My best friend came up with a system that saves the company he worked for around $100,000 a year. His boss took notice and gave him two free tickets to a movie theater. He quit that afternoon. He told me a sincere thank you would have been ok. He was getting paid to work there already after all. The token bonus was taken as an insult, as if that was the value of his contribution. If you give a bonus make sure it matches the value of the action. If you can't measure the contribution in dollars, find some reward that isn't in dollars.
Been there. A number of years ago, I worked for a largeish company as a contractor, supplementing their full-time staff. We all did the exact same job, doing second/third level helpdesk stuff. Kind of mindless, but it was the best work I could get at the time.
After a massive desktop upgrade project, we had a little "awards ceremony" for all the people involved. The full-time employees got $500 checks. I got two movie tickets, not good for new releases or special engagements. When I think about it, I can still feel the rage.
The money wasn't important, although it would have been nice. What burned me was the message that my contribution would NEVER be valued as equal, no matter what I did. It was an insult, plain and simple. Employers need to remember that their employees, contractors, and interns are human beings, who want to feel like their contribution is properly appreciated. "Properly appreciated" means a lot of different things to different people, but there's some sure-fire ways to screw it up.
I did something similar cost-saving wise at my first job, but the managers didn't have a clue because I had to go around them to get it done in the first place. I did get promoted, mostly because most everyone liked me. Why did they like me? The process improvements I made saved them hours a week.
I say that's insulting for the reason that its value is low. A 2 free tickets or an XBox is a reflection of how bad a manager is, rewarding sincere efforts disproportionately.
The friend wasn't hired to save a business. If an external company was hired to do that, they would have been compensated accordingly.
Why would making him a partner or offering him a 'good' percentage of the generated revenue be out of the question?
There's a classical study from Harvard business review that basically states that incentive and reward schemes don't work. The study found that employees simply focus their effort on the measure of reward instead of trying to do what's best for the company.
If the incentive is measured in turnover sales people will sell at a loss to get their bonus, LOC as an incentive for coders will produce long and crappy code, etc. Whatever the incentive was it turned out that people would game the system and the end result for the company was that compared to a baseline (no compensation besides pay) the results were negative.
A related study (that I can't find the source for right now) found that when asked employees wanted recognition for their work more than anything else. A simple thank you or wow that's awesome works much better than a monetary reward.
So in answer to Joel's question - the fact that he wrote the article and thereby gave lots and lots of public praise is as good a reward as any.
Don't read the article, just read the book. It's called Punished by Rewards, written by Alfie Kohn. Think of it this way: if you're not reading books, you fail. And if you're reading books but not books like this, then you're reading the wrong kinds of books and you also fail.
And while you're at it, also read No Contest and The Schools Our Children Deserve. They are three of the most important non-fiction books written within the last 30 years.
Sorry if that came across as "trollish." It's just that adequate compensation is important, meaningful recognition matters, etc.
Being enthusiastic about your job matters, but the big tech companies that recruit the cream of the crop (Google, Amazon, etc.) pay well above market rates, and don't seem to be suffering a lack of quality.
What's so wrong with simple profit sharing? The only place I've worked at (or even heard of, for that matter) that implemented a form of true profit sharing was Outback Steakhouse. Servers got tips, so are exempt, but hosts, cooks, and bussing staff got cold hard cash on their next work day that came straight from the profits of the entire restaurant from their previous work day. Simple, effective, and gloriously rewarding.
For an IT shop, each worker's salary/wage sets their base pay and is confidential, while a biweekly or monthly "bonus" check could be the profit sharing reward. In that environment, everyone knows when business is going well and everyone knows when it isn't. Profit sharing can (and should) be open for discussion among all employees.
So, take Joel's example: Noah helps make an additional $1 million in a year for Fog Creek. What's that going to translate into for each employee's profit sharing check? I'll assume that Joel's generous, and that the ads are wonderfully profitable, so let's say an additional $400/mo/employee (average) while the ads are active. Holy shit, Noah, thanks! So, Noah get's more. Noah gets recognitions. Noah's coworkers get more. The company makes more. Hell, even Joel gets to make more. It's win/win/win/win.
And don't get me started on company stock. Stock is fine in many cases, but that's not what successful organizations make. They make money! Share it with the employees. They deserve it. 'Cause here's the thing: If your take-home wage isn't tied to your performance or the performance of the company as a whole, what exactly is everyone's motivation? Oh, sure, some people are going to do a great job no matter what, but that's not what really makes a company great, now is it?
