People decry the greed of financial sector employees, but one of the best things about moving there from silicon valley was that people had a pretty good idea of their worth as a proportion of the firm's balance sheet.
I really appreciated that compensation expenses on the balance sheet of a typical investment bank are fixed at 37-39% throughout the year, with the delta between salary and allotment being paid out as bonuses. It significantly improved my income.
I would gladly work at a tech company with a similar incentive structure, and I think more engineers should start asking for it. Financiers get paid a lot in the form of bonuses, but the correct answer is not to daisy cut by hollowing out their income. We should be asking why tech employees don't also make the same kind of revenue.
When Google and Apple have profits per employee of over $1M but the average engineer salary is only slightly higher than $100K according to glass door while both these companies are building stockpiles of cash holdings, something is obviously broken.
I suspect part of it is the 'doing it for passion' mantra, but another part of it was Apple HR's now obviously crooked refrain of 'we pay the prevailing market wage'. Just because I'm doing something I'm passionate about doesn't mean I like getting ripped off.
While I don't agree with the wage-fixing thing, I can tell you that the "average engineer salary slightly higher than $100K" at Google is not even close to true. When I worked at Google 7 years ago, in the heart of this controversy (IE when salaries were theoretically depressed), as the lowest level engineer just out of college, my salary after bonus was over $100k. Any current mid-level engineer will probably be making between $200k-$300k in total monetary compensation from salary/bonus/stock. And this isn't counting the tons of other benefits (cadillac health coverage, free food, generous 401k matching, etc).
I'm not trying to be a shill for Google here, but I think it is a little misleading to say Google is hoarding all of this money and making their engineers live on pennies. The engineers are paid well, and while they (and other tech companies) don't have the partner-type structure, there still are competitive forces driving wages up (assuming the companies are generating profits and can afford it). And... if an engineer wants a partner type structure, they can always just quit and found a company where the wealth accumulates for them just as directly as it does in finance.
>I'm not trying to be a shill for Google here, but I think it is a little misleading to say Google is hoarding all of this money and making their engineers live on pennies. The engineers are paid well,
It seems to me you're sneaking in a little argument about what people 'deserve' here, and appealing to a predatory modesty. OH, sure, google is making an insane amount of money, and they're not passing it down to the people doing the work, but do workers NEED that money? Couldn't they, in fact, get by with less than they're paid now?
No, not at all. I quit Google to work at a startup not because I didn't like Google, but because I felt a startup was a way for my compensation to more directly align with the value I could help create. And obviously my belief at that time was my "real value" was far higher than I was being paid at the time.
I really just wanted to dispute the numbers here, because I disagree that big tech companies are somehow more unfair to the employees than finance companies. Assuming there aren't illegal anti-poaching agreements, market forces operate in SV the same way they operate in the finance sector to drive up salaries of talented employees.
And it seems to me that if you want to strike off on your own (which is a risky but good was of generating "true value" for yourself), it is easier to do that in SV with a tech startup than it is in the finance industry.
> Assuming there aren't illegal anti-poaching agreements, market forces operate in SV the same way they operate in the finance sector to drive up salaries of talented employees.
Isn't the entire point of this debacle that there are anti poaching agreements, however?
I would argue that there are yet some cultural impediments to labor market efficiency in SV:
- People don't want to look like, think of themselves as, or hire those that just in it for the money. It would be incredibly crass and uncool to change jobs just for salary, it should only be about caring more about something.
- Time-consuming and unpredictable hiring processes inhibit switching. There is probably a better company for most people somewhere, you know you might switch if you could predict whether you were going to get an offer. But if takes 3 days of vacation time for all-day interviews, and you have absolutely no idea whether you would be accepted or if you will happen to know the CS trivia they'll happen to ask, and you probably won't because of the supposed false negative bias, maybe not.
Finance sector, on the other hand, has to hire super geniuses willing to work 120 hours a week because to do otherwise would be to admit that most of what they do is dumb luck, defeating the whole façade.
> Assuming there aren't illegal anti-poaching agreements, market forces operate in SV the same way they operate in the finance sector to drive up salaries of talented employees.
I was at Google for a time during the tail end of this time period, as well. I cannot claim anecdote to match data, but the pay of people I knew of, as well as my starting pay both there and at Microsoft, do sit in the "slightly higher than 100k" range. (After writing this, I realized I hadn't calculated in stock options well, which probably pushes it up towards 200k, but not so high that the "higher end of 100k" seems unreasonable) Perhaps I'm simply a low-end engineer, and the mean values are in fact higher, but this was my experience.
Having been at Google as well, you can tell me if you shared my experience that seemed the most enlightening about this, that during the various periodic review processes, there seemed no question of "are you adding additional value, should you be compensated as such." This is a discussion that I haven't had at any of the tech jobs I've worked, in that I've honestly never felt my wages were in any meaningful way tied to the value I contributed. (qualifier, I think I've fell on both sides of this line, in that it hurt and helped me, I just find the lack of incentive alignment may be the "way to approach this problem")
It's not just about Google, et al. At this scale, it affects the workers down the chain. Maybe the Google employees were getting $250K instead of $500K, which meant that companies downstream could get away with offering less, because they didn't have to get in a bidding war with those upstream.
