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Sorry, but I think that this view is both obviously wrong and actively harmful. It's an example of where going with textbook definitions actually obfuscates rea

Sorry, but I think that this view is both obviously wrong and actively harmful. It's an example of where going with textbook definitions actually obfuscates reality. Highly compensated managers are taking a share of profit, often quite literally (look at how VP and above positions are compensated). But always indirectly -- you can't tell me a 7-8 figure salary "isn't a share of profit". That's obvious BS. And if my own compensation is a share of profit in the same sense (which, a port of it literally is), then my observation that non-engineers get 99% of that share is still accurate. Anyways, and much more importantly, this is pretty tangential to my original point. The point is that if I'm an engineer at a large firm, it is NOT my job to do the MBA thing. The entire premise of a firm is that the author of this post is wrong.

WalterBright 9y ago
The money paid to employees is deducted from the profits (or more precisely, profits are what is left after expenses and labor costs are paid). So your salary is your share of the profits in any pragmatic sense. This isn't MBA level stuff, any basic accounting course will explain it. In fact, I recommend anyone who cares about this sort of thing to learn basic accounting principles - it is simple, and highly useful knowledge. You'll be able to then read a business's Income Statement and Balance Sheet, and see where the money comes from, where it goes, and where it is allocated.
- throwawayjava 9y ago
  > So your salary is your share of the profits in any pragmatic sense. Okay, so I'm getting a tiny fraction compared to everyone else. Again, this is a fairly pedantic tangent and no matter how we define these things, my observation seems to be accurate. Again, this sub-thread about the definition of profit is both tangential and unrelated to my original point. I think the standard accounting definition is pretty useless and silly in the context of modern large firms, but that seems like a discussion for another day. > This isn't MBA level stuff By MBA stuff I don't mean "useless econ 101 terms". What I mean is "aligning engineering talent with value creation", which AFAIK isn't taught is basic accounting courses...? The author of the post suggested this alignment is an engineer's job. But the whole point of a firm is that the MBAs do that and the engineers focus on building things. That's my point -- that in the context of a large firm, the author is wrong. Of course, joining a large firm means that your own compensation is disconnected from the value the firm creates. And that can mean less share of compensation, especially when the firm is doing well. But it also means you can make a good living without becoming a Monday morning economist. I don't really care about defining profit "correctly" according to accounting terminologists because I think a well-meaning reader can completely understand the point that I'm making in my original comment without this aside.
  - WalterBright 9y ago
    > that in the context of a large firm, the author is wrong. An accountant serves two roles in a company. One is to produce a correct set of books for the investors and the tax man. The other is to determine the value to the business of things the business is spending money on. I.e. to determine the value produced by the engineers. They may get it wrong, as at some level it is indeterminate, but the more correct they calculate it, the more efficiently and effectively the business can allocate its resources. This calculated value determines, for example, what they're willing to offer you in salary. If they overvalue you, you're likely to get laid off, or more likely, no raises. If they undervalue you, they're likely to give you a raise to keep you from leaving. In my experience, individual engineers tend to have a large disconnect in their opinions on what value they deliver vs reality. If you believe your compensation is way under your opinion of your contribution, it is worth taking a good hard look at it, and deciding if you are better off getting another job.
    - WalterBright 9y ago
      P.S. if it isn't obvious, companies who tend to be way off in determining the value of their engineers tend to go out of business.
    - zzzcpan 9y ago
      > This calculated value determines, for example, what they're willing to offer you in salary. It doesn't. This is mostly a binary thing of whether the company can afford to pay an employee a bit above his market value or not, if we are talking about engineers of course. Such employee cannot actually get paid proportionally to the value he brings to the company.
      - nostrademons 9y ago
        If they can't afford to pay your market value, you should leave and go work for a company that can. That's how you set your "market value" - go out on the market and see what price you get. If you can't get a higher offer, than your current salary is your market value. How much value the engineer brings in (to a given employer) is basically the ceiling on bids that employer will make. It's completely economically rational for you to find the employer that values your work the most when you're searching for a job, because they'll be willing to pay the most.
- jacques_chester 9y ago
  There are multiple steps in the determination of profit ("earnings"), which I think is the cause of the confusion. Folk tend to fixate on gross profit, because that's the pointy end of their direct market relationships. I buy a banana and it has an x% markup over the price paid to the distributor. That percentage may be quite high and if I'm aware of it I may think someone is taking the piss. But of course gross profit is just the beginning: you need to deduct SG&A (which is where the senior managers live), R&D (the engineers) and other bits and bobs before arriving at EBIT.
- Clubber 9y ago
  I think his point is engineers typically no longer get profit sharing bonuses while managers typically do. The author was suggesting to get paid more, find more value to create. This isn't even close to linear like it is with managers because of the lack of profit sharing to engineers. I would argue that in most organizations, the culmination of engineering talent creates way more value than the manager, with rare exceptions. Most of the time, the manager can get wrecked by a train, and the engineers will continue to create value. If the manager built that team, he should get some credit, but most of the time, the manager is just a plugin resulting in more of a hinderance than a benefit. "Respect my authorit-a," type people. Of course, if engineers would unionize, they'd get the profit sharing bonuses they used to get, but society? has convinced engineers that they get paid based on merit and the value they create, which they kinda do, but the ratio of compensation to value approaches nil and gets worse the more value they create. For example, if I create $1M of value and get paid $100K in year one, then I create $3M of value in year two, do you think the company would compensate me $300K that year? Hell no they wouldn't, but the execs sure would get compensated for my value creation. Again, based on what the author is selling: if you want more compensation, create more value, well that's a load of horse shit for most engineer employees. Some companies still consider top level engineers management level and will give them profit sharing accordingly. Small companies might give some sort of equity. I'd steer clear of companies that don't.
  - ap3 9y ago
    They most likely would not want you to leave the company on that salary to value creation ratio. Can you create 3M value on 100k salary at any company or just this one though? If you can demonstrate that return others would be willing to pay more for your services.

