5 ms·

You can usually just do the math. Let's assume last year I decreases the loading time of our website by 50%, taking it from 2 seconds to 1 second. This reduces

You can usually just do the math. Let's assume last year I decreases the loading time of our website by 50%, taking it from 2 seconds to 1 second. This reduces the drop off rate of customers (people who switch websites before it loads) by about 15%. That means a 15% increase in overall sales. Now let's assume it was a $10 million a year business. That means it's now making $11.5 million dollars a year because a software engineer optimized the loading time. That engineer probably makes $100k or so, and he might get a 10% raise since he did such a good job. The remaining $1.49 million gets distributed amongst execs and investors. Hardly seems fair, when most executives have no idea what's going on, and provide zero value add for that case.

Dwolb 10y ago
Why does everyone talk like the leverage of the business is the leverage of the developer when discussing compensation? That's not how it works. Compensation is set by the market: what is the next person who can do this same job willing to be paid? If we go out into the market to find all the people that can decrease page loading time by 50% and have them bid against each other, we will probably end up paying the lowest bidder who is capable of the job about the median salary of the profession. And another point on >the remaining $1.49 million gets distributed amongst execs and investors. People who own equity in the company have legal claim on the cash flows of the business. They balance free cash flows with reinvested capital (assets,, SGA) to sustain free cash flows into the future.
- dap 10y ago
  At least in microeconomics 101, companies hire as long as the marginal revenue equals the marginal cost of the employee. If the marginal revenue per engineer is high, companies will try to keep hiring them. The demand for engineers goes up, and so does compensation.
  - sokoloff 10y ago
    In microeconomics, the firm would use marginal gross profit not marginal revenue [sales]. Think of Amazon, Walmart, or any firm with significant COGS [cost of goods sold]. It's clear that they can't hire employees inline with marginal revenue.
- crazy2be 10y ago
  Well, you are both right. Compensation is set by the market, but the ceiling for compensation to perform a task is (roughly) the amount of value that a employee can generate, in a rational market. Of course, our market is far from rational, etc, etc. FWIW, I don't think that software developers are overpaid, at all. It's a difficult career, requiring years of intense study to do well. Sure, maybe not as much as Doctors, at least not formally, but a lot of that has to do with the structure of medical education in the United States (in particular, the requirement to complete an undergrad degree prior to admission to medical school). The job of a surgeon is certainly more difficult than the average software developer, but compared to a SRE at Google, say, who is working with real, "living" distributed systems that interact in complex ways, I would say they are comparable. If anything, I'd expect, in a rational market, for the SRE to be paid more, because their services are providing for millions or billions of customers, while the surgeon is only providing for one at a time (and maybe a few thousand over their carrer).
  - nexxer 10y ago
    What I usually reach when thinking along similar paths, using me (programmer) vs my doctor friends, is the failure scenario: If I introduce a bug it will hurt revenue in some way, possibly affecting the company's operations. If most doctors mishandle a patient it could have significant, immediate effect on that person's life. I deal with the responsibility weighing on me, but they've had to get used to dealing with a much heavier responsibility.
- rad88 10y ago
  I have rarely ever heard someone argue that. lettergram did not argue that, only that employee wages are exploitative. In a labor market with unemployment and no real safety net it's clear that workers cannot individually leverage a fair wage.
- antjanus 10y ago
  I see this conversation every fucking week on HN.
- humanrebar 10y ago
  > If we go out into the market to find all the people that can decrease page loading time by 50% and have them bid against each other, we will probably end up paying the lowest bidder who is capable of the job about the median salary of the profession. And what if the companies were to bid on the employee? That would likely drive wages higher and compensate for the natural information asymmetry in the tech labor market.
nilkn 10y ago
Well, my own experience is that the $1.49 million would more likely be reinvested in the company as a whole: hire more developers, more salespeople, expand the office, etc. That money would also take an entire year to materialize and would require your back of the envelope math to pan out perfectly. Requesting a $1.5 million dollar bonus for making the website faster seems a little ludicrous and potentially hostile to the company's continued long-term existence. Depending on the exact nature of the product, it might require additional salespeople and various support staff just to close and maintain the extra sales to create the $1.49 million in the first place -- and yet you'd be claiming it all for yourself, giving none of it to these other folks. Additionally, I don't really agree with this underlying notion that you're entitled to 100% of the extra revenue generated by the speed increase. Imagine how bizarre it would be if you actually applied this thinking consistently over the lifetime of the company to every employee. This approach spectacularly and disproportionately over-rewards people who join the company later, as it becomes increasingly easy to create large increases in revenue because on absolute terms a 1% increase keeps getting bigger and bigger. This would lead to a complete inversion of risk, where it would be more profitable to never take risk and only take stable jobs at long-running companies that have already developed a large market share. I'm not convinced this is a sensible distribution of income to employees.
