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How does the possibility of employees becoming independently wealthy factor in to determining compensation for star performers? Let's say that I have personall

How does the possibility of employees becoming independently wealthy factor in to determining compensation for star performers? Let's say that I have personally determined that $3-5 MM of assets properly invested would earn me enough to live off of for the rest of my life. If I earn $2 MM a year in salary, then in a short period of time, I could quit, retire, and work on whatever (open source, nonprofit) technical projects interest me. Companies vest stock for this reason, and I think Google does an admirable job of creating a college atmosphere full of world-class talent to retain passionate employees. But not every company can employ Vint Cerf and Guido van Rossum and prepare gourmet meals. Should a company try to keep their star employees under such an "independently wealthy" threshold? I imagine that Henry Ford, even paying twice the prevailing wages, didn't need to worry about this issue. 2x the average wage probably wasn't enough to quickly retire back then.

TheSOB88 17y ago
Most people don't even consider that. I think most people are spending most of the money they make.
- hallmark 17y ago
  To continue with this line of thought, then, it would be better for retention to: a) Pay an employee $2 MM a year in salary and have them spend it along the way. Rather than: b) Give them stock that vests in 4 years - worth $5 MM - and have them feel abruptly wealthy and quit. I understand that startups usually give out equity because they don't have the cash to pay high salaries up front. But if a company does have the choice, it seems that a vesting period on equity is the common method for keeping an employee on the hook.
philwelch 17y ago
This is actually similar to a well-known concept in economics, called the backwards bending supply curve. Most things have a straight supply curve: if you pay more for a bushel of apples, more people are going to sell apples to you and you will get more apples. So price and quantity supplied are positively related--higher price, more quantity supplied. Labor, however, has a backwards-bending supply curve. If you offer more and more money, you'll get more and more labor up to a point. At that point, however, increasing the price of labor further will actually reduce the quantity supplied due to laborers having diminishing returns on making more money. Normally, it's couched in terms of an hourly wage: you'll get more people willing to work more hours for $60/hr compared to $40/hr, but at $6000/hr, people will just put in half a day and then go shopping to add to their BMW collection or something. A similar concept could, as you point out, be applied to salaries. Offering $200,000 a year over $100,000 a year will sure get you more salaried employee-years, but offering $20,000,000 will start you on the backwards-bending supply curve since people will start to retire early. At least in theory--in practice, a surprising number of people who earn millions of dollars a year keep working while they can. You never hear about a star athlete earning like 50 million in a year from salary and endorsements for two years and just saying, "I got all the money I need, to hell with football". Not even Fortune 500 CEO's seem to retire after a year or two, and god knows they can afford to. Maybe it's just that fun to have a job like that, maybe people want to work, maybe people who have those kinds of jobs can't exactly do the same thing for free and they don't know what else to do with their time, and maybe people just get used to living on that kind of salary so they have to keep working to keep up their lifestyle. But the concept does seem to apply to hourly wages, even if it doesn't apply as well to salaries.
- pbhjpbhj 17y ago
  >You never hear about a star athlete earning like 50 million in a year from salary and endorsements for two years and just saying, "I got all the money I need, to hell with football". I think you do. The problem with these sorts of "jobs" is that the athlete would probably still do it if they were working in a factory for a living. Playing football is a fun pastime.
ytinas 17y ago
>If I earn $2 MM a year in salary, then in a short period of time, I could quit, retire, and work on whatever (open source, nonprofit) technical projects interest me. Is that really so bad? Probably one of the first things you would do is blog about how great it is to retire. Other star programmers will see this and all line up to work at this company. Plus, if star programmers could break out of the rat race they probably wouldn't stop programming. They would just (as you say) work on things that interest them. Think of the best free software projects and imagine if those guys didn't have to work for a living. What else could they (and others like them that haven't had the time to build things yet) build? If they build something that helps the industry then it helps the business they were working for (e.g. lowering the costs to do whatever the new software does).

TheSOB88 17y ago

Most people don't even consider that. I think most people are spending most of the money they make.

hallmark 17y ago
To continue with this line of thought, then, it would be better for retention to: a) Pay an employee $2 MM a year in salary and have them spend it along the way. Rather than: b) Give them stock that vests in 4 years - worth $5 MM - and have them feel abruptly wealthy and quit. I understand that startups usually give out equity because they don't have the cash to pay high salaries up front. But if a company does have the choice, it seems that a vesting period on equity is the common method for keeping an employee on the hook.

philwelch 17y ago

This is actually similar to a well-known concept in economics, called the backwards bending supply curve. Most things have a straight supply curve: if you pay more for a bushel of apples, more people are going to sell apples to you and you will get more apples. So price and quantity supplied are positively related--higher price, more quantity supplied. Labor, however, has a backwards-bending supply curve. If you offer more and more money, you'll get more and more labor up to a point. At that point, however, increasing the price of labor further will actually reduce the quantity supplied due to laborers having diminishing returns on making more money. Normally, it's couched in terms of an hourly wage: you'll get more people willing to work more hours for $60/hr compared to $40/hr, but at $6000/hr, people will just put in half a day and then go shopping to add to their BMW collection or something. A similar concept could, as you point out, be applied to salaries. Offering $200,000 a year over $100,000 a year will sure get you more salaried employee-years, but offering $20,000,000 will start you on the backwards-bending supply curve since people will start to retire early. At least in theory--in practice, a surprising number of people who earn millions of dollars a year keep working while they can. You never hear about a star athlete earning like 50 million in a year from salary and endorsements for two years and just saying, "I got all the money I need, to hell with football". Not even Fortune 500 CEO's seem to retire after a year or two, and god knows they can afford to. Maybe it's just that fun to have a job like that, maybe people want to work, maybe people who have those kinds of jobs can't exactly do the same thing for free and they don't know what else to do with their time, and maybe people just get used to living on that kind of salary so they have to keep working to keep up their lifestyle. But the concept does seem to apply to hourly wages, even if it doesn't apply as well to salaries.

pbhjpbhj 17y ago
>You never hear about a star athlete earning like 50 million in a year from salary and endorsements for two years and just saying, "I got all the money I need, to hell with football". I think you do. The problem with these sorts of "jobs" is that the athlete would probably still do it if they were working in a factory for a living. Playing football is a fun pastime.

ytinas 17y ago

>If I earn $2 MM a year in salary, then in a short period of time, I could quit, retire, and work on whatever (open source, nonprofit) technical projects interest me. Is that really so bad? Probably one of the first things you would do is blog about how great it is to retire. Other star programmers will see this and all line up to work at this company. Plus, if star programmers could break out of the rat race they probably wouldn't stop programming. They would just (as you say) work on things that interest them. Think of the best free software projects and imagine if those guys didn't have to work for a living. What else could they (and others like them that haven't had the time to build things yet) build? If they build something that helps the industry then it helps the business they were working for (e.g. lowering the costs to do whatever the new software does).