If the profit sharing income is significant that may pit ordinary workers against owners who want to expand the business. E.g. if you are on route for $100k profit this year it might be better to invest that profit in the company by hiring another salesperson that sells even more next year. If you own the company you generally decide your own compensation and you might be more interested in working towards selling the company off anyway.
Perhaps if the IT company was one with hourly billing you could have a more law-firm like "partner" system where some senior people have more say and a share of the profits.
The answer is that profit sharing IS awesome, and companies that treat their employees that way see their employees start to act like family members in a way that no performance bonuses ever can.
Where I work, 25% of the profit from each of our product lines goes directly to the team that produced that product, and the whole company has bonuses separately based on whether the company is making money or not (making money-> everyone gets a bonus).
I'm not sure whether this is better than profit being shared across the whole company or not, as it has the positive side that people want to work on projects that they personally feel will succeed, yet the negative side that people stuck working on maintaining legacy products or projects they don't believe as much in end up demotivated.
I would love to hear a reply to this. One of the most successful businesses in my neighborhood is a cooperatively owned bagel shop. They've got a bunch of locations now, and they always hustle to make your bagel.
I'm not very familiar with the business model though, especially with regards to businesses that don't sell bagels but make software, or sell services.
It's not really a new business model or anything, but the simple idea (which some companies successfully implement) that some portion, say 30%, of the organization's net profit of each pay period is divided up by the number of workers (non-management, non-executive employees) and dispersed to those workers at the next pay period.
Bonuses, retirement plans, health benefits, and all other incentives are still set at management's discretion, but are funded with the other 70% of the profit. It's really that simple.
Realize too, that simple profit sharing coexists with the normal grading of wages based on whatever position/seniority algorithm the organization uses. So you're guaranteed, as a developer or designer or whatever, to make your normal wage and be considered for increases. But every pay period would have that profit sharing bonus that shows you how the business is doing and exactly how much your organization values your contribution.
Stock-based incentives are supposed to fulfill this role, but they're often given out after some major event and then only to the most visible members of the contribution. Arbitrarily, in other words. Holiday bonuses are nice, too, but they are supposed to be confidential in most organizations (creating uncomfortable speculation and comparisons) and can lead to unmet expectations.
I think there are a couple of relevant points that were not mentioned in the article:
1) The only reason those ads could sell is because of the brand that Fog Creek had already created. That brand requires an entire company to maintain.
2) The job board produced 1 million in revenue for Fog Creek. Since Fog Creek had existing revenues, a better way to quantify that is to say that revenue increased by X percent. So rather than say that an employee brought in an extra million, it's more accurate to say that he/she made an X percent increase in revenue.
With this logic, Here's a compensation idea - give the employee the same percentage increase that the incremental revenue represents. If you increase company revenue by 10%, you get a 10% raise.
If you increase company revenue by 10%, you get a 10% raise. </quote>
You've missed the point.
There are direct and indirect contributions to revenue. Only because his contribution was direct it doesn't mean one should reward him more than another programmer that made not so easy to spot contribution.
If one can't measure indirect contributions in dollars then one should not reward direct contributions in dollars too.
Additionally see intrinsic vs. external motivation in the article.
You make a good point. Everyone contributes to the bottom line. However, in this case we are dealing someone who goes above and beyond their role to create value for the company. The intern wasn't brought on to create a new business model, but he did it anyways. There would have been no penalty had he never even mentioned the idea. That's why it deserves special compensation. Both to reward the person, and to ensure that other employees will speak up when even when they have no obligation to do so.
It still doesn't mean he deserves compensation.
He was not extrinsicly motivated at all, so he although he would probably like the money it's not what he "deserves".
I'd say he deserves recognition for his contribution, and that was throwing in the idea of ads. It's not a new idea, he just brought it convincingly with the knowledge that ads at 37signals cost $250.
Well, he got plenty of recognition now.
The one concept I had while reading this was to give a bonus to everyone in the company. This would reward Noah, and avoid the morale-destroying hazard of elevating one person's contributions. If the team has "jelled" properly, benefiting your teammates should mean almost as much to you as benefiting yourself, and the example set would potentially lead others to be more forthcoming with their ideas.
The company I work for does this sort of practice as well, but in a less direct manner. When the company does really well, eg, a great sales year of new products, all employees receive generous contributions to their 401k based on relative salaries. Probably the best reward I can think of, because it benefits your future; a generous contribution now, especially for the younger employees, can turn into a huge contribution by the time of retirement.