- jamie_ca 10y ago
  And yet, it seems pretty routine for the sales team members to take residuals on leads they bring in - it's just that it's a lot harder to quantify the effects that code changes have to the bottom line.
  - nilkn 10y ago
    Yes, residuals -- they don't book the entire sale for themselves. And they often have much lower salaries as well compared to development staff. Of course I cannot speak for all companies, but this is how it's been in my personal experience.
- jchendy 10y ago
  > Well, my own experience is that the $1.49 million would more likely be reinvested in the company as a whole: hire more developers, more salespeople, expand the office, etc A lot of it also goes to essential business expenses: HR, legal, the AWS bill, the new feature that's currently losing money but will pay off in the long term. And the person who made the $1.5mm code fix didn't do it on their own. They wouldn't have been able to improve the code if somebody else hadn't already written the first version. And neither of them would have been able to get their code into production if somebody hadn't set up the build and release process for the company. And they never would have been in the position to make the $1.5mm fix if their manager hadn't identified the need for an additional engineer on the team and recruited them. And the company wouldn't exist if the founder hadn't had the idea in the first place. And the company would have blown up last year if the lawyers hadn't made sure the company was protected from a frivolous lawsuit. Et cetera, et cetera.
boxcardavin 10y ago
The (17.6%) increase is unlikely to be something that only one programmer can do, so the market takes over and most devs are already making top 3% income in their countries.
cstejerean 10y ago
$10M in sales with what profit margin? 20%? In that case the $1.5M in extra sales is $300k in profit. Also a developer with $100k in salary costs about $125k when you consider payroll taxes, insurance, 401k matching, etc. If you factor in the cost of office space, equipment and support staff the total cost per employee could easily be $200k. Most developers also don't increase revenue by $1M per year on a regular basis. So when you look at the whole picture you realize that most developers aren't as underpaid as you think. And the ones that can consistently generate $1M+ in profit by themselves definitely do get paid much more than your typical developer. If you think most executives have no idea what is going on and add zero value then I am guessing you haven't spent much time around executives. The whole reason your typical developer got their job and is able to keep it in the first place is because executives figured out how to run the business well enough to grow and continue to hire developers and then allocate them to projects where they can increase revenue. If you think it's easy I recommend you give it a try sometimes.
- tezza 10y ago
  You make some excellent points and I completely agree with the thrust of your argument that people should not be so quick to judge. However, from my empirical observation of many executives, there are two broad groups. The ones you described, those that are worth their salt and have carved out their position through helping the business. Then there is a large group of executives who exist mainly because similar companies have similar structures and they have expectations of roles for say CFO , COO. Then there are roles required by the industry or market: Head of Compliance, Head of Risk, Head of Auditing. Those executives have not earned their place, they are appointments by pattern matching corporate structures
- rad88 10y ago
  According to this logic, our developer has actually earned his wages in perpetuity from this single year of work (or at least so long as that 15% value added lasts). But that's clearly not how it works either. The issue in this example is ownership. Executives add value and they are granted large ownership stakes in the business. Workers are not. You use the example of the executive who figures out how to grow the business to prove that he is entitled to appropriate some of the other employees' added value -- since otherwise that value wouldn't exist in the first place. But our developer can't take his yearly salary out of the 15% increased revenue he enabled back in 2012, on top of compensation for whatever value he creates this year. In any event, the example is very contrived. $10M in sales is as arbitrary as 20% profit margins. Margins could be any amount less or a great deal more. Revenues could be sky high or non-existent. You might expect to find a developer making $100k regardless.
vacri 10y ago
By your math, the janitors are worthless. Fire them all, and give that money to the devs! Then, as the garbage piles higher and the weird smells ground into the carpet linger, you can keep yourself warm with your extra money. Also, why shouldn't the investors get their cut? They were forking over their money to pay you before a line of your code ever hit production; going by your math, developers should be paid on contigency of the code they write getting into production, and penalised if there's a regression.
Joof 10y ago
Honestly, that engineer enabled that growth, but it wouldn't have been possible without the work of a full team providing content, security, reliability and so on. If the same work was done on an old Geocities site, there would be no value to add. You're overvaluing the engineer in your argument; they were only one piece that enabled that extra value.
satysin 10y ago
That is just life as an employee though. If you want to get the lions share of that increase you need to start your own business and then you can split the profit how you want.
gaius 10y ago
Ha ha, I have experienced this first hand, a small project I worked on netted my then-employer roughly $2m/year in additional revenue. That money covered the bonuses of just 2 executives, I think I might have got a 2 or 3% raise myself that year...
p1esk 10y ago
No, usually you can't do this math.

