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Sorry, guys, I am going to have to disagree with both this article and the suggestion that counter-offers should be turned down by employees. The truth is that

Sorry, guys, I am going to have to disagree with both this article and the suggestion that counter-offers should be turned down by employees. The truth is that despite the fact that lots of hn (yc) type startups have employees working for enough to cover their rent or whatever, and a bit of equity that has absolutely no defined value, when the company does take off, it's only fair to ask: All right, thanks for sticking by me, now what are you guys really worth! What is this killer graphics designer worth ; what is this DBA back-end coder worth who has just scaled us from a bedroom to millions of customers ; what is this accountant worth. If they don't have other offers, there is NO answer to that question. You can't appeal to the cost of their bedroom or car, you can't appeal to the chance to build something great, none of this is external or fair. Fair is what the market says. I remember somewhere years ago on Slashdot that it's impossible to be "ripped off" in a transaction, reasoning thus: "When you have a fistful of cash in one hand, and the offered good or service in front of you (forget what the example was), and you say 'ok' and get it, that's your choice, if you get what you thought you would get giving the money that was asked, you physically can't be ripped off. The money was in your hand and it was your choice". Well, sorry slashdot poster from years ago: that's false. When you have a fistful of money and buy something, but you are radically misinformed about the market price (to your disadvantage) then you just got ripped off. If you sell your vintage gold (whatever) for a couple of bucks, being told it's just for the value in gold, but a vintage gold (whatever) is worth 100x what you just paid: then you just got ripped off. The thing about talent like this is there is no market price because everyone is unique. The market price is whatever other offers you get. In the vintage gold whatever example, if someone says "This only has a tiny bit of gold in it, I can give you $100 for it", but in the same town five out of the five other specialists you would sell it to if this person wasn't in front of you offer at least $3,000 - then you just got ripped off. I'm not talking about if you were to sell it yourself (instead of to a specailists) to another buyer: maybe buyers themselves pay $8,000. I'm talking about other opportunities in the exact same circumstances and market. The fact is, "intrinsic" arguments (like how many ounces of gold is in something), what food and rent costs, what you paid the last guy, whatever, are worthless: the ONLY thing that establishes the market price in my market of my graphics designer is their other offers (not their own other work, which is a different market).. The ONLY thing that establishes the market price of my back-end engineer is their other offers (again, not their consulting work, which is a different market). I want to be fair with my employees, and I want to be treated fairly. I don't want to rip anyone off, nor do I want to be ripped off. The ONLY way to do this is to explore market prices, and the best mechanism to do this is through other offers (since no one is fungible with other people in this industry; you can't just 'look it up'). So I'm going to have to strongly disagree on all points here.

