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Generally, compensation is pretty closely tied to revenue per employee. Not always, but it’s a pretty good rule of thumb. Companies that can’t afford to pay FA
by dcolkitt 5y ago
Generally, compensation is pretty closely tied to revenue per employee. Not always, but it’s a pretty good rule of thumb.
Companies that can’t afford to pay FAANG wages, typically don’t have FAANG productivity levels. Productivity in software is closely tied to how effective the technology and processes are. Most of those factors are fairly portable across companies.
So, I would say that an engineer working at a high total comp firm is likely acquiring more valuable human capital. Not always, but it’s a pretty good rule of thumb. If a company can afford to pay engineers $300k, they’re probably doing something right, in a way the company who pays $75k isn't.
- HWR_14 5y ago> Generally, compensation is pretty closely tied to revenue per employee. Not always, but it’s a pretty good rule of thumb. I don't know of any theoretical reason that would be true nor see any evidence of that in practice.
- dcolkitt 5y agoIn microeconomics, it’s a pretty foundational tenet that wages normalize to marginal worker productivity.
- HWR_14 5y agoI don't remember that from any of my microeconomic courses. I mean, maybe you mean society wide (aka macro), but that's only as average worker productivity rises, and has nothing to do with particularly efficient single firms.
- brutus1213 5y agoSimple thought experiment. Firms will continue to hire until wage = marginal productivity .. otherwise, you leave money on the table. Usual BS assumptions on perfect information/competition, cetrus paribus, and all that stuff.
- HWR_14 5y agoIn your simple thought experiment, why are wages going up for that one firm? You're hiring more people, not raising the wages of the existing people. And I'm not sure why you think unit economics apply to software with it's almost 100% fixed costs.