[bumby]

There is a pervasive misconception that you are paid for how much value you bring. In a market economy, you are paid commensurate to how much you can negotiate. The value you bring (real or imagined) is part of that negotiation, but so are other factors.

It pains me to see people get frustrated by this fact.

[satyrnein]

The value you bring is the ceiling on your compensation; employers are not going to pay more than that. Your cost of living is the floor; you're not going to take less than that. The spread between the two is what you're negotiating over.

[ukoki]

Your cost of living is not the floor -- just ask Uber drivers. An income of less than the cost of living is still better than nothing. The floor is the next best thing you have available, or the minimum wage if applicable.

[nybble41]

The actual cost of living is the floor, but cost-of-living metrics frequently overestimate the actual cost of living.

[kgin]

The unfortunate thing is that "cost of living" in this floor definition is literally the cost to stay alive. The floor in a pressurized market will not be the cost of a comfortable life, just a life at all.

[bumby]

In a perfect world with frictionless information, sure.

But in the real-world, there are lots of examples of dead-weight or people who keep their job despite having limited (or even negative) value. Sometimes this is the result of weak leaders unable to bring themselves to fire people, sometimes it's because the litigation risk is too high. On the opposite end, there are lots of examples of people who accept jobs below their cost-of-living (those living off debt, for example).

[robocat]

The key is that there is competition for the job. Your negotiation is limited by the negotiation price of other applicants.

If you are the single possible candidate for a job that is essential for the company, then you can use your monopoly power to get paid more than the “value” you bring.

If the company has an excess of candidates, they may be able to pay less than “CoL” (because CoL varies per applicant, and the minimum is someone in poverty not a standard engineer lifestyle).

I do agree with your statement as a generalisation. Although the maximum a company will pay is usually nowhere near the value you might bring (Apple average pay $150k, Apple average excess profit per employee $300k).

[nybble41]

> If you are the single possible candidate for a job that is essential for the company, then you can use your monopoly power to get paid more than the “value” you bring.

In that scenario your value to the company, together with all the other "essential" budget items, is the total value of the company. If you're somehow getting more than that then the company simply doesn't have the budget to pay for all the essentials and is consequently going bankrupt.

[heipei]

The problem in a lot of modern software-based companies is that the value you create is impossible to calculate. It might be 10x of what your employer thinks or it might even be negative, and I have definitely seen examples for both myself based on my own calculations.

And even in non-software based products and companies industries this might be hard since the output of so many teams gets lumped together and sold as one product. What's the value of the team that creates and markets the MacBook Pro Touch bar? Personally I think it is net negative, and maybe there's even division over that within Apple.

[falcolas]

This 'misconception' comes from two big sources, IMO:

1) Leadership is paid for the value they bring. Primarily through huge stock grants as part of their multi-million dollar compensation packages.

2) Companies always discuss employee compensation, especially raises and bonuses, in terms of the value an employee has relative to their peers.

So, it's no wonder that people believe that their value has something to do with their compensation: it's what they've been told by the companies themselves; it's how the most visible employees (leadership) are compensated.

[nicoburns]

> Leadership is paid for the value they bring. Primarily through huge stock grants as part of their multi-million dollar compensation packages.

No they're not. They're massively overpaid relative to value they bring. They generally get these multi-million dollar compensation packages regardless of performance. Presumably this is also because of their power to negotiate which is high because they're more or less in charge of everything.

[cercatrova]

Correct, even leadership is paid according to the market. Companies know that of they pay too little, then leadership will go elsewhere. It's not any different to regular employees in terms of getting paid according to supply and demand.

[falcolas]

Overpaid or not (I tend to agree that they are overpaid), if a significant portion of their compensation is stock grants, then that portion of their compensation is directly tied to the value of the company.

[nicoburns]

I'd argue that the value of the company often doesn't reflect whether they're doing a good job. Which is why you often find CEOs taking short-termist approach which buoys the value of the company in the short term and completely destroys it in the long term.

[bumby]

There's a famous study that concluded "CEO effects" only account for about 14.5% of performance [1]. It may be quite dated by today, though, it may be even less pronounced according to [2] that claims more recent studies show the CEO only explains for 4.5%-12.8% of performance.[2]

[1] https://www.jstor.org/stable/2094020?seq=1

[2] https://www.theatlantic.com/magazine/archive/2009/06/do-ceos...

[phamilton]

In 2020 the value of the company largely was driven by the Fed.

[bumby]

>that portion of their compensation is directly tied to the value of the company.

One small nuance: it can be disproportionately tied to the short term value of the company. One of the moral hazards of this compensation scheme is that it may incentivize an executive to make decisions that inflate the value of the company short term while also de-valuing it long term (when they are no longer part of the company -- presumably after they've extracted that value).

[ledauphin]

stock grants mean you're paid for the value your company _has_, not the value _you_ provide to your company.

For the vast majority of leaders, their input into the company's overall performance is vanishingly small.

[falcolas]

The job of leadership is to make the company succeed. The value of the company is a simple (but effective) "Key Result" metric that's used to evaluate how well they're doing their job (no matter how many others are also contributing).

[Dirlewanger]

If a company is going to use the lazy COL argument, they're going to do so no matter what.

Take 2 people of equal skill, experience, and negotiating prowess. One lives in SF, another in Kansas City. Both apply to the same remote position for a SF-based company. The company will always take the one in KC. I don't see how negotiation skill has a role in this. Unless there are people out there who have successfully negotiated a SF-level salary while living somewhere like Kansas, but I haven't heard about it.

[bumby]

Besides the obvious point made by another commenter that two completely equivalent people won't exist, it's not just negotiating skill it's more about negotiating leverage.

A real example that I've seen: two workers work for the same employer and have been given offers from other companies located in a different State. The single mother in the group had significantly less leverage because she (and presumably her employer) knew she couldn't move without potentially affecting the custody of her kids. She didn't get a raise.

Or to extend your example, someone living in KC has less leverage because they cannot use the COL argument to justify higher pay. If I'm being courted by an employer to move, you better believe I'm building COL considerations into my overall salary ask.

[Dirlewanger]

Right, and employers are going to exploit these leverage imbalances in any way possible. It's why I don't think we'll ever see "equal work for equal pay" as seen in the article. You're just not going to get high COL wages while living in a low COL area.

[bumby]

Not to mention that the original intent of "equal work for equal pay" was about gender disparities. The importance being: gender (technically, 'sex') is a protected class, low-COL-resident is not.

[couchand]

> Take 2 people of equal skill, experience, and negotiating prowess.

This just doesn't exist, not even in a hand-wavy rhetorical sense.

[atomize]

lulz @ "...not even in a hand-wavy rhetorical sense..."

[username90]

High end companies doesn't work like that. For example Google first decides that they want you, then they pay you their market rate no matter where you live. You can choose to work in SF for a high pay or in India for a low pay, up to you, they still want you. In fact the high pay in SF is actually the easiest position to get, the lower wage positions in other areas are more competitive since they have fewer spots.

[disgruntledphd2]

That is just not true.

Are they paying 250k base in London? They weren't a few years back, and therefore they pay based on the market.

The London thing is even funnier because they claim to want top talent, but refuse to benchmark against actual top-talent companies in London (i.e. finance).

It's just nonsense, and if some of this gets disrupted by remote work then I (as someone getting screwed by the current system) will be all for it.

[legulere]

Which is the reason you should unionize. It strengthens your negotiation position.