[WalterBright]

> getting 99% of the profits?

Profits by definition are calculated after labor costs are deducted, so employees get 0% of the profits in salary.

However, take a look at your company's accounts and see how much of the gross revenue is paid out as wages and salary. It'll be a big chunk. There's your share.

[throwawayjava]

Sorry, but I think that this view is both obviously wrong and actively harmful. It's an example of where going with textbook definitions actually obfuscates reality.

Highly compensated managers are taking a share of profit, often quite literally (look at how VP and above positions are compensated). But always indirectly -- you can't tell me a 7-8 figure salary "isn't a share of profit". That's obvious BS. And if my own compensation is a share of profit in the same sense (which, a port of it literally is), then my observation that non-engineers get 99% of that share is still accurate.

Anyways, and much more importantly, this is pretty tangential to my original point. The point is that if I'm an engineer at a large firm, it is NOT my job to do the MBA thing. The entire premise of a firm is that the author of this post is wrong.

[WalterBright]

The money paid to employees is deducted from the profits (or more precisely, profits are what is left after expenses and labor costs are paid).

So your salary is your share of the profits in any pragmatic sense.

This isn't MBA level stuff, any basic accounting course will explain it. In fact, I recommend anyone who cares about this sort of thing to learn basic accounting principles - it is simple, and highly useful knowledge. You'll be able to then read a business's Income Statement and Balance Sheet, and see where the money comes from, where it goes, and where it is allocated.

[throwawayjava]

> So your salary is your share of the profits in any pragmatic sense.

Okay, so I'm getting a tiny fraction compared to everyone else. Again, this is a fairly pedantic tangent and no matter how we define these things, my observation seems to be accurate.

Again, this sub-thread about the definition of profit is both tangential and unrelated to my original point. I think the standard accounting definition is pretty useless and silly in the context of modern large firms, but that seems like a discussion for another day.

> This isn't MBA level stuff

By MBA stuff I don't mean "useless econ 101 terms". What I mean is "aligning engineering talent with value creation", which AFAIK isn't taught is basic accounting courses...?

The author of the post suggested this alignment is an engineer's job. But the whole point of a firm is that the MBAs do that and the engineers focus on building things. That's my point -- that in the context of a large firm, the author is wrong.

Of course, joining a large firm means that your own compensation is disconnected from the value the firm creates. And that can mean less share of compensation, especially when the firm is doing well. But it also means you can make a good living without becoming a Monday morning economist.

I don't really care about defining profit "correctly" according to accounting terminologists because I think a well-meaning reader can completely understand the point that I'm making in my original comment without this aside.

[WalterBright]

> that in the context of a large firm, the author is wrong.

An accountant serves two roles in a company. One is to produce a correct set of books for the investors and the tax man. The other is to determine the value to the business of things the business is spending money on.

I.e. to determine the value produced by the engineers.

They may get it wrong, as at some level it is indeterminate, but the more correct they calculate it, the more efficiently and effectively the business can allocate its resources.

This calculated value determines, for example, what they're willing to offer you in salary. If they overvalue you, you're likely to get laid off, or more likely, no raises. If they undervalue you, they're likely to give you a raise to keep you from leaving.

In my experience, individual engineers tend to have a large disconnect in their opinions on what value they deliver vs reality. If you believe your compensation is way under your opinion of your contribution, it is worth taking a good hard look at it, and deciding if you are better off getting another job.

[WalterBright]

P.S. if it isn't obvious, companies who tend to be way off in determining the value of their engineers tend to go out of business.

[zzzcpan]

> This calculated value determines, for example, what they're willing to offer you in salary.

It doesn't. This is mostly a binary thing of whether the company can afford to pay an employee a bit above his market value or not, if we are talking about engineers of course. Such employee cannot actually get paid proportionally to the value he brings to the company.

[nostrademons]

If they can't afford to pay your market value, you should leave and go work for a company that can. That's how you set your "market value" - go out on the market and see what price you get. If you can't get a higher offer, than your current salary is your market value.

How much value the engineer brings in (to a given employer) is basically the ceiling on bids that employer will make. It's completely economically rational for you to find the employer that values your work the most when you're searching for a job, because they'll be willing to pay the most.

[late2part]

This is all explained here: https://www.amazon.com/Capital-Critique-Political-Economy-Vo...

[throwawayjava]

Really? I think the theories that I'm drawing on here -- about the role of the firm and so on -- are much more neo-classical than Marxist.

Maybe you're confused by the second paragraph of my post. That wasn't intended to be read with any sort of moral indignation or as a suggestion that engineers ought to capture more of that value. Rather, it was a sincere question and the answer was "you've traded your ability to capture that value for the ability to work in an environment where you don't have to think strategically about the business and can focus on your engineering work".

[Clubber]

I think his point is engineers typically no longer get profit sharing bonuses while managers typically do. The author was suggesting to get paid more, find more value to create. This isn't even close to linear like it is with managers because of the lack of profit sharing to engineers.

I would argue that in most organizations, the culmination of engineering talent creates way more value than the manager, with rare exceptions. Most of the time, the manager can get wrecked by a train, and the engineers will continue to create value. If the manager built that team, he should get some credit, but most of the time, the manager is just a plugin resulting in more of a hinderance than a benefit. "Respect my authorit-a," type people.

Of course, if engineers would unionize, they'd get the profit sharing bonuses they used to get, but society? has convinced engineers that they get paid based on merit and the value they create, which they kinda do, but the ratio of compensation to value approaches nil and gets worse the more value they create.

