you product/services (aka skills) to a customer.
Recurring costs and savings of the same are very real things, and there is a ton of money to be saved by streamlining this for many businesses that have grown without pruning and/or streamlining their internal systems.
For most software businesses, it is more lucrative to spend resources increasing revenue, but at some point decreasing costs becomes worth it. For non-software businesses, the “some point” is usually right now.
Yes, streamlining can save a great deal of money, and consultants and businesses are making good money offering such services. But they are only represented once generally in financials of a company, unless that cost is reduced over time.
> For most software businesses, it is more lucrative to spend resources increasing revenue, but at some point decreasing costs becomes worth it. For non-software businesses, the “some point” is usually right now.
In general this is correct, but there are situations where cost savings aren't worth it. We see this play out with the idea of Linux vs Windows quite often, the reduction in cost switching to Linux is over shadowed by other issues such as training etc. Switching accounting systems, service providers etc might just not be worth the cost reduction.
If you imagine the ongoing revenue to be worth 10x today, that 10% commission is just 1%.
I think it is very admirable for a company to pay profit sharing, and at the very least pay bonuses for good work. But that is because I am an employee :)
I just don't think profit sharing is realistic in the majority of situations for many reasons, and people over value their own worth. There's like a bias, if I generate multiple of millions for a company, then I must be highly skilled. That may be the case but sometimes it is the business itself which provides the environmental factors for that to be possible.
I disagree. Savings is a competitive advantage usually dropping your costs, time to market, and increasing profits, or efficiency, even if you don't reflect that on the books. Managers could ask employees to do more things as opposed to reducing the labor costs (layoffs), e.g.
Also since it's software, those savings typically compound. E.g: so I save tedium in accounting for $1M in the first year. It's so successful that you expand my efforts to other parts of your company. The next year you still have $1M + whatever I have added. Or $2M+ over the course of 2 years.
If you decide to go with a external package and pay a recurring licensing cost -- which is pretty common in the software industry, then you'd be paying maybe 10% of whatever you save per year. One software package we were looking at was $6M/annum. That's roughly 30 engineers being paid $200k for a year to come up with an alternative. We're using 5 engineers to do the same thing for less.
While it's hard to gauge true costs, paying my team $1M to save you $6M in recurring costs seems like a bargain, and something that's hard to argue against. In fact $2M might not be a bad number either depending upon how management sees it.
Ok fair enough, now lets say I am an Accountant and I work out that I can increase profits even further by hiring 5 people offshore for 30K a year. I am paying now $150K to save $6m. You cannot deny me the accountant, the same opportunity to earn from cost reductions if you profit from it, that would not be in the theme of rewarding people for giving an advantage to a company.
If you look at both situation, mine is more efficient based on cost.
But most all you're playing an unfair advantage. You say the following: (* caveat lets say fair market value is 100k per developer)
> That's roughly 30 engineers being paid $200k
What happens if there are only 5 developers working for that company too, and working on the same profit-reward model as you are working on, they are getting paid 400K a year each because they are making the company $4m. So what's their true value, if they are being paid 400K and they can be replaced by your team for 200K it seems that they are being over paid 200K. Your way of justifying your 2x pay is that you decreased cost, their justification of being paid 4x is that they increased profits, but you're doing the same job, aren't they worth more than you are.
I the accountant see a business opportunity, and start a company the same as the 3rd party software company. I know that developers like you work on a profit-reward model of 20%. So your job did get outsource, but you were getting paid 200K to save the company a part of the 6m before that. I reduce the cost of the software by 50% to 3m, I offer you and your team 100K base salary and 20% of profits (2.5m for ease, 3m - 5x developers @ 100k), so would you take the job for 150k, a 25% reduction in pay for doing the same job based on the same model?
Here's the final point, how much do you pay a cleaner, they are a cost they don't produce profit.
Sure and then you'd find yourself without a job, thinking an accountant can understand what a software engineer does.
> Here's the final point, how much do you pay a cleaner, they are a cost they don't produce profit.
If they're cleaning up people's shit in the restrooms? Above market rate to make sure they're happy.
That is circular reasoning. The reason developers are paid a lot is because employers have bid up the compensation of developers.
But yes, I can see what you are saying that employers drive the demand which puts the value on developers. Kind of like my wife and multiple other people in the world putting a price on a LV handbag, without the demand the LV is probably not worth more than a few hundred dollars.