WalterBright 9y ago

The money paid to employees is deducted from the profits (or more precisely, profits are what is left after expenses and labor costs are paid). So your salary is your share of the profits in any pragmatic sense. This isn't MBA level stuff, any basic accounting course will explain it. In fact, I recommend anyone who cares about this sort of thing to learn basic accounting principles - it is simple, and highly useful knowledge. You'll be able to then read a business's Income Statement and Balance Sheet, and see where the money comes from, where it goes, and where it is allocated.

throwawayjava 9y ago
> So your salary is your share of the profits in any pragmatic sense. Okay, so I'm getting a tiny fraction compared to everyone else. Again, this is a fairly pedantic tangent and no matter how we define these things, my observation seems to be accurate. Again, this sub-thread about the definition of profit is both tangential and unrelated to my original point. I think the standard accounting definition is pretty useless and silly in the context of modern large firms, but that seems like a discussion for another day. > This isn't MBA level stuff By MBA stuff I don't mean "useless econ 101 terms". What I mean is "aligning engineering talent with value creation", which AFAIK isn't taught is basic accounting courses...? The author of the post suggested this alignment is an engineer's job. But the whole point of a firm is that the MBAs do that and the engineers focus on building things. That's my point -- that in the context of a large firm, the author is wrong. Of course, joining a large firm means that your own compensation is disconnected from the value the firm creates. And that can mean less share of compensation, especially when the firm is doing well. But it also means you can make a good living without becoming a Monday morning economist. I don't really care about defining profit "correctly" according to accounting terminologists because I think a well-meaning reader can completely understand the point that I'm making in my original comment without this aside.
- WalterBright 9y ago
  > that in the context of a large firm, the author is wrong. An accountant serves two roles in a company. One is to produce a correct set of books for the investors and the tax man. The other is to determine the value to the business of things the business is spending money on. I.e. to determine the value produced by the engineers. They may get it wrong, as at some level it is indeterminate, but the more correct they calculate it, the more efficiently and effectively the business can allocate its resources. This calculated value determines, for example, what they're willing to offer you in salary. If they overvalue you, you're likely to get laid off, or more likely, no raises. If they undervalue you, they're likely to give you a raise to keep you from leaving. In my experience, individual engineers tend to have a large disconnect in their opinions on what value they deliver vs reality. If you believe your compensation is way under your opinion of your contribution, it is worth taking a good hard look at it, and deciding if you are better off getting another job.
  - WalterBright 9y ago
    P.S. if it isn't obvious, companies who tend to be way off in determining the value of their engineers tend to go out of business.
  - zzzcpan 9y ago
    > This calculated value determines, for example, what they're willing to offer you in salary. It doesn't. This is mostly a binary thing of whether the company can afford to pay an employee a bit above his market value or not, if we are talking about engineers of course. Such employee cannot actually get paid proportionally to the value he brings to the company.
    - nostrademons 9y ago
      If they can't afford to pay your market value, you should leave and go work for a company that can. That's how you set your "market value" - go out on the market and see what price you get. If you can't get a higher offer, than your current salary is your market value. How much value the engineer brings in (to a given employer) is basically the ceiling on bids that employer will make. It's completely economically rational for you to find the employer that values your work the most when you're searching for a job, because they'll be willing to pay the most.
jacques_chester 9y ago
There are multiple steps in the determination of profit ("earnings"), which I think is the cause of the confusion. Folk tend to fixate on gross profit, because that's the pointy end of their direct market relationships. I buy a banana and it has an x% markup over the price paid to the distributor. That percentage may be quite high and if I'm aware of it I may think someone is taking the piss. But of course gross profit is just the beginning: you need to deduct SG&A (which is where the senior managers live), R&D (the engineers) and other bits and bobs before arriving at EBIT.
Clubber 9y ago
I think his point is engineers typically no longer get profit sharing bonuses while managers typically do. The author was suggesting to get paid more, find more value to create. This isn't even close to linear like it is with managers because of the lack of profit sharing to engineers. I would argue that in most organizations, the culmination of engineering talent creates way more value than the manager, with rare exceptions. Most of the time, the manager can get wrecked by a train, and the engineers will continue to create value. If the manager built that team, he should get some credit, but most of the time, the manager is just a plugin resulting in more of a hinderance than a benefit. "Respect my authorit-a," type people. Of course, if engineers would unionize, they'd get the profit sharing bonuses they used to get, but society? has convinced engineers that they get paid based on merit and the value they create, which they kinda do, but the ratio of compensation to value approaches nil and gets worse the more value they create. For example, if I create $1M of value and get paid $100K in year one, then I create $3M of value in year two, do you think the company would compensate me $300K that year? Hell no they wouldn't, but the execs sure would get compensated for my value creation. Again, based on what the author is selling: if you want more compensation, create more value, well that's a load of horse shit for most engineer employees. Some companies still consider top level engineers management level and will give them profit sharing accordingly. Small companies might give some sort of equity. I'd steer clear of companies that don't.
- ap3 9y ago
  They most likely would not want you to leave the company on that salary to value creation ratio. Can you create 3M value on 100k salary at any company or just this one though? If you can demonstrate that return others would be willing to pay more for your services.