7 ms·

Let's use Facebook as an example. The median employee salary is $240,000 [1], but Facebook makes an average of $1,620,000 in revenue per employee [2]. Why is it

Let's use Facebook as an example. The median employee salary is $240,000 [1], but Facebook makes an average of $1,620,000 in revenue per employee [2]. Why is it okay for a company to extract a so much more money from an employee than they pay them, but not okay for employees to band together to get paid what they're worth? [1] https://www.businessinsider.com/facebook-median-pay-240000-2017-2018-4/ https://www.businessinsider.com/facebook-median-pay-240000-2... [2] https://www.businessinsider.com/tech-companies-revenue-employee-2017-8 https://www.businessinsider.com/tech-companies-revenue-emplo...

fennecfoxen 7y ago
This is the wrong number. The average revenue per employee isn't what determines a wage, even when the employees are fully interchangeable: it's the marginal revenue brought in by each extra employee.
- sailfast 7y ago
  I’d go further and say “marginal net revenue” rather than the gross. Using a revenue number for this makes no sense. Let’s ignore for now that this revenue also owes a great deal to the commons that is never paid back by most companies.
- quotemstr 7y ago
  One of the persistent sources of economic misunderstanding is the difficulty of marginal thinking. It's frequently counterintuitive and leads to a false sense of injustice, e.g., "If teachers are so important, why are they paid so little?"
omarchowdhury 7y ago
> but not okay for employees to band together to get paid what they're worth? Does not Facebook also retain the right to hire employees willing to take less?
- unapologetic 7y ago
  That's why we need to fight right to work laws. If the entire staff is unionized and ready to fight, facebook can't just hire outside staff. Too much knowledge. Also the historical union attitude towards scab labour is another way to prevent this.
  - wang_li 7y ago
    >Also the historical union attitude towards scab labour is another way to prevent this. You mean violence? This is one of the reasons many people don't like unions.
    - unapologetic 7y ago
      Yes, I do mean violence. Employers have also heavily utilized violence. Then they turned to the law and misinformation. Violence is a last resort.
      - friendlybus 7y ago
        Advocating for violence is the one thing you can't do with free speech in the West. Everybody apologizes for that.
        unapologetic 7y ago
        Incorrect. Advocating for direct violent action is illegal. Indirectly, saying that violence can be justifiable depending on circumstance, etc... all legal.
        friendlybus 7y ago
        You supported your statement that scabs should be physically stopped by advocating for violence. I don't see how you get out of this.
      - wang_li 7y ago
throwaway5752 7y ago
1. Using revenue comparison is incorrect. Profit is more complicated because you have to add back in compensation (and if necessary be able to know when r&d comp is capitalized and be able to break out r&d versus sg&a if you only talking about comp for particular groups of employees) but it is the correct per-employee stat to compare. 2. Median employee salary is wrong, you should look at average salary if you are comparing it to an average (revenue) figure. 3. You should correct for benefits and taxes. I don't know what they are, but salary is only part of the cost of an employee. I know you are trying to make a quick point, but FB has margins ~40% and all-in employee costs can be 50% higher than salary. Assuming the median comp is close to average, then it's possible FB is making appr. $700K or so per employee in profit and paying out appr. $300K which doesn't sound quite as bad.
- taurath 7y ago
  All in employee costs don’t rise nearly as fast as wages when wages go up.
  - throwaway5752 7y ago
    Which is why I used 25% / $60K towards the end of my example but you are correct to point that out.
- unapologetic 7y ago
  That sounds insanely bad. Why should they get 40% margins? Form a union, demand more money.
  - awb 7y ago
    50-100% margins are normal for many growing businesses. Once a company / industry matures it can get away with lower margins. If you have too much money leaving the business through employees (CEO included) you slow growth. If you don't have high enough margins you also slow growth. It's a balancing act and free and fair competition usually provides the correct answer.
scarejunba 7y ago
I don't think anyone is arguing that you shouldn't freely associate. Facebook employees who want to collectively bargain should be allowed to. That's just free association. They just shouldn't be allowed to prevent other employees from not unionizing and working without the union. And then, lots of people can choose not to unionize. Personally, I think few FBers will unionize. And then perhaps you could negotiate percentage of gross revenue if you wanted. But they could choose not to give you that. So long as we have free association, that's fine. Personally, I don't think "percent of gross" makes sense unless you're a founder and "percent of marginal gross" is near impossible to calculate so probably not that. I far prefer the market for labour and employment. You know how people say "it's not that you can't find engineers; you can't find engineers at what you're willing to pay". Well, if you can find engineers, then all is well.
- unapologetic 7y ago
  > They just shouldn't be allowed to prevent other employees from not unionizing and working without the union. Yes they should. Repeal all right to work laws.
  - throw_14JAS 7y ago
    How do you justify taking away my right to choose where and how I work?
    - unapologetic 7y ago
      You're free to quit a union job whenever you want. Be part of the group or don't work here. My justification is that it drastically increases the strength of the union.
      - throw_14JAS 7y ago
        Stronger unions also have their issues. I strongly disagree that union-only shops should be allowed. While I may be free to quit a union job, it feels quite gangster to say that I have to participate in one to take a job. I don't think the tradeoffs -- benefits from a union versus costs involved, especially when it's exclusively to pursue a career at a specific company -- favor unions. That said, I do think unions could be stronger, and get a bad rap. To me, this seems like a problem the larger/stronger unions caused (and still cause - see police unions). Your language - "be part of the group or don't work here" - is also a major disincentive. Artificially created black and white scenarios are reductionist.
SamReidHughes 7y ago
