

The Engineering Talent Bubble - jtb99
http://blog.jayteebee.org/2010/11/im-calling-it-now-engineering-talent.html

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paulbaumgart
I don't think it's a bubble.

A lot of people talk about top engineers being 10x (or even 100x) as
productive as mediocre engineers. Assuming that's true (and I suspect it is,
but admittedly I don't have any evidence to back that up):

Historically, those 10x engineers got paid maybe 2-3x.

Because it's become so much easier to start software companies recently
(thanks in no small part to folks like Y Combinator, but largely due to cheap
servers and FOSS), those 10x engineers can now easily go seek compensation
that's more proportional to the value they actually create.

In turn, large software companies are finding they need to pay more to stay
competitive with the alternative of striking out on your own.

What we're seeing here is pay becoming more proportional to value creation.
Which I think is a very good thing.

As an aside, I think the rise in talent acquisitions is largely a backdoor for
companies to hire top talent without needing to change their deeply entrenched
pay-scales. Apparently Google is starting to figure out that it's more
efficient to just pay people more instead of having them leave for a couple of
years in order to take advantage of this backdoor.

~~~
asmithmd1
Also compare the recent run-up in salaries to a graph of baseball players
salaries over years:

[http://baseballanalysts.com/archives/2010/11/mlb_salaries_ov...](http://baseballanalysts.com/archives/2010/11/mlb_salaries_ov.php)

When you look at the linear graph it looks less like a bubble and more like
settling in at a new level.

~~~
paulbaumgart
Like professional sports, we'll probably see the bottom of the salary range
for software engineering drop significantly, due to increased competition
resulting from globalization and because the higher pay at the top of the
range will make the field more attractive.

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kevinpet
A bubble exists when people buy something based not on their belief in it's
intrinsic underlying value but because people think it will appreciate in
price. I.e. tulips, california real estate.

You can't have a bubble in something you can't resell.

This isn't an argument that salaries are at the correct long term level. I'm
just saying that salaries can't have a bubble that "pops" and collapses like
asset bubbles do.

~~~
jtb99
Hi, I'm the author, and I disagree with you about the definition of a bubble.

A bubble is when you're paying for something based purely on speculation about
the future value of that thing, rather than on a rational analysis of the
expected future return.

I would wager that Google does not have an internal projection of the value of
any engineer showing them to be worth $3.5m over four years; rather, I'd bet
that comp decision was made based on an irrational fear of yet another
defection from Google to Facebook.

~~~
d2viant
$3.5 million is simply too large a number for your theory to be correct. A
number that large to a single employee doesn't come out of thin air, it's
based on something -- whether that be formal analysis or back of the envelope
calculation.

~~~
jtb99
I suspect the calculation was (expected value of FB package) * 1.5

~~~
sudont
It's also possible that it was based on the potential damage done to Google by
Facebook's talent acquisition, or if this isn't a zero-sum game, to prevent
any gains by Facebook.

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YooLi
I don't know if I agree with the authors position based on the examples he
gives. I'm willing to bet the Google engineer who allegedly was offered the
$3.5M in stock to stay was a _very_ key engineer. Google doesn't offer
everyone millions in stock not to quit. And as many of the readers of HN know,
every startup is not being acquired for talent grabs. Just because we hear of
a few (or even what might seem a lot), the percent in comparison to the number
of startups is miniscule. I hear about someone winning the Lotto every week;
that doesn't mean everyone is winning.

~~~
jtb99
Hi, I'm the author, I appreciate your comment. You're demonstrating that you
still have some rational perspective here; my thesis is that many people have
lost that perspective. I am an ex-Googler, and I am seeing more and more
talented engineers leave Google to start a "company" with the express goal of
getting acquired for talent, sometimes even hoping to get acquired back by
Google.

When people see a valuation in the marketplace (eg, a talent acquisition that
makes everyone extremely wealthy) and assume they can achieve the same kind of
returns with minimal effort, that is the hallmark of a bubble. The same thing
happened with day traders and real estate speculation.

~~~
sbov
Googlers and ex-Googlers may be living in a bubble. That doesn't mean that the
wider engineering talent pool is.