That's an excellent idea - benefiting others may have made him feel better than some trivial reward for himself, and would have been something more lasting than any material object the company could have given him.
You caught OpenMIKE red-handed. Quick, let's all downmod him to -31337!
Edit: in case it wasn't clear, the purpose of this comment was to block the impending group-downmod of OpenMIKE. He was already at -1 when I posted this. That already happened once today to a brand-new member of HN (rambo), so I'm rather passionate about preventing that kind of behavior.
Let's downmod you instead, for trying to be a wannabe mod. An incorrect comment should be at -1. If it gets lower than that, well that's a shame, but from what I've seen it's more common for it to stay at -1.
Or you could just re-read the comment immediately after his, and realize that OpenMIKE added to the discussion and contributed to the community, bettering it.
There's something I find morally and intellectually dishonest about this article. Although Joel ultimately decided Noah deserved a bonus in this case, he never outright rejects the argument that bonuses aren't deserved for such cases in general. Rather, he argues that a software company is an idea factory, therefore he was already paying Noah for his ideas.
That is patently absurd. He was most definitely NOT paying Noah to come up with ideas for new business opportunities. To the extent he was paying Noah for his ideas, it was with regard to their existing products and the work he was assigned to. Noah went above and beyond his duties, and fairly compensating him for that is not the act of benevolence that Joel makes it sound like.
There's also some shocking cognitive dissonance on display here. On one hand, Joel repeatedly refers to Noah's contribution as a million-dollar business. On the other, he wonders what an appropriate bonus would be and even contemplates giving Noah a video game console worth a few hundred dollars.
The elephant in the room is that Noah deserved a fair portion of the new-found profit. Now, this compensation may well be unsavory for any number of reasons, not the least of which are Joel's business concerns. But shouldn't that argument be made, rather than pretending that an idea literally worth a million dollars is hard to quantify?
One point you (and a lot of people) are missing: Joel was the one who took the business risk of posting those ads. It may seem risk free in retrospect, but they didn't know that in advance. It could have pissed off all his software customers, cheapened and diminished his brand. It could have had technical problems and become a nightmare with people wrongly charged or spammed. Just about anything could have happened. Noah took no risk, he just suggested an idea. Joel paid him to implement the idea, he didn't go "above and beyond" in that sense.
So in all this righteous speak of what is a "fair" reward for Noah, keep in mind that his contribution, vital though it was, is dwarfed by that which Joel had to make to enable it to be realized.
Noah did a great job here, but I think Joel may be overstating the magnitude of his contribution.
I could start a blog and add a job postings section. No problem. But I would not be able to fill it with postings at $350 a pop. Is this because I don't have Noah's ideas and programming skills, or is it because I don't have a blog that reaches thousands and thousands of talented developers?
If I'm understanding the article, the point is that Noah said, essentially, "here's one way you can convert all those eyeballs into cash", and then actually went and did it. That's pretty significant.
I agree. Monetizing something that is already there can be extremely insightful. And writing any good production oriented code takes talent.
So this really comes down to how remarkable an insight you feel the "one way to convert eyeballs into cash" truly is. It sounds like Noah noticed that 37Signals was leveraging its popularity with developers to run a profitable job site, realized that JOS could do the same, and convinced the boss to do it.
So yes, it is significant. It's really a matter of how significant it is... sounds like I'm saying it's significant, and you're saying it's very, very significant.
Reminds me of a time where Ebert thought a movie was the best of the year, and Siskel just thought it was a damn good movie. Those arguments are kind of strange, because there's very little to really disagree about. You have one person saying "how could you not see how awesome this is", and the other saying "well yeah, it's definitely really good."
Bonuses/rewards are so hard to do "fairly" it seems like someone will always feel shafted (deserved or not).
One place I worked at handed out bonuses on a curve. Come bonus time the curve was thrown off because every manager was "grading" at the same time, and the bonuses that people were expecting (and could watch on the intranet) changed rapidly, usually for the worse. There was a pretty huge uproar over the process, but the system is still in place today. It was so messed up that people were complaining about getting free money.
In the past Joel had mentioned a profit sharing scheme for every employee, which seems like a good idea, but still has downsides for the big-idea guys, like Noah in the article.
Has anyone worked for a company that had a really good bonus plan?
While this article and discussion is about bonuses, it should really be about what produced the value of the job board. It wasn't the software he built, it was Joel's large following and years of brand building. The idea to capitalize on it was good, but not all that valuable on its own.
