[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.