They aren't extracting money from the employees. Edit: and you're comparing revenue. FFS. Shouldn't the power company's employees also get a share of Facebook's profits, because they wouldn't be able to run their website without electricity?
esoterica 7y ago
Revenue isn’t income. Much of that $1.6 million goes towards paying suppliers and contractors and landlords and isn’t available for employee compensation.
awb 7y ago
> Why is it okay for a company to extract a so much more money from an employee than they pay them, but not okay for employees to band together to get paid what they're worth? Salaries are based on supply and demand, not value generated. More developers at your skill level = lower salaries for everyone. More successful companies competing for talent = higher salaries for everyone. If you want compensation based on value to the company, that's stock options or partial ownership. Tons of companies fail because they pay their employees more than the value they create. The salary a FAANG or any company offers is designed to be a win/win. The employee gets a fixed income they can plan their life around and the employer gets the potential upside of generating more revenue. As long as the marketplace is competitive and unbiased this works really well. Please also remember that revenue != profit. If I run a business and I generate $1.6M in revenue off of a $300k employee, it doesn't mean I'm walking home with $1.3M in my pocket. And running a business isn't exactly easy. If it was so easy to generate $1.6M off of a $300k employee, you'd be flooded with other companies willing to pay higher and higher salaries. It's really, difficult and rare.
- BigJono 7y ago
  > And running a business isn't exactly easy. If it was so easy to generate $1.6M off of a $300k employee, you'd be flooded with other companies willing to pay higher and higher salaries. It's really, difficult and rare. This logic is completely flawed. In-fact reality is almost the complete opposite. The difficulty of running a business is inversely proportional to your moat, and the first to market has a much easier path in almost every sector of the tech industry. Facebook doesn't have competitors offering more compensation because they're in a sector with an enormous barrier to entry. It's got fuck all to do with how good their competitors are, and even less to do with how "difficult" it is for them to run their business.
  - awb 7y ago
    > the first to market has a much easier path in almost every sector of the tech industry. Facebook doesn't have competitors offering more compensation because they're in a sector with an enormous barrier to entry. Except Facebook wasn't the first social network. And Google wasn't the first search engine. Facebook didn't crush all other social networks by being a 1st mover. They did it by constantly developing their product and making more engaging hooks into their platform and they hired the best like crazy (at the highest industry wages) to do it. They bought Instagram (a competitor -- and not a 1st mover btw) because they feared their competition. It won't be the last to threaten them either and they'll need more billions on hand to buy that company or innovate along side them to keep growing. I'm speaking as someone who's founded and sold a successful business, helped a bunch of 9 & 10-figure startups grow theirs and been around to see a ton of others fail completely. Unfortunately, it's not easy to make money or run a business as much as it might look that way from the outside. In a highly competitive hiring environment like tech the day you don't treat your employees well or pay them a competitive wage, they'll leave in a heartbeat. It's not uncommon to see resumes of talented developers with a new company every 9-12 months as they rocket up the payscales.
exolymph 7y ago
Those people don't generate $1,620,000 with their labor once they leave Facebook. That number comes from being plugged into the Facebook machine, part of its system. Which is why Facebook gets the revenue and the employee gets a salary.
- spamizbad 7y ago
  But that system is made of employees. It's not the office building or the computers. It's not the copy machine or the coffee maker. It's other workers. If all I needed to do was make the same capital investments as facebook to get the same returns wouldn't that be wonderful?
  - xyzzyz 7y ago
    It’s more than just employees. It’s also existing capital, both physical and in form of intellectual property (e.g. the codebases and their real world deployments), and the organization of labor inside the company. If you take 10 000 random software engineers and put them in one huge office without any business structure imposed on them, you aren’t going to see billions of dollars in revenue any time soon.
yibg 7y ago
Why should there be a direct correlation between company profit and salary? If a company is losing money should employees pay the company?
- Apocryphon 7y ago
  They already do as their equity comp loses value. And the management can, by taking smaller salaries.
  - yibg 7y ago
    Sure, and you can tie the two together more with higher equity component. But the argument here is that Facebook should pay engineers more because they make a lot of money. My point is, then should a company that doesn’t make as much money (which is most) pay their employees less? Or in the cases of companies that don’t make money, not pay their employees at all?
    - Apocryphon 7y ago
      Shouldn't companies with better profit margins seek to increase worker compensation? Otherwise why should those workers want to work there?
      - uerobert 7y ago
        They are already doing that, hence SV salaries.
        Apocryphon 7y ago
        While they are indeed very high compared to other professions and the national average, they are still on relatively low growth compared to others. There's also the argument that it's not software engineers that are overpaid, but that everyone else is underpaid [1]. [0] https://apnews.com/1a68c31f2cb54b15af536cbe168442bf https://apnews.com/1a68c31f2cb54b15af536cbe168442bf [1] https://qr.ae/TS0Zxe https://qr.ae/TS0Zxe
mbostleman 7y ago
It's Ok because employees are carrying short term debt, not equity. They don't participate in that upside you're referring to. And, conversely, they are not exposed to the downside either. There are numerous options available for those employees to have equity in that or many other companies if they're willing to risk their capital.
uncle_j 7y ago
No they are worth whatever the going rate is for their position. The market decides the salary. If programming was a unskilled job you would get supermarket salaries.