Yeah. Considering it's mostly Joel's writing that has pulled people towards the forums (and thus the job board), one could make an argument that the $1 million should mostly be Joel's anyway.
Interesting backstory: Back in 2002/03 myself and a couple of other regular visitors to JoS forums used to post jobs due to the fact that there were many interesting people that we would have liked to work with.
Joel sent out an email mentioning that posting jobs reduces the signal-to-noise on the forums -- he was right.
So, Simon Lucy (http://www.linkedin.com/in/simonlucy), another regular visitor to JoS sets up ijustheard.com for the forum visitors to post jobs. Here's the archive.org page for it (http://web.archive.org/web/20030219230747/http://www.ijusthe...); I think Simon shut it down in 2005 since it never did end up getting any traction, and interestingly Fog Creek makes a million $ out of it -- good for FC!
The one thing not mentioned is that the million dollars didn't come just from the product. It came from the brand recognition Fog Creek has and the fact that it had the community. What were the things that attracted the community and enticed people to post the ads in the first place? That had the most value.
I had a job with a small start-up. They advertised "performance based bonuses" when I was hired, so I figured I would make up for a not-so-hot salary with the bonus. We had a good first year. The owner even sent out an email thanking the four non-founders for our effort, and stating how many million dollars they made.
A few weeks went by after the email (Christmas was fast approaching), and I still hadn't received a performance review. Two days before Christmas, the owner walks into my office and mumbles something about a little extra in the check. Well, I got $400. I considered it a slap in the face, and found a new job.
A couple months later, right before I quit, the gave me a review, and a 4% raise, but it was too late.
Read Robert D. Austin's book Measuring and Managing Performance in Organizations (http://www.dorsethouse.com/books/mmpo.html) for an absolutely devastating analysis of this problem.
I've asked this question months ago, but I never received a satisfactory answer:
What is the value of stock in a private company? Do you receive dividends on the stock? You can't sell the stock to other people? The only time it's of value is in a liquidity event. Suppose Fog Creek's not planning one in the future, what does this stock do?
Stock is obviously part-ownership of a company. When a company makes a profit, it has basically two options - 1) re-invest some or all of the profit back into the company, or 2) divvy it up amongst the owners (ie. stockholders), which is more or less a dividend.
My old man runs a small business with about five stockholders. It's a mature business and he has no real plans for expanding, so every year he divides the company profits up between the shareholders.
You could sell your stocks to other people, but this would depend on the rules governing the buying / selling of shares as set out by the company when you acquired the stocks. Often this is just by agreement because there isn't a very liquid market for shares in private companies (for obvious reasons like lack of transparency and difficulties in valuation).
If I were to buy shares in a company, my valuation would depend on the company's earnings and the opportunity cost of putting my money in a "risk-free" investment (like treasury bonds)... which would dictate the base price-earnings ratio for which I would be indifferent to investing in the company or bonds. Of course, the company's potential for growth would affect the valuation (ie. higher P/E for growing companies).
It has the same value as anything else: Whatever you can get someone to pay you for it.
I just sold a chunk of (common) stock in a privately held (VC-backed) firm. I found a buyer, made sure I followed all of the rules of the employee stock agreement, and made a sale.
It is harder than publicly traded stock, but it still has value.
This is a great article and Joel is a smart guy, but how many times has he written this article? I guess it's new because he put a new anecdote about an actual person, but he's been harping about this for years on his blog. He makes a good point but I wish he'd put new stuff in his Inc column.
I'm not sure if it really was an "idea" in true sense of the word. Real contribution of Noah was to make Joel aware of his inability to spot a small but profitable segment (no disrespect intended). If you happen to be a part of company that's on the verge of becoming a "real" company then you're bound to spot such segments ignored by high-ups given you're aware of industry trends and keeping your ear, eyes and brain open. I guess people at FogCreek must have applauded Joel for his contribution in that he listened (thought, reflected and then executed) to what an intern had to say in the first place.
I feel like I'm in a slightly similar situation at the moment.
I very recently told the founders of the startup I work at about a business idea I had that relies on our core technology. Our company really needs a new market, and this one looks like it could be huge. After explaining more of the details to them, they got very excited. We are currently investigating the feasibility of using our product for this application, etc., but if it works, it might "save the company".
Assuming it works out business and tech-wise, I have no idea how this might affect me (besides still having a job to go to).