Dwolb 10y ago

Why does everyone talk like the leverage of the business is the leverage of the developer when discussing compensation? That's not how it works. Compensation is set by the market: what is the next person who can do this same job willing to be paid? If we go out into the market to find all the people that can decrease page loading time by 50% and have them bid against each other, we will probably end up paying the lowest bidder who is capable of the job about the median salary of the profession. And another point on >the remaining $1.49 million gets distributed amongst execs and investors. People who own equity in the company have legal claim on the cash flows of the business. They balance free cash flows with reinvested capital (assets,, SGA) to sustain free cash flows into the future.

dap 10y ago
At least in microeconomics 101, companies hire as long as the marginal revenue equals the marginal cost of the employee. If the marginal revenue per engineer is high, companies will try to keep hiring them. The demand for engineers goes up, and so does compensation.
- sokoloff 10y ago
  In microeconomics, the firm would use marginal gross profit not marginal revenue [sales]. Think of Amazon, Walmart, or any firm with significant COGS [cost of goods sold]. It's clear that they can't hire employees inline with marginal revenue.
crazy2be 10y ago
Well, you are both right. Compensation is set by the market, but the ceiling for compensation to perform a task is (roughly) the amount of value that a employee can generate, in a rational market. Of course, our market is far from rational, etc, etc. FWIW, I don't think that software developers are overpaid, at all. It's a difficult career, requiring years of intense study to do well. Sure, maybe not as much as Doctors, at least not formally, but a lot of that has to do with the structure of medical education in the United States (in particular, the requirement to complete an undergrad degree prior to admission to medical school). The job of a surgeon is certainly more difficult than the average software developer, but compared to a SRE at Google, say, who is working with real, "living" distributed systems that interact in complex ways, I would say they are comparable. If anything, I'd expect, in a rational market, for the SRE to be paid more, because their services are providing for millions or billions of customers, while the surgeon is only providing for one at a time (and maybe a few thousand over their carrer).
- nexxer 10y ago
  What I usually reach when thinking along similar paths, using me (programmer) vs my doctor friends, is the failure scenario: If I introduce a bug it will hurt revenue in some way, possibly affecting the company's operations. If most doctors mishandle a patient it could have significant, immediate effect on that person's life. I deal with the responsibility weighing on me, but they've had to get used to dealing with a much heavier responsibility.
rad88 10y ago
I have rarely ever heard someone argue that. lettergram did not argue that, only that employee wages are exploitative. In a labor market with unemployment and no real safety net it's clear that workers cannot individually leverage a fair wage.
antjanus 10y ago
I see this conversation every fucking week on HN.
humanrebar 10y ago
> If we go out into the market to find all the people that can decrease page loading time by 50% and have them bid against each other, we will probably end up paying the lowest bidder who is capable of the job about the median salary of the profession. And what if the companies were to bid on the employee? That would likely drive wages higher and compensate for the natural information asymmetry in the tech labor market.

nilkn 10y ago

Well, my own experience is that the $1.49 million would more likely be reinvested in the company as a whole: hire more developers, more salespeople, expand the office, etc. That money would also take an entire year to materialize and would require your back of the envelope math to pan out perfectly. Requesting a $1.5 million dollar bonus for making the website faster seems a little ludicrous and potentially hostile to the company's continued long-term existence. Depending on the exact nature of the product, it might require additional salespeople and various support staff just to close and maintain the extra sales to create the $1.49 million in the first place -- and yet you'd be claiming it all for yourself, giving none of it to these other folks. Additionally, I don't really agree with this underlying notion that you're entitled to 100% of the extra revenue generated by the speed increase. Imagine how bizarre it would be if you actually applied this thinking consistently over the lifetime of the company to every employee. This approach spectacularly and disproportionately over-rewards people who join the company later, as it becomes increasingly easy to create large increases in revenue because on absolute terms a 1% increase keeps getting bigger and bigger. This would lead to a complete inversion of risk, where it would be more profitable to never take risk and only take stable jobs at long-running companies that have already developed a large market share. I'm not convinced this is a sensible distribution of income to employees.