It's one thing to observe that people may rationalize the decisions that benefit themselves personally. Sure, it would be unexpected for the CEO to decide "We don't pay our employees enough", but you'd like to have a veneer of justification for the cut. You can imagine their subconscious pushing them towards the conclusion that they're incentivized to reach. It's another to hear them literally say the quiet part out loud.
https://www.seattletimes.com/sports/mariners/new-president-o...
Likewise I've met plenty of engineers that are not profitably replaceable.
Almost every SWE is replaceable, but many it makes no sense to replace and that usually correlates with their tenure working on a particular system.
I myself have several years of knowledge I've accumulated working in a specific problem space at the company. It would take a new hire minimum 2-3 years if not more to accumulate the specialized knowledge I have. So if I were to leave tomorrow over pay, they would have to hire a replacement at the market rate (salary and a 4 year equity grant). That replacement would be far less productive than me for minimum 2 years, so they pay out 4 years of equity now to see equal productivity 2 years from now and if they continue the same pay strategy, that new hire will leave after 4 years of equity has vested. They basically get 2 years of productivity 2 years from now for the price of 4 years of equity today. It's just stupid to play chicken with salary when there are considerable opportunities costs for doing so and you're essentially paying double for half.
It's not just me either. I see it with folks across the board at the company. The only ones I consider relatively fungible are those that team hop every 1 to 1.5 years.
That is now how a market economy works! I mean, you can't usually sell for less than cost or pay more than productivity over the long term, but sometimes you do (loss leaders, R&D investments), and you can definitely do the reverse.
Well, you're right. I'm not in disagreement with the way in which dispassionate markets are understood to behave. I'm in disagreement that such a dispassionate job market is any sort of ideal that ought to be embraced by the average joe -- and that we've largely accepted it as if it were (or at least as if it were "good enough").
Let's say I go to a potluck and bring store-bought cookies as my contribution. My friends say "come on, wallacoloo, we all worked our butts off preparing good food for you: we deserve better from you." I reply, "well then, find a new friend who's willing to make better food for you and show them to me. Once you show me that such a man exists, I'll contribute to you as much as he would."
It's an absurd scenario. It's insulting. That's not any type of relationship we should aim for. But suddenly, once you introduce enough indirection (money, specialization, larger-sized groups), I'm supposed to think that making every such interaction into an adversarial one is somehow proper.
Your employer-employee relationship is commercial, so it's reasonable of the CEO to think of your salary as market-driven, just as it is reasonable of you to leave when the market rate rises above what you're paid. It's business, you shouldn't take it personally.
OTOH, the potluck is among friends. You're expected to have your friends' best interests in mind and to enjoy being around them, so it's not surprising that they'd be offended if they spent hours cooking and you just ran to the store and bought a cheap salad or some cookies.
I don't want that distinction. I am a person. Why should I want to pretend otherwise?
What you're saying is similar to the "work/life balance" trope. My work is a part of my life, just as are friends, food, physical health, and the environment around me. I don't want to drive these things apart. I love it when the food part of my life overlaps with the friends part (social eating). I love it when the environmental part overlaps with the personal health part (outdoor exercise). Yet people speak of work as if it uniquely ought to be an exception. As if work is a thing you do only in order to allow you to do other things. HN is home to enough enthusiasts and tinkerers and people who actually enjoy creating things. Why drive this wedge between my desire to create and my personhood?
And leaders know it. That's why the cultivate the potluck mindset when they want to work you to the bone. Everything demands 110% all the time when it's for the sake of your buddies. Of course you'll work Saturday, Sunday, after dinner until midnight. What, are your TV shows more important than your fellows' needs for your labor? You wouldn't want to let your friends down.
A little indirection, a little surplus, a little breathing room, is sometimes what makes life worth living. And if I'm feeling more or less ambitious, I can pick a different point on the effort:reward curve. I value that optionality. I don't want to be socially pressured into making the same contribution as everyone else all the time, and I definitely don't want to be pressured into working at my own redline all the time. Sometimes you just microwave some Ramen.
He screamed at a homeless child who lost his parents at war
O'rly? Uber did it all over the world. AirBnB did it for a long time. Back in time, Microsoft did it by letting people copy its software and go unpunished.
That's one of the reasons companies seek investment: to undermine competition by dumping prices and getting market share.
"We also do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for £4.95. People say, "How can you sell this for such a low price?", I say, "because it's total crap."
Basically destroyed the company.