For example, if I create $1M of value and get paid $100K in year one, then I create $3M of value in year two, do you think the company would compensate me $300K that year? Hell no they wouldn't, but the execs sure would get compensated for my value creation. Again, based on what the author is selling: if you want more compensation, create more value, well that's a load of horse shit for most engineer employees.

Some companies still consider top level engineers management level and will give them profit sharing accordingly. Small companies might give some sort of equity. I'd steer clear of companies that don't.

[ap3]

They most likely would not want you to leave the company on that salary to value creation ratio.

Can you create 3M value on 100k salary at any company or just this one though?

If you can demonstrate that return others would be willing to pay more for your services.

[jacques_chester]

There are multiple steps in the determination of profit ("earnings"), which I think is the cause of the confusion.

Folk tend to fixate on gross profit, because that's the pointy end of their direct market relationships. I buy a banana and it has an x% markup over the price paid to the distributor. That percentage may be quite high and if I'm aware of it I may think someone is taking the piss.

But of course gross profit is just the beginning: you need to deduct SG&A (which is where the senior managers live), R&D (the engineers) and other bits and bobs before arriving at EBIT.

[gaius]

so employees get 0% of the profits in salary.

Bonuses, profit sharing and raises are all things that exist. So while technically correct, you are actually completely wrong.

[WalterBright]

All the money the company disburses, whether it be bonuses, profit sharing, or salary, all comes from the same checking account.

Trying to infer an injustice by the what the check is called has no point.

The purpose of accounting is to organize and understand where the money comes from and where it is going and where it is allocated, and to compute the tribute owed to the government. But a check written to someone is a check is a check, since money is fungible.

[gaius]

Trying to infer an injustice by the what the check is called has no point.

Sure it does. Ever seen a contract that promises a bonus of “up to” some percentage? That should be read as “no matter how well we do your upside is capped and management trouser the rest”. It's a calculated, deliberate strategy to exploit naivety.

[WalterBright]

Again, it's the amount on the check that matters, not what the check is called.

Seriously, if you believe you're delivering far more value than what your checks represent, it's time to have a chat with the boss and go over it. If there's still no agreement, find another job.

[throwawayjava]

> Trying to infer an injustice by the what the check is called has no point.

Oh, I might now see why you're being so pedantic about the definition of profit.

When I asked "If I'm the one figuring out how to create value, why the hell are the C suite, middle managers, and investors getting 99% of the profits?", I wasn't trying to make a moral point. It's not intended to be read with an indignant tone, but with a curious tone.

In fact, at the end of the post, I answer this question: because the engineer in a large firm has (perhaps) traded a bit of the value they create in order to be insulated from business decisions, allowing them to focus on engineering instead of on running the business.

[angersock]

Who drives the better cars, has better vacations, and better real-estate?

[solotronics]

sales and c-suite

[dreamfactored]

In a services company a salesperson will generate around 10x to the bottom line compared to an equivalent level fully utilised engineer, so this is more than fair.

[rileymat2]

Many words have several definitions. Some more specific and some more general as used by the public. You are right in an accounting sense, but not in the complete definitional sense.

[WalterBright]

If he did conflate "profit" with "gross revenue", I was explaining that indeed he was getting a share of it. And frankly it is impossible to have any sensible discussion about business and be confused about what profits are - the only definition that has meaning is the accounting definition.

It's like discussing newtonian mechanics and confusing momentum with energy.

[rileymat2]

People routinely use a more loose definition of the word productively, for instance the term "profit sharing" is commonly understood. But as you point out, unless it is through dividends from stock grants/options, whatever is shared with the employee no longer is profit.

[ACow_Adonis]

That's just objectively false.

Other fields use the words profit, not just accountants. Economists and philosophers, at the very least, have a claim to it too, and they do not in any way conflate the meaning with the accounting definition. Indeed, we would argue that the accounting definition is the one that is conflated with the thing we actually care about (which is why the phrase "paper profits" even exists).

And its also quite clear he didn't "conflate" the meaning, but used it exactly as intended.

Most people, I'm assuming, can quite clearly see that he captures the idea that surplus value/revenue, of which the resulting wages are a non-deterministic and variable part to some degree. That upper management of the firm take a percentage of this slice of the pie, whilst lower down labour also gets a slice, and that the notional "social justification" for why upper-management gets a greater slice is being white-anted away as the lower downs are supposed to take on their responsibilities without commensurate compensation.

[WalterBright]

> Other fields use the words profit, not just accountants.

Sure, but we're talking about accounting here when discussing business profits. People are free to make up their own definitions of things, but that makes sensible discussion impossible.

[throwawayjava]

It really doesn't. The majority of commenters here understood my original meaning, and this entire thread about the definition of profit isn't even relevant to the point I was actually making.

Being so fickle about definitions that you miss the broader message, however, does make sensible discussion impossible.

[WalterBright]

Let me try another way. P = profits, R = revenue, S = salary, E = expenses:

    P = R - S - E

Every dollar you get in salary is a 1:1 drop in profits. Any bonus B you get,

    P = R - (S + B) - E

is the same. You might expect from this, then, that if you're offered a S+B package, the S would be lower than what you'd get with a pure S offer, by the expected amount of B. And you'd be right. I've been on both sides of the negotiating table, and this is how it works.

[mcrad]

You'll want to consider the main point of the article then ask yourself how much of revenue is paid out is agency costs. It's a big chunk in most companies.