its_so_on 15y ago
one more thing. If I'm generous I'll pay everyone 10% more than they're worth. How do I do that?? I have to know what they're worth first. someone else in this thread said: "It's a productivity killer. If everyone knows that John is a better developer than Bill, but Bill gets paid twice as much because he understands corporate politics, then people focus on politics, feel like life is unfair, etc. The money saved by underpaying your best employees is rarely worth the inevitable productivity hit and loss of talent." If everyone knows that Bill and John each get 10% more here than anywhere else, then I am a generous and fair employer. If Bill and John respectively get -20% and -40% here as compared with what they would get elsewhere, then I am both non-generous and unfair. If they both get -10% as compared with anywhere else, then I am not generous, but at least fair. And if they get +20% and +35% as compared with what they would get elsewhere, then I am generous but unfair.
barrkel 15y ago
The market is inefficient because of the information problem - precisely as you say, everyone is unique. That harms your appeal to the market as a pricing mechanism. Anyone making an offer for an unknown potential employee logically and necessarily discounts the offered salary by a certain amount to take account of the unknown. So the market price for a developer is lower than what that developer should be making once they are a known quantity for the most profitable position for them in the market. And companies should give raises based on this - not on the market price, but on the known quantity, such that the only way that an offer exceeding the salary could be made is either (a) a position that creates more value (in which case the employee really should move, should money be their motivation) or (b) an irrational company.
- its_so_on 15y ago
  I don't really understand what you're saying. I gave a pretty concrete example: I have Andrew or Alice who does graphics design, Barbara or Bob who does finance, and Carol (m/f) who does the back-end coding and all operations. They're pretty young, and I can't pay them what they're worth or anything near it. Now, I get some cash into the company: how do I now pay them what they're worth? What is your suggestion? If my company competes successfully in its niche because of the level of fit and finish, and design, should I pay Andrew/Alice proportionally more than Barbara/Bob or Carol? Now what if my company competes successfully because of the scalable infrastructure - it's really an ops company, and it's just a faster service and that's why everyone uses it. Nobody cares about design. Then suddenly does Carol deserve more money than Andrew/Alice or Barbara/Bob? Now what if it's an excruciatingly tough market where everyone is incredibly price-sensitive. But by doing market research and have our financial acts together the best out of the companies competing in our space, we grow and prosper and persevere over them? No. This is wrong. This leads to talented designers and finance gals and guys leaving because they're not being paid what they're worth OR appreciated. It leads to the ops company saying: "You don't get what you'd make elsewhere BECAUSE you're less important". This is the WORST POSSIBLE SOLUTION. Of course, at an executive level you can choose to hire a BETTER designer/lead designer in one type of company, a BETTER or BETTER-CONNECTED or MORE EXPERIENCED finance gal or guy in another context, or a BETTER or MORE EXPERIENCED or whatever gal or guy for ops and back-end in a third context. You pay them more because they're WORTH more. If you really want to go above and beyond, sure, pay them MORE than they'd get elsewhere. Show appreciation by paying or rewarding above market. But your suggestion is right in line with command Communist economies, and goes about as far. By the way I think that's great in a small 1-5 person socialist setting (as in a family for example!). It's no way to run a company though. *I also want to add that on the small level, "to each according to need" is also valid! If only one of the three first employees has a mortgage, then they might get a bit more to start off. This doesn't scale, and I'm telling you what needs to be done when you become an actual company with sound finances and a desire to grow, acquire and retain talent that won't be bitter.

its_so_on 15y ago

one more thing. If I'm generous I'll pay everyone 10% more than they're worth. How do I do that?? I have to know what they're worth first. someone else in this thread said: "It's a productivity killer. If everyone knows that John is a better developer than Bill, but Bill gets paid twice as much because he understands corporate politics, then people focus on politics, feel like life is unfair, etc. The money saved by underpaying your best employees is rarely worth the inevitable productivity hit and loss of talent." If everyone knows that Bill and John each get 10% more here than anywhere else, then I am a generous and fair employer. If Bill and John respectively get -20% and -40% here as compared with what they would get elsewhere, then I am both non-generous and unfair. If they both get -10% as compared with anywhere else, then I am not generous, but at least fair. And if they get +20% and +35% as compared with what they would get elsewhere, then I am generous but unfair.

barrkel 15y ago

The market is inefficient because of the information problem - precisely as you say, everyone is unique. That harms your appeal to the market as a pricing mechanism. Anyone making an offer for an unknown potential employee logically and necessarily discounts the offered salary by a certain amount to take account of the unknown. So the market price for a developer is lower than what that developer should be making once they are a known quantity for the most profitable position for them in the market. And companies should give raises based on this - not on the market price, but on the known quantity, such that the only way that an offer exceeding the salary could be made is either (a) a position that creates more value (in which case the employee really should move, should money be their motivation) or (b) an irrational company.

its_so_on 15y ago
I don't really understand what you're saying. I gave a pretty concrete example: I have Andrew or Alice who does graphics design, Barbara or Bob who does finance, and Carol (m/f) who does the back-end coding and all operations. They're pretty young, and I can't pay them what they're worth or anything near it. Now, I get some cash into the company: how do I now pay them what they're worth? What is your suggestion? