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Comment by roncesvalles | Hacker News Reader

>Org pays market rate and has good benefits.

This is so important. One of the things that kills company culture before the company even takes off is getting a sense from the founders that they're just trying to fool desperate/clueless people into working for them for less than what they're worth.

The startups that actually succeed have the philosophy "find the best people and pay them a lot". All the successful unicorns and decacorns over the last 15 years have a reputation of paying people well. There is literally not one startup I can think of that succeeded but has a reputation of underpaying.

And if you're unable to pay employees well then you're simply not well-capitalized enough and should drop the project.

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By definition, paying employees well means paying them above-market, not market rate. If you pay people market-rate, nobody writes home about the compensation. Market-rate is also not "underpaying" i.e. below-market.

Paying above-market rates is walking a tightrope. On the one hand, experienced employees who are well-versed in your systems and your organization are indeed worth more than market-rate (i.e. someone new), and compensating them as such will retain them. On the other hand, it also retains poor performers, who you want to steer to finding roles elsewhere. Being ruthless about firing fast is one option, but it's a deal with the devil - it erodes psychological safety among people who stay unless the firing is unanimously desired and there is a consensus among everyone who remains that it was necessary. So if you handle the firing wrong, you affect performance and social cohesion everywhere. If you pay market-rate, it's easier to just make someone miserable until they self-select out and find work elsewhere.

Unfortunately (or fortunately?), all successful startups pay above-market because equity compensation in the right company can be a life-changing amount of money. So most successful startups seem to successfully walk that tightrope.

I define market rate to be the best rate that somebody will pay for your talent (minus Faustian outliers).

"Above-market rate" is an oxymoron. If someone is offering to pay you above the prevailing best rate then obviously you're going to sell to that buyer and it becomes the new market rate.

> On the other hand, it also retains poor performers, who you want to steer to finding roles elsewhere

If paying people less encourages poor performers to find roles elsewhere, it encourages your high performers to do this even more probably...

It really depends on the organization, its mission, the employee pool, and the local cost of living.

Most software engineers are relatively well-paid compared to the wider labor market, even the engineers who are "underpaid". Kahneman's research showed that once you have enough money to pay your bills, making more than that has rapidly diminishing returns for your happiness. It's much more important to fit in - like your boss, like your coworkers, like your work, be recognized, have good work-life balance. None of that really requires above-market compensation.

When a firm pays below-market rates, it's a sign of one of two things: either they're abusing people who can't find work elsewhere, or people are happy to stay in spite of it. The latter are often really good places to work.

HN loves to complain about how money ruined the software industry. Let the people who will chase a raise from $180k to $210k go elsewhere. Let the people who want their moonshot at life-changing wealth go talk to a VC. There are other opportunities for people who realize that money isn't everything in life.

I don't think we actually disagree here. I agree broadly with everything you said. My point was mainly I don't see a reason to support that assumption that if pay pushes out low performers, I don't see a reason why it wouldn't equally push out high performers? This goes on the assumption that lower performers optimise more for pay than higher performers?

Low pay pushes people to leave, regardless of performance. The argument I'm making is that, in such an environment, you retain high performers through non-economic incentives (sense of belonging, appreciation, etc.) and push low performers out by not providing those. Why would anyone ever stay in an environment that also underpaid you and where you also weren't appreciated and gave you subtle hints to leave? Under-paying actually makes it easier to push out the people you don't want. Under-paying does indeed risk pushing out high-performers; my argument is that this is risk and not a guaranteed destiny, and that high-performers may be incentivized to stay by other means.

Even startups that beat the incredibly long odds to become successful mostly aren’t successful enough to make up for a long stretch of not earning BigCo RSUs.

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