fennecfoxen 7y ago

This is the wrong number. The average revenue per employee isn't what determines a wage, even when the employees are fully interchangeable: it's the marginal revenue brought in by each extra employee.

sailfast 7y ago
I’d go further and say “marginal net revenue” rather than the gross. Using a revenue number for this makes no sense. Let’s ignore for now that this revenue also owes a great deal to the commons that is never paid back by most companies.
quotemstr 7y ago
One of the persistent sources of economic misunderstanding is the difficulty of marginal thinking. It's frequently counterintuitive and leads to a false sense of injustice, e.g., "If teachers are so important, why are they paid so little?"

omarchowdhury 7y ago

> but not okay for employees to band together to get paid what they're worth? Does not Facebook also retain the right to hire employees willing to take less?

unapologetic 7y ago
That's why we need to fight right to work laws. If the entire staff is unionized and ready to fight, facebook can't just hire outside staff. Too much knowledge. Also the historical union attitude towards scab labour is another way to prevent this.
- wang_li 7y ago
  >Also the historical union attitude towards scab labour is another way to prevent this. You mean violence? This is one of the reasons many people don't like unions.
  - unapologetic 7y ago
    Yes, I do mean violence. Employers have also heavily utilized violence. Then they turned to the law and misinformation. Violence is a last resort.
    - friendlybus 7y ago
      Advocating for violence is the one thing you can't do with free speech in the West. Everybody apologizes for that.
      - unapologetic 7y ago
        Incorrect. Advocating for direct violent action is illegal. Indirectly, saying that violence can be justifiable depending on circumstance, etc... all legal.
        friendlybus 7y ago
        You supported your statement that scabs should be physically stopped by advocating for violence. I don't see how you get out of this.
    - wang_li 7y ago

