[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.

[zzzcpan]

I would add that job market is only a market when employers are bidding on candidates and people are looking for jobs. The rest of the time it is not a market anymore, as bids are not open and not visible to anyone. So during this time employees slowly undervalue themselves by not participating in a market and employers benefit by not paying the market value and trying to keep employees as long as possible in this situation, essentially always underpaying even that.

EDIT: This was all about short term and mid term behavior. I would like to mention that long term employers and investors can influence job market and increase competition among workers, pushing wages even further down.

[barrkel]

This isn't quite right. Engineers are normally more valuable the longer they've worked in a job, because codebases take longer to understand, business domains need familiarizing, etc. Engineers aren't normally a commodity; the best offer you'll get on the open market will normally underestimate your value to your current company by some distance.

Getting a competing offer is still the way to get leverage for better compensation, although the downsides of accepting a counter-offer are fairly well documented.

On the topic further up the thread about profit: engineers are paid based approximately on replacement cost, but profits are created based on market opportunity and scarcity. A company can create an offering that's hard to reproduce (a monopoly) - harder than most individual engineers' skills are to reproduce - and the excess profits are effectively windfall profits until the market corrects and competition sprouts up. Thus a company can charge closer to the value it adds to the customer, rather than closer to its cost base. Ideally an engineer would try to do the same thing: charge based on the value he or she adds, rather than how much he or she can make elsewhere.

And bringing it back around, companies can eventually get a windfall cost saving / profit from long-serving engineers. Because of accumulated knowledge, they can become such a good fit for the company that the company can pay them substantially more than the market rate, but nowhere near how much value they add, simply because they know that they're the only customer: monopsony, the inverse of the monopoly situation. To extract more value in this situation, you need to bring non-monetary aspects to the negotiating table. My preferred one is ownership: not autonomy, but actual capital interest in my output.

[pdimitar]

I am very late here, but...

Can you elaborate your last point? Namely how do you extract more value in the monopsony situation?

[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.