Would they have eventually thought of this anyway? Then the extra value is that he thought of it sooner. Also - he could have tried to negotiate, maybe go through a third party (I talked to a guy at company X who has says he has a great idea for our site) to get compensated. If you give up your idea without any agreement, you are losing any leverage you might have.
To reward or not to reward is a tough dilemma. That's why I would just give him a certificate "A donation has been made in your name to the Human Fund". This way, there is no jealousy from the coworkers. One's contributions are appreciated (or seem to be), and you save your money for things that matter.
Why not ask 'em? Say something along the lines of "You're really helping the company with your work. We really like it. Is there anything we can do for you?"
I doubt it was the money that really mattered in that decision. Fog Creek sounds like a great place to work but there are jobs at Google that involve working on some very interesting stuff.
the reward given for such a contribution is proportional to the decision-maker's desire that such contributions will be made in the future. in 2009, we are all motivated primarily by money.
I have a similar story. I was hired as an intern at a company that did marketing research (among other things) and, using genetic algorithms on a complex survey-design problem, managed to slash field costs by about $250k per month.
I had a middle manager who resented that I was getting time to work on the cool projects in a language he didn't understand (Java; I wasn't a real programmer yet). So he yanked me out of R&D and put me closer to the day-to-day grunt work.
Three months later I was looking for jobs elsewhere, and a month after that I was fired for interviewing. I got two weeks' severance... and they're still making $250k+ from my work.
guy gets stock options, but only if he agrees to work there full-time?!?
does anyone else see the ridiculousness in joel's proposal? no wonder the dude walked - that is a horrible deal. anyone in that position could now assume that any future huge contributions to the company would be rewarded in an equally miserly way. joel should have given him the shares outright - otherwise they're not a reward.
and joel should be freakin embarrassed to even be telling this story - what a crook.
That actually sounds like a really fair deal. Part of the reward is the knowledge that Fog Creek really wants him to stay.
Every performance-based reward I've gotten from Yahoo has been in the form of a retention bonus. "You did really great on that project. Here's a pile of stocks/cash that you'll get in 12/18/24 months if you're still around."
A retention bonus provides a fair monetary award, while at the same time building the intrinsic motivation that comes from knowing your employer likes what you're doing. Rather than eroding the intrinsic motivation, a delayed extrinsic motivator can actually increase it.
Yahoo got too dependent on their "super-secret" retention bonuses. The first couple times they did it, it made you feel special. But, eventually it became clear that it was just a way to avoid giving raises and promotions. Maybe you haven't hit that point, but trust me, lots of us got demotivated by it.
You're claiming that "secret" retention bonuses are a way to avoid "giving" promotions and raises? Wow, there's a lot wrong with both parts of that statement.
Almost every company encourages their employees to never disclose their pay to their coworkers. It promotes an information imbalance where the employer wins. Unless you sign something saying that you won't disclose it (which would probably be contestable anyhow), or you're sharing it with someone who doesn't want to know (which would just be rude and potentially disruptive), they can't fire you for telling people what you make.
Don't do it, plain and simple. If you didn't agree to keep it a secret, then it's not a secret. With all of my raises and bonuses-that-not-everyone-gets, I was discrete, just as my bosses asked of me. I only share my compensation information with anyone and everyone who wants to know. It's time we changed this stupid "secret salary" custom.
Also, promotions and raises aren't given, they're taken. You're a grownup, why should your employer care more about your career than you do? Want a promotion? Take more responsibility. Be more essential. Be a leader. Want a raise? Get a better offer, and ask your employer to match it. Write essays, share code, increase your skillset, help your juniors, always be finding ways to make the product better, ways to make the team's processes more efficient.
If you just want to do your job and stay warm, that's fine, but don't expect to get special treatment. A yearly 2-7% cost-of-living pay increase is probably about right.
It sounds harsh, I know, and I'm sure this might not have been your angle at all. I just get annoyed hearing about employees who dutifully do no more than they're told, and wait and hope for review time as if it's christmas, and then get upset when they're treated like cogs in a machine, when they've been acting exactly like cogs in a machine.
To be clear, in California at least, you can be fired or quit for any or no reason whatsoever. So, yes, to correct what I said, an employer could fire you for sharing your salary, or for the car you drive, or for the color of your hair, or just because they don't like you for no specific reason. (But not for your gender, race, disabilities, or religion. Doesn't that seem odd?)
However, very few employers will fire you for this. And, if they're that serious about keeping their employees in a disadvantageous position, maybe you ought to find a more respectful employer.