From what I could find on the bls.gov site, in 2008 there were about 900,000
jobs in software engineering and 75,000 jobs in computer engineering. From
what I can tell from searching, Google has 20,000 employees, but not all of
them are necessarily engineers.

Even if all google employees were engineers, and they were going out and
trying to create startups in order to be bought, that would be 2.0% of the US-
wide engineer pool.

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cridal
You know Facebook + Google, as big as they are, do not equal United States of
America, which is still bogged down by the biggest recession since the Great
Depression. What bubble are you talking about? These companies sit on small
mountains of cash and can afford bidding wars over top engineering talent,
especially that software is their livelihood. Let me assure you, hiring
managers of 99% of companies in the US don't stand on street corners and bid
up software engineers' salaries. You can sleep in peace...

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klochner
He had me until "This is going to end, and badly."

Bubbles end badly because of leveraged bets on overvalued assets.

Call me insensitive, but this doesn't strike me as so bad:

    
    
       "they will find themselves unemployed and without savings."
    

It's not like you're going to work your _entire career_ at a non-paying
startup. At worst you come out with a unique experience and go find a paying
job.

~~~
wyclif
Yes, like I said, that last paragraph didn't work for me either.

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wyclif
_There are a lot of engineers who are going to make serious life choices based
on current trends, and in a year or two, when this blows up, they will find
themselves unemployed and without savings._

I was with him until the last paragraph. I think a lot of really bright
engineers who accept the premise are banking a large percentage of their
salary, no?

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doyoulikeworms
Computer science enrollment was quite crappy (still is?) after the dot com
bubble burst. I started college in 2005, right when a brand new CS building
was completed... which was pretty underutilized during my time there.
Enrollment in CS at my school had dropped by over 1/3 from its peak, which was
just a few years earlier.

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gte910h
I don't find the positions to be supported by anything.

99.9% of engineers get paid an upper middle class salary, with a few more
getting these 7 figure bumps from acquisitions that aren't really.

I don't think something like 1/10 of 1% of engineers having something happen
to them is something to worry about ending.

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rythie
Would $3.5M have been too much to keep Paul Buchheit at Google? so he could
have created FriendFeed there, so Google could compete with Twitter/Facebook
properly

Or Ev Williams who actually created Twitter?

Or Dennis Crowley who created foursquare?

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jperkins
One point that this analysis is missing is that tech salaries were being
artificially deflated by Google, et al with their agreement to not raid each
other for talent. With those practices now being abandoned, we are going to
see a spike in salaries as they seek equilibrium. Googles 10% pay hike is the
first such example of this.

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woan
I also don't think there is a bubble. The company acquisitions for talent
alone have been reasonable as far as I can tell. In the IT services industry
this is long standing practice for talent acquisition.

There is always a shortage for great engineers and they generally have great
jobs, so acquiring the top tier will always be competitive as in any other
industry. For most companies, the only way to gain access to this tier
continues to be personal networks or if they are in the founding team. For
other organizations, growing this talent from promise is the most pragmatic
approach assuming have some really good talent to mentor them.

The middle and lower tiers are being paid upper middle class wages
commensurate with education, experience, and economic contribution.

Things are more competitive in hot geographies like Silicon Valley and
Seattle, but that is nothing new.

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biggitybones
My thoughts on the potential "bubbles" aside, I find it funny how it's become
a thing to try to call out bubbles that may be occurring, given the recent
monumental financial collapse.

So called bubbles always exist - they're hot sectors - and then there's a self
correction of varying severity.

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dstein
The tech industry has still not entirely recovered from the first DOT-com
bubble burst. Broadcast.com selling for 5.9 Billion in 1999 was a bubble.
Startups gets bought for _millions_ is not a bubble.

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blahblahblah
"Startups, less than two years old, with very little user traction and no
revenue, getting acquired simply for talent, at valuations that give even the
front-line engineers a seven-figure outcome."

Seven-figure salaries for developers? Are you sure you put the decimal point
in the right spot and counted the digits correctly? I find it very difficult
to believe that any developer (not a manager, not a c-suite executive, etc.)
is making in excess of $1,000,000. Name one. Otherwise, I call bullshit.

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russell_h
His argument seems to rely on companies becoming unable to pay going rates.
I'm not saying thats not going to happen, but he seems to be predicting a
software bubble without really defending that prediction.

