[jo032]

Maybe not at Stripe, but a lot of big tech employees (especially at Google and Facebook) would get substantial paycuts if they got paid for the value they brought to the company rather than the market price ("as little as they can get away with").

the average FAANG engineer does a shockingly small amount of work that has any impact on revenue

[mrkstu]

The average FAANG engineer is partially being compensated for NOT working at a competitor- i.e. the best talent is also the biggest threat and if there isn't a salary cap then the NY Yankees are sometimes going to sign redundant players just to keep them from improving competitive teams.

[robocat]

This arguments fails on so many dimensions that it must just be a meme. I’ll use Google as the example. For it to work Google has to be able to monopolise the buying of talent. Most damning, the premise itself is self defeating. Somehow Google is picking the most talented people (delivering far in excess of say $1M marginal returns), yet somehow it is paying well below that to steal that talent and furthermore Google is then wasting that talent (employee delivering value below their pay+overhead). To assume Google chooses to waste talent merely to achieve some low value outcome (damaging a competitor by $1 doesn’t magically enhance Google’s returns by $1 so the factors are way out here) seems to assume the Google is somehow acting against their best financial interests. I don’t think Google is as poorly run as that.

Also:

1. Occam’s razor: Could it be that a Google is actually getting good value by paying very high salaries?

Yes. The average revenue per person for Google is about 160G$ / 115kiloemployees = 1M4 per employee. I do note that using an average is silly because the value distribution is not flat, but neither is the employee salary distribution flat. But the figure is so large, average does say something useful for back-of-envelope calcs.

2. Can Google monopolise by buying power alone?

No. Other companies have similarly high returns per employee (Apple is 260G$/160kiloemployees, Netflix is 20G$/20kiloemployees) so for Google to outbid them, it needs to outbid above the marginal revenue per employee, which clearly is well above a 600k$ salary.

3. Can Google corner the market for talent by restricting supply?

No. We know that there are plenty of talented developers because Google isn’t the only company making over $1M revenue per employee. Google employs about 115000 people. Let’s say 50000 of those were “overpaid“ to remove them from the competitors. If the total pool of equivalent talent were as small as 250000, then Google couldn’t monopolise talent. Yet other companies with high revenues per employee have a sum total of employees higher than 250000. Furthermore Google’s returns per effective employee become ~$2.8M/employee, so Google can obviously afford to pay $1M for talent it really wants!

Your sports analogy fails because sports are designed to be zero-sum where there can be only one winner, so the best player can capture more of the winnings.

[jo032]

Current employees are not the only revenue generators within a company, especially in a high margin monopoly business. Most of the value in Google was created over a decade ago when they achieved market dominance so revenue per employee is an unhelpful metric in their case.

I don't disagree with your other points, just the first.

[robocat]

I agree.

However making the argument that the marginal gain from an employee has to exceed the marginal cost is much more difficult, so using an average is just a fair proxy for making the point.

My assumption is that Google are smart enough to know extremely well their marginal gain, which must be an upper bound of what they would rationally pay for an employee (salary plus overhead plus opportunity cost plus variance).

Anyone that thinks a Google is employing people at a loss to cause damage to other businesses is a double plus badthinker IMHO.

[mrkstu]

Key word was 'partial'- in no way do I believe that they want valuable employees completely sidelined- just that if they are paying slightly above market and are carrying slightly more employees than they really need, it ends up being neutral or a net benefit to Google to do so.

[robocat]

That seems like a weasel-word, and “partial” was not the gist of your comment, and I have seen similar comments to yours like it is a meme.

Your implication is that the pool of talent is limited and that there is some sort of zero-sum game being played.

The pool of talent is clearly not limited and there are multiple indications of that e.g. a rockstar developer would be employed at rockstar prices of millions (or signed on at millions as per your sports analogy).

If Google were to take a talented person out of the pool, the loss to the competitors is the marginal difference in talent to the next lower talented person.

Put simply, the variation in measurement of talent is large, and training can make huge differences to talent levels. Your premise can’t work without some sort of perfect oracle.

That isn’t to say it doesn’t happen at some microscopic level, or that it doesn’t happen with some particular individuals... Edited: there are just too many sensible reasons why I think it couldn’t happen systematically.

[ianmobbs]

Sure, if you treat and account for engineering like a cost center. The reason big tech companies are so successful are precisely because they treat engineering like a profit center. Though sales may be the organization actually bringing in revenue, without a product, they wouldn’t have anything.

[jo032]

Well of course you need a product. What I'm saying is that the median engineer at Big Tech does very little to influence it in any meaningful way(at least that was my experience, and people I know who have worked at Google/Facebook)

A tremendous amount of value was created by the early engineers of course and they still have top performers shipping new things. But as somebody who worked at one of these companies early in my career well after its monopoly was established, I felt like I was just given busy work to do.

[didibus]

This doesn't line up with my mental logic. If the companies are paying X amount, they have to be getting at least that much value back, or they wouldn't have that position.

Now sometimes after a new CEO or an acquisition you do see some internal shuffle and some positions deemed redundant are removed, but that's rare, and generally the positions are transfered from one less profiting category of the company to another.

So from my point of view, you could argue that the employees are worth ("value of company" / "number of employees") - "value of patents" - "value of brand recognition" - "value of production equipment".

I would bet that, especially at FANNGS, that equation would result on a much higher compensation per employee then what is currently given.

The reason people arn't being paid that amount though I believe is due to investors having the option to invest in someone else.

As an investor (an employer is an investor into an employees career). You always take a bigger cut of the value of what you invest in, and you're allowed that leverage because you tend to have the option to not invest in some particular X, and have a plethora of alternatives you could invest in as well.

Thus as en employee we tend to be paid market rate, instead of by value, because there are other possible employees who could provide similar value that be willing to undercut you.

If companies go full remote, it could mean that there are even more options for employers to hire someone who could provide the same value and is willing to undercut you, for example if they have a much lower cost of living, they might be happy with a lot less money.

My bet will be that if remote dev work becomes the norm in the industry, you'll see compensations level off, Bay Area compensations will go down as employer can hire from cheaper places, and places that currently had low compensations will increase, because local companies will now have to compete for talent with big companies like FANNG.

[austhrow743]

> If the companies are paying X amount, they have to be getting at least that much value back, or they wouldn't have that position.

Tech companies are in the business of creating new products. Hell its practically the name. All companies use technology, technology companies are ones that create new technology as a core aspect of what they do.

Predicting what new thing will be valued by the market and what won’t is a very hard and unsolved problem.

So just like the VCs that funded them, tech companies adopt a throw shit at the wall and see what sticks approach.

They can do that because the scale of users that can use your work is enormous. Getting it right in software can make up for a lot more of getting it wrong than in most industries.

[s1artibartfast]

I can almost imagine a clawback clause on salaries for products that don't launch. Haha

[awinder]

“the average FAANG engineer does a shockingly small amount of work that has any impact on revenue”

In stark contrast to the average pre-ipo company engineer who has rarely discussed this “revenue” business and certainly not its even more shy friend, “profit”