throwaway5752 7y ago

1. Using revenue comparison is incorrect. Profit is more complicated because you have to add back in compensation (and if necessary be able to know when r&d comp is capitalized and be able to break out r&d versus sg&a if you only talking about comp for particular groups of employees) but it is the correct per-employee stat to compare. 2. Median employee salary is wrong, you should look at average salary if you are comparing it to an average (revenue) figure. 3. You should correct for benefits and taxes. I don't know what they are, but salary is only part of the cost of an employee. I know you are trying to make a quick point, but FB has margins ~40% and all-in employee costs can be 50% higher than salary. Assuming the median comp is close to average, then it's possible FB is making appr. $700K or so per employee in profit and paying out appr. $300K which doesn't sound quite as bad.

taurath 7y ago
All in employee costs don’t rise nearly as fast as wages when wages go up.
- throwaway5752 7y ago
  Which is why I used 25% / $60K towards the end of my example but you are correct to point that out.
unapologetic 7y ago
That sounds insanely bad. Why should they get 40% margins? Form a union, demand more money.
- awb 7y ago
  50-100% margins are normal for many growing businesses. Once a company / industry matures it can get away with lower margins. If you have too much money leaving the business through employees (CEO included) you slow growth. If you don't have high enough margins you also slow growth. It's a balancing act and free and fair competition usually provides the correct answer.

scarejunba 7y ago

I don't think anyone is arguing that you shouldn't freely associate. Facebook employees who want to collectively bargain should be allowed to. That's just free association. They just shouldn't be allowed to prevent other employees from not unionizing and working without the union. And then, lots of people can choose not to unionize. Personally, I think few FBers will unionize. And then perhaps you could negotiate percentage of gross revenue if you wanted. But they could choose not to give you that. So long as we have free association, that's fine. Personally, I don't think "percent of gross" makes sense unless you're a founder and "percent of marginal gross" is near impossible to calculate so probably not that. I far prefer the market for labour and employment. You know how people say "it's not that you can't find engineers; you can't find engineers at what you're willing to pay". Well, if you can find engineers, then all is well.

unapologetic 7y ago
> They just shouldn't be allowed to prevent other employees from not unionizing and working without the union. Yes they should. Repeal all right to work laws.
- throw_14JAS 7y ago
  How do you justify taking away my right to choose where and how I work?
  - unapologetic 7y ago
    You're free to quit a union job whenever you want. Be part of the group or don't work here. My justification is that it drastically increases the strength of the union.
    - throw_14JAS 7y ago
      Stronger unions also have their issues. I strongly disagree that union-only shops should be allowed. While I may be free to quit a union job, it feels quite gangster to say that I have to participate in one to take a job. I don't think the tradeoffs -- benefits from a union versus costs involved, especially when it's exclusively to pursue a career at a specific company -- favor unions. That said, I do think unions could be stronger, and get a bad rap. To me, this seems like a problem the larger/stronger unions caused (and still cause - see police unions). Your language - "be part of the group or don't work here" - is also a major disincentive. Artificially created black and white scenarios are reductionist.

SamReidHughes 7y ago

They aren't extracting money from the employees. Edit: and you're comparing revenue. FFS. Shouldn't the power company's employees also get a share of Facebook's profits, because they wouldn't be able to run their website without electricity?

esoterica 7y ago

Revenue isn’t income. Much of that $1.6 million goes towards paying suppliers and contractors and landlords and isn’t available for employee compensation.

awb 7y ago

> Why is it okay for a company to extract a so much more money from an employee than they pay them, but not okay for employees to band together to get paid what they're worth? Salaries are based on supply and demand, not value generated. More developers at your skill level = lower salaries for everyone. More successful companies competing for talent = higher salaries for everyone. If you want compensation based on value to the company, that's stock options or partial ownership. Tons of companies fail because they pay their employees more than the value they create. The salary a FAANG or any company offers is designed to be a win/win. The employee gets a fixed income they can plan their life around and the employer gets the potential upside of generating more revenue. As long as the marketplace is competitive and unbiased this works really well. Please also remember that revenue != profit. If I run a business and I generate $1.6M in revenue off of a $300k employee, it doesn't mean I'm walking home with $1.3M in my pocket. And running a business isn't exactly easy. If it was so easy to generate $1.6M off of a $300k employee, you'd be flooded with other companies willing to pay higher and higher salaries. It's really, difficult and rare.

