[didgetmaster]

Your post implies that every employee of a successful company is entitled to a share of whatever wealth that company generates.

As a career programmer, I worked for several companies. Each time I took a job, I negotiated what I thought was a fair salary for my wages. Some companies also gave me stock options and one gave me founder's stock. When a company had a good year, they often gave generous bonuses.

Only when I took great personal risk, did I expect to share the rewards that come with a successful company. I was always grateful when I got more than I agreed to work for, but I never felt entitled to it.

A janitor working for a 10x company should not feel entitled to 10x of the salary as another janitor working down the street for another company that is struggling.

[JoeAltmaier]

That's one viewpoint. No moral nor ethical foundation; just a personal view.

[weavejester]

That's not quite what I'm saying. You may very well have been paid fairly for each job you've taken, assuming that the value you generated for the business was not substantially higher than your salary.

But hiring people who are compensated fairly does not make someone a billionaire. If you generate $300,000 of value per year and I pay you $200,000, then I'm only making $100,000 profit off your work. I could hire more employees, but value does not scale linearly indefinitely. Doubling my number of employees does not guarantee I double my profits.

No, if I want to become a billionaire within my lifetime, I need an asset that generates far more money than it costs to buy and maintain it. In other words, I need employees who will generate millions for every thousand I pay them.

Now you might well argue that I'm taking a risk. How do I know if an asset or an employee or a team of employees is undervalued? Not every bet is going to pay dividends. However, while this is true, I don't think this makes it ethical. If I'm a venture capitalist looking to make it rich (or richer), the fact that I'm taking a risk doesn't change the fact that ultimately I'm looking for people who I can pay far less than they're worth.

[joefourier]

Why is it unethical? I'm both a freelance engineer and a business owner that sells software, and I've both sold my labour for equity/revenue share, and for a flat hourly rate.

If I charge a client $50k for some software and they made $1 million profit from it, good for them? As long as they pay our mutually agreed upon rate on time and there was no hostile negotiation, why should I feel suddenly entitled to more money if that wasn't in our contract? How do I know how much of the value is from my work and not their marketing or idea?

What you're saying seems as crazy as me saying that someone who bought my software for $99 and used it on a multi-million dollar project is being unethical unless they give me more money. How on Earth does that make sense? Should I be forced to switch to a royalty model? What if I make more selling copies at a flat rate, what if I don't want to have to investigate the finances of thousands of customers and have to deal with that whole trouble?

For me it's the same thing regardless of whether I'm selling my labour or a product. I can choose whether to accept a flat hourly rate, equity, or a mix of both, and usually the better deal is the hourly rate.

If I find a way to hire a software engineer for market rates (say, $200k/year in the US) and get $2M revenue from their work, good? They can ask for a raise or a bonus, we can renegotiate, they can leave if they're unhappy, but I'm not obligated to give them more money than was in our agreement anymore than they're obligated to give me their salary back in the project fails.

[weavejester]

There's an argument that if someone agrees to a bad deal, that's their own fault. Where I think it becomes unethical is where there's a significant power imbalance that disadvantages one side.

Suppose I buy a painting from a flea market for $100, get it evaluated by a specialist, and then discover it's actually worth $100,000. In this example I have no inherent advantage over the seller; neither of us knew the value of the painting at the time it was sold.

Now suppose a famous TV antique dealer stumbled across that painting instead, and immediately realizes its true value. The seller recognizes the dealer, and the antique dealer offers to buy the painting for $25. The seller, trusting the antique dealer's judgement, agrees to the discount.

Would you say in both examples everyone acted ethically? This is a genuine question, as I can certainly see the argument that using the assets you possess to secure yourself the best deal possible is just business, and yet I would personally see the antique dealer in the second example as being exploitative.

When it comes to companies there's a similar disparity in power. An employee requires money to live, while someone founding or investing in a company often has enough of a financial safety net that they won't starve if the venture fails. Equally, any would-be billionaire is explicitly looking for employees who generate vastly more value than their cost. You don't get rich by paying people what they're worth; you get rich by underpaying them and pocketing the difference.

The other problem, and one you've touched on, is how do we assess the value of an individual employee? This is obviously not easy, and businesses also have no incentive to work it out or reveal that information to their employees even if they knew. On the contrary it benefits employers to keep their employees as much in the dark as possible.

Aside from the ethical problems there's a practical one. The very existence of billionaires implies that a significant number of people are undervaluing their work. It's a pricing problem that the market isn't solving, and is only getting worse.

[didgetmaster]

Every company, from the small business to mega-corps, needs to extract more value from their employees than the produce; otherwise it will likely go bankrupt.

Even within successful companies, it is a challenging task to figure out just how much value each employee produces. Some positions are required, but do not produce revenue. Sometimes whole departments are a sunk cost.

It is up to each employee at review time, to argue that the value they produce is far greater than their salary; in order to negotiate a raise. No one is automatically entitled to anything extra, just because the company had a good year.

[weavejester]

Yes, a company needs to extract more value than it pays its employees, if only to cover its other costs. The problem is when employees are significantly underpaid compared to what they produce.

Negotiation clearly doesn't work in the general case, otherwise we wouldn't have billionaires. There's too much of a power difference between an employer and employee, and companies have a clear incentive to keep it that way.