Something this big clearly had effects on salaries across the board, at a scale where its difficult to casually judge the exact effects. Would wages everywhere be higher if it wasn't for this? I don't know, but I don't think we can rule out the possibility.
The thing is, it takes some incredible network effects that require a company at scale or an extremely fat market to generate this kind of money per employee, it's not like most smaller companies are holding back.
At that point, the infrastructure of the company is creating a lot of that value - the same engineer at another company would not generate nearly the same amount of revenue.
> When Google and Apple have profits per employee of over $1M but the average engineer salary is only slightly higher than $100K according to glass door while both these companies are building stockpiles of cash holdings, something is obviously broken.
Liar's Poker[0], here we go again. This is the exact sentiment that plagued the finance industry in the 80's and lead to the bonus fiasco that exists today on the Street.
The question is what do we do about and is it the same? (I don't have an answer, just curious)
A couple of interesting notes:
1. In Raghuram Rajan's HAS FINANCIAL DEVELOPMENT MADE THE WORLD RISKIER[1]? he notes:
Therefore, the incentive structure of investment managers today differs from the incentive
structure of bank managers of the past in two important ways. First, the way compensation
relates to returns implies there is typically less downside and more upside from generating
investment returns. Managers therefore have greater incentive to take risk.
2. Daniel Pink talks about the Candle problem[2] and two main points on his thesis:
- As long as a task requires only mechanical skill, bonuses work as they would be expected – the higher the pay, the better the performance.
- Once a task calls for even a rudimentary amount of cognitive skill, a larger reward often leads to poorer performance.
In theory, the engineers have incentive option plans with vesting terms that provide incentives that make them work cooperatively, and make the company more valuable, and less brittle, than an ibank. It is often suggested that ibankers receive their bonuses some years out from the year they earned them, otherwise there is an incentive to load up on future risk.
In practice, it looks like tech companies were able to avoid wage competition through collusion, while keeping their workers hopefully waiting for the option payout.
If collusion like this gets appropriately punished, wages should get bid up, along with option incentives.
An ibanker like compensation might work at a "hits" business like a casual game company, where there is strong reason to believe that whatever confection you are coding on this year isn't going to last beyond the vesting period for your initial option grant. If you overtly reward making hay while the sun shines, there would be less bitterness when it gets cloudy.
Presumably this whole cartel was around trying not to get where investment banking and other areas are. Many of those companies (like Goldman Sachs) were once partnerships, where paying out a lot of income is normal. It may take tech companies a while to get there as there is huge level of founder and VC control in most companies and they want payouts rather than employees getting them.
In investment banking, your bonus is based on the profit generated by (1) the company as a whole, (2) your team, and (3) yourself. In tech companies, all but the first one are usually 0.
Exactly. Bonuses based on profit generated a much easier to calculate when each employee (or groups of employees) have a direct link to the profit generated. In addition, the profit generated in banking comes in clearly delineated lumps, i.e. you work on a deal that has a start and an end with a short timeframe.
If you're a tech person, how do you determine how much of the profit was generated by that one person? Also, how do you pay based on profit generated when the profit is spread out over the life of the product?
so which engineer is going to do all that backend stuff? Database upgrade testing? Or sysadmin related tasks? Stuff that customers don't directly see? Coz that bonus calculation scheme is going to net them nothing.
Yeah it would run profitably for years if you gutted R&D.
How much profit per employee is not the right way to approach compensation. It should and often is based on what it will take to keep an employee happy.
Periodically there are attempts to unionize engineers in Silly Valley. I've never seen one come anywhere close to success. Most of the engineers I've worked with have seen unions as rent-seeking organizations that simply want to line their own pockets.
(There are similar periodic attempts at licensing software engineers at the state level in CA. These generally don't go well either, and appear to be the same kind of rent-seeking behavior as unions, judging from the howling nonsense proposed as core competencies to test against, e.g., lots of EE knowledge, and stuff involving obsolete technology and software development models that don't work).
No offense to you personally, but whenever I see someone proposing a union of any kind, if it doesn't involve real safety issues, I see someone trying to hold down those who can excel and protect themselves from more competent up and coming competition. It's a barrier to entry and control by seniority, period.
I really appreciated that compensation expenses on the balance sheet of a typical investment bank are fixed at 37-39% throughout the year, with the delta between salary and allotment being paid out as bonuses. It significantly improved my income.
I would gladly work at a tech company with a similar incentive structure, and I think more engineers should start asking for it. Financiers get paid a lot in the form of bonuses, but the correct answer is not to daisy cut by hollowing out their income. We should be asking why tech employees don't also make the same kind of revenue.
When Google and Apple have profits per employee of over $1M but the average engineer salary is only slightly higher than $100K according to glass door while both these companies are building stockpiles of cash holdings, something is obviously broken.
I suspect part of it is the 'doing it for passion' mantra, but another part of it was Apple HR's now obviously crooked refrain of 'we pay the prevailing market wage'. Just because I'm doing something I'm passionate about doesn't mean I like getting ripped off.