BigJono 7y ago
> And running a business isn't exactly easy. If it was so easy to generate $1.6M off of a $300k employee, you'd be flooded with other companies willing to pay higher and higher salaries. It's really, difficult and rare. This logic is completely flawed. In-fact reality is almost the complete opposite. The difficulty of running a business is inversely proportional to your moat, and the first to market has a much easier path in almost every sector of the tech industry. Facebook doesn't have competitors offering more compensation because they're in a sector with an enormous barrier to entry. It's got fuck all to do with how good their competitors are, and even less to do with how "difficult" it is for them to run their business.
- awb 7y ago
  > the first to market has a much easier path in almost every sector of the tech industry. Facebook doesn't have competitors offering more compensation because they're in a sector with an enormous barrier to entry. Except Facebook wasn't the first social network. And Google wasn't the first search engine. Facebook didn't crush all other social networks by being a 1st mover. They did it by constantly developing their product and making more engaging hooks into their platform and they hired the best like crazy (at the highest industry wages) to do it. They bought Instagram (a competitor -- and not a 1st mover btw) because they feared their competition. It won't be the last to threaten them either and they'll need more billions on hand to buy that company or innovate along side them to keep growing. I'm speaking as someone who's founded and sold a successful business, helped a bunch of 9 & 10-figure startups grow theirs and been around to see a ton of others fail completely. Unfortunately, it's not easy to make money or run a business as much as it might look that way from the outside. In a highly competitive hiring environment like tech the day you don't treat your employees well or pay them a competitive wage, they'll leave in a heartbeat. It's not uncommon to see resumes of talented developers with a new company every 9-12 months as they rocket up the payscales.

exolymph 7y ago

Those people don't generate $1,620,000 with their labor once they leave Facebook. That number comes from being plugged into the Facebook machine, part of its system. Which is why Facebook gets the revenue and the employee gets a salary.

spamizbad 7y ago
But that system is made of employees. It's not the office building or the computers. It's not the copy machine or the coffee maker. It's other workers. If all I needed to do was make the same capital investments as facebook to get the same returns wouldn't that be wonderful?
- xyzzyz 7y ago
  It’s more than just employees. It’s also existing capital, both physical and in form of intellectual property (e.g. the codebases and their real world deployments), and the organization of labor inside the company. If you take 10 000 random software engineers and put them in one huge office without any business structure imposed on them, you aren’t going to see billions of dollars in revenue any time soon.

yibg 7y ago

Why should there be a direct correlation between company profit and salary? If a company is losing money should employees pay the company?

Apocryphon 7y ago
They already do as their equity comp loses value. And the management can, by taking smaller salaries.
- yibg 7y ago
  Sure, and you can tie the two together more with higher equity component. But the argument here is that Facebook should pay engineers more because they make a lot of money. My point is, then should a company that doesn’t make as much money (which is most) pay their employees less? Or in the cases of companies that don’t make money, not pay their employees at all?
  - Apocryphon 7y ago
    Shouldn't companies with better profit margins seek to increase worker compensation? Otherwise why should those workers want to work there?
    - uerobert 7y ago
      They are already doing that, hence SV salaries.
      - Apocryphon 7y ago
        While they are indeed very high compared to other professions and the national average, they are still on relatively low growth compared to others. There's also the argument that it's not software engineers that are overpaid, but that everyone else is underpaid [1]. [0] https://apnews.com/1a68c31f2cb54b15af536cbe168442bf https://apnews.com/1a68c31f2cb54b15af536cbe168442bf [1] https://qr.ae/TS0Zxe https://qr.ae/TS0Zxe

mbostleman 7y ago

It's Ok because employees are carrying short term debt, not equity. They don't participate in that upside you're referring to. And, conversely, they are not exposed to the downside either. There are numerous options available for those employees to have equity in that or many other companies if they're willing to risk their capital.

uncle_j 7y ago

No they are worth whatever the going rate is for their position. The market decides the salary. If programming was a unskilled job you would get supermarket salaries.