Bust Your Butt for a 4% Raise or Coast for 3%?

Not my experience. But I've primarily worked in places where programming talent was front & center, valued, and the cost of replacing a good developer was high.

If you get a 3% raise at a big software company, that's usually a sign you're not doing very well and might want to think about leaving. A healthy raise should be in the 6-12% category. Your top co-workers are getting raises like that. Compounded yearly, it adds up.

Not to mention the component of negotation that comes into play. You'll have similar employees making $60k next to ones making $90 or $120. Not necessarily all skill driven.

Worry about saving a little out of each paycheck and getting good returns in the stock market? You're better off doing well at work and getting a healthier raise.

Pick a good place to work. If you care enough about your career to spend time on ycombinator, but you're working in the back office of a healthcare company, you should seriously think about upleveling your employer. Remember, you can always fire your boss. Find a place to work where the software talent is the main thing. Not back office support. Not consulting. A place where software drives the business from the revenue side, rather than being a cost center.

I don't think that most managers are money-stupid at all. I think they rightly recognize in most cases that mediocre is far cheaper than great, and the difference might be worth the savings. If you're a manager of an internal IT department, it doesn't benefit you that much to have a kick-ass coder on your team, not nearly as much as it benefits you in your review to have saved that much money in salaries. jsrfded has the right idea, the only place to find proportionate compensation is in a business where the software is the product.

Many companies are penny wise and dollar stupid.

There's a reason companies can do this: most people don't bother keeping up on what they're worth in the open market. Inertia's a bitch. Especially after a few years working.

Another way to say that: people's worths tend towards what they get paid. Especially if that's all they get out of work.

very good post. I see this happening all the time, and it happened to me with my last company.