jamie_ca 10y ago
And yet, it seems pretty routine for the sales team members to take residuals on leads they bring in - it's just that it's a lot harder to quantify the effects that code changes have to the bottom line.
- nilkn 10y ago
  Yes, residuals -- they don't book the entire sale for themselves. And they often have much lower salaries as well compared to development staff. Of course I cannot speak for all companies, but this is how it's been in my personal experience.
jchendy 10y ago
> Well, my own experience is that the $1.49 million would more likely be reinvested in the company as a whole: hire more developers, more salespeople, expand the office, etc A lot of it also goes to essential business expenses: HR, legal, the AWS bill, the new feature that's currently losing money but will pay off in the long term. And the person who made the $1.5mm code fix didn't do it on their own. They wouldn't have been able to improve the code if somebody else hadn't already written the first version. And neither of them would have been able to get their code into production if somebody hadn't set up the build and release process for the company. And they never would have been in the position to make the $1.5mm fix if their manager hadn't identified the need for an additional engineer on the team and recruited them. And the company wouldn't exist if the founder hadn't had the idea in the first place. And the company would have blown up last year if the lawyers hadn't made sure the company was protected from a frivolous lawsuit. Et cetera, et cetera.

boxcardavin 10y ago

The (17.6%) increase is unlikely to be something that only one programmer can do, so the market takes over and most devs are already making top 3% income in their countries.

cstejerean 10y ago

$10M in sales with what profit margin? 20%? In that case the $1.5M in extra sales is $300k in profit. Also a developer with $100k in salary costs about $125k when you consider payroll taxes, insurance, 401k matching, etc. If you factor in the cost of office space, equipment and support staff the total cost per employee could easily be $200k. Most developers also don't increase revenue by $1M per year on a regular basis. So when you look at the whole picture you realize that most developers aren't as underpaid as you think. And the ones that can consistently generate $1M+ in profit by themselves definitely do get paid much more than your typical developer. If you think most executives have no idea what is going on and add zero value then I am guessing you haven't spent much time around executives. The whole reason your typical developer got their job and is able to keep it in the first place is because executives figured out how to run the business well enough to grow and continue to hire developers and then allocate them to projects where they can increase revenue. If you think it's easy I recommend you give it a try sometimes.

tezza 10y ago
You make some excellent points and I completely agree with the thrust of your argument that people should not be so quick to judge. However, from my empirical observation of many executives, there are two broad groups. The ones you described, those that are worth their salt and have carved out their position through helping the business. Then there is a large group of executives who exist mainly because similar companies have similar structures and they have expectations of roles for say CFO , COO. Then there are roles required by the industry or market: Head of Compliance, Head of Risk, Head of Auditing. Those executives have not earned their place, they are appointments by pattern matching corporate structures
rad88 10y ago
According to this logic, our developer has actually earned his wages in perpetuity from this single year of work (or at least so long as that 15% value added lasts). But that's clearly not how it works either. The issue in this example is ownership. Executives add value and they are granted large ownership stakes in the business. Workers are not. You use the example of the executive who figures out how to grow the business to prove that he is entitled to appropriate some of the other employees' added value -- since otherwise that value wouldn't exist in the first place. But our developer can't take his yearly salary out of the 15% increased revenue he enabled back in 2012, on top of compensation for whatever value he creates this year. In any event, the example is very contrived. $10M in sales is as arbitrary as 20% profit margins. Margins could be any amount less or a great deal more. Revenues could be sky high or non-existent. You might expect to find a developer making $100k regardless.

vacri 10y ago

By your math, the janitors are worthless. Fire them all, and give that money to the devs! Then, as the garbage piles higher and the weird smells ground into the carpet linger, you can keep yourself warm with your extra money. Also, why shouldn't the investors get their cut? They were forking over their money to pay you before a line of your code ever hit production; going by your math, developers should be paid on contigency of the code they write getting into production, and penalised if there's a regression.

Joof 10y ago

Honestly, that engineer enabled that growth, but it wouldn't have been possible without the work of a full team providing content, security, reliability and so on. If the same work was done on an old Geocities site, there would be no value to add. You're overvaluing the engineer in your argument; they were only one piece that enabled that extra value.

satysin 10y ago

That is just life as an employee though. If you want to get the lions share of that increase you need to start your own business and then you can split the profit how you want.

gaius 10y ago

Ha ha, I have experienced this first hand, a small project I worked on netted my then-employer roughly $2m/year in additional revenue. That money covered the bonuses of just 2 executives, I think I might have got a 2 or 3% raise myself that year...

p1esk 10y ago

No, usually you can't do this math.