> My job is to fill the headcount that I've got, so as long as it fits within budget, whatever.
Exactly, but the budget isn't infinite.
Assuming equal talent, I'd much rather hire 5 people at market rate rather than 4 people at 25% over market rate. The net cost is roughly the same, but we can get much more accomplished with 1 more person on the team. Even better, on-call demands are spread out over more people and vacations are easier to schedule.
In my experience, compensation requests are only loosely coupled to a person's abilities. Usually, the person's prior salary history is the driving factor, even when they don't reveal it (I don't ask). If you have a large enough candidate pool, it can often make sense to let the most aggressive negotiators go to the FAANG companies rather than jumping through hoops to overpay them relative to the rest of the team. The most aggressive salary seekers usually end up leaving for FAANG anyway, because they want the resume prestige as leverage in future salary negotiations.
Finally, handing out above market salaries isn’t without consequence for managers. When C-level execs look at compensation across the company and see a handful of managers with significantly higher compensation, they’re going to have higher expectations for that team. If a manager is constantly paying above-market rates but producing average or below average work, it’s going to draw attention. If I’m going out on a limb to give people above market compensation, the expectations are that much higher. I’m also going to be that much quicker to let highly compensated people go if they can’t live up to their compensation requests.
I'd much rather hire 4 above average people than 5 average people.
Having more people adds its own cost and there is a Pareto law in people's contributions.
Edit: Basically, IMHO, in terms of assembling the best team to deliver the best results it's better to keep things as small as possible. But in terms of internal company politics it's better to grow the team as much as possible.
I'm very skeptical you can tell from an interview who's good. As we build out our salary comparison startup, peerwyse.com, I intend to openly offer properly shit salaries but great "everything else": some level of budgetary autonomy, a family first mentality, option to work three or four days a week for (50% or 75% of pay) and 25% of accumulated total comp on the day you leave us (whether by redundancy, better job or start up). I think this will attract the people I want and reduce the toxic culture of key man dependency which cripples long term growth.
> As we build out our salary comparison startup, peerwyse.com, I intend to openly offer properly shit salaries but great "everything else"
You don't see any irony in offering "shit salaries" trying to build a salary comparison startup? What do you intend to do if and when candidates use your very popular competitor levels.fyi (which, just so you know, they already do)?
I understand why that is your goal. What I don't understand is how you can credibly claim you offer something more valuable.
To actively hire at less than market range is to tacitly admit (whether intentionally or not) that you neither can afford nor adequately deploy the difference you're paying for. If that is the case, what kind of a message do you think that sends me about your serviceable obtainable market and your margins, your data quality, your growth, and how well you'll achieve competitive differentiation against your incumbents?
Don't take this the wrong way, but it almost appears as if you have resigned towards not being #1 in the space.
This is a great point. (Un)fortunately we have not had to but this into practice yet so when we do perhaps I will monumentally fail.
Based on my limited (10 years) experience I'm pretty convinced that there is little to no correlation between competence, confidence and compensation.
There are many people for whom work is not the most important thing in their lives. My expectation is that actively selecting for work not being the most important thing in someones life is an arbitrage that is under utilised and will create a much more sustainable company in the medium to long term.
> My expectation is that actively selecting for work not being the most important thing in someones life is an arbitrage that is under utilised and will create a much more sustainable company in the medium to long term.
Well, let's make sure to be specific about what we mean by those "for whom work is not the most important things in their lives." There are those for whom that's the case now, but who put in the work previously to attain the level of competence they need to do the job well. Then there are those who never reached competence because they never put in the work to attain it.
My guess is that you'll have difficulty attracting and retaining the former over the latter. Perhaps one assumption that's helpful to voice (and feel free to disagree with me here) is that most of folks in the former camp are going to have multiple offers and even a high FAANG/startup salary already -- that's because plenty of companies are fine screening for folks who want that and find sustainable work hours (== "work not being the most important thing in their lives") a key part of reducing burnout and the attendant organizational replacement costs. They just want the competence part.
And so that will leave the latter category. What I can say having interviewed hundreds of candidates (many as a hiring manager) at growth stage firms is -- it's hard to even recruit what you're willing to pay for, let alone getting more than what you pay for. Buying a lemon is expensive; you still pay the recruiting costs (either time or money) and you pay the opportunity costs to try and make a not so great candidate do good work. It's like trying to squeeze blood from a stone. It's a real seller's market for talent right now. I heartily encourage you to try and prove me wrong, and if you do, more power to you. But if you run into issues, perhaps consider a couple of the things I've pointed out.
There's no harm in trying to buy a lunch for less than the lowest median price, or for free. But you shouldn't be surprised if it's not possible. At a certain point, you'll probably get hungry enough that you'll realize that such a desire is penny-wise, pound foolish. The reality is that you need to pay market price for your lunch in order to eat.
Money is at the top for many people, though I would claim on a household level.
In my case my income really isn't the primary determinant of my household income. As the secondary earner being able to support the primary earner fully is of much more value to my longterm household income than fighting tooth and nail for an extra $20k p.a.
Since many competent people couple up into two earner households actively targeting the secondary earners by offering the things that are more valuable to them than money feels like a "society-hack" that should be achievable.
Perhaps, but if my current employer would let me take a 25% pay cut to drop down to four-days a week I would bite their hand off. Differential preferences are, ultimately, what create a market.
There is, however, clearly something broken in the labour market though. The progressive income tax system in the UK means that someone working a five day week for ~$160k p.a. would only see a 12.5% reduction in net income if they could drop down to four-days per week.
> I'd much rather hire 4 above average people than 5 average people.
That's assuming that negotiation skill is closely correlated with the skill you're actually hiring for, rather than being correlated with having read an article like this, or some other somewhat orthogonal knowledge.
The level of salary you pay is correlated to what type of people you attract and what type of people you keep.
If you want better than average people you have to be prepared to offer better that average compensation.
That's what it boils down to. The actual negotiation only moves things at the margin and the initial offer already tells if the company pays well or not. The company's reputation also already told that to candidates.
Of course it's indeed important for the candidate to get the best deal because, as mentioned in another comment, that has a knock-on effect over time.
Absolutely agreed on all counts. To the extent this is a factor of the company's intended salary range rather than just the candidates negotiation skill, I'd agree that paying more for better folks is likely to pay off disproportionately in many cases.
> That's assuming that negotiation skill is closely correlated with the skill you're actually hiring for
People overestimate negotiation as a "skill." It's not. It's leverage, it's BATNA. Negotiation is having more than one offer and using that to explore the difference between the initial offer space and the maximum offer space between firms based on a basket of offers. The skill is in getting an offer from more than one company in the first place.
And I would wager that if you're hiring professionals, having that kind of ownership and thoroughness is often exactly what you want to hire for, even more than the direct experience.
For what it's worth, this is what Amazon's compensation philosophy is with how RSUs are backloaded. It's fine if you can't actually translate the extra talent you get from the more expensive FAANG level engineers into business value as long as you're upfront about it.
But for some tech companies, having 4 engineers at that level is way more useful than 5 engineers 25% less expensive. Your average per IC intellectual horsepower is higher. You often get to solve problems a different way -- to use your example, maybe the on-call burden ends up being lower even being a smaller team because those 4 engineers will find a way to make it so.
Yeah that’s true. So I should clarify that I do care about my department’s budget, but the sum of money we’re talking about here is like $5-10k, or about 2.5-5% of someone’s loaded cost. I’d much rather secure a good candidate than squabble over that. If they’re asking for an extra $50k, then it’s a different scenario.
I hear people justify not negotiating by saying things like “I’m worried what they’ll think of me” or “I don’t want to create trouble”. This is what people think I care about, but don’t.
And as others have said, absolutely this is different for small companies where they’ll feel it more personally.
The issue is that the non-salary costs routinely make up an additional 50-100% of a head count and many of these are fixed. Thus to replace a team of 4 with a team of 5, you might need to negotiate their salary component down 30% not 20%. Thus the manager hiring the team of 4 appears to be paying 42% more.
It's never that simple, really. Is the extra person just "an extra pair of hand" or are they filling a spot that nobody is currently successful at?
I'm in a 4 person team currently, give me an additional project manager and productivity will soar as devs can focus on technical aspects, rather than being inefficient at PMing for a mediocre output (at least that's my expectation, you never know in advance I suppose)
Agreed, if people are in different roles, an extra pair of hands can be fully productive. As soon as the fifth person is eg working on the same codebase of the previous four, there arises necessary overhead and stepping on each others' toes.
The don’t overpay because they are going to a FAANG anyway is a very good point. I am way to old to care about prestige (ie. the 74), but my company of 50 people in GA could never have offered me the $75K difference between what they were paying me pre-Covid pay cut and what BigTech offered me for my current remote role. Why try?
Exactly, but the budget isn't infinite.
Assuming equal talent, I'd much rather hire 5 people at market rate rather than 4 people at 25% over market rate. The net cost is roughly the same, but we can get much more accomplished with 1 more person on the team. Even better, on-call demands are spread out over more people and vacations are easier to schedule.
In my experience, compensation requests are only loosely coupled to a person's abilities. Usually, the person's prior salary history is the driving factor, even when they don't reveal it (I don't ask). If you have a large enough candidate pool, it can often make sense to let the most aggressive negotiators go to the FAANG companies rather than jumping through hoops to overpay them relative to the rest of the team. The most aggressive salary seekers usually end up leaving for FAANG anyway, because they want the resume prestige as leverage in future salary negotiations.
Finally, handing out above market salaries isn’t without consequence for managers. When C-level execs look at compensation across the company and see a handful of managers with significantly higher compensation, they’re going to have higher expectations for that team. If a manager is constantly paying above-market rates but producing average or below average work, it’s going to draw attention. If I’m going out on a limb to give people above market compensation, the expectations are that much higher. I’m also going to be that much quicker to let highly compensated people go if they can’t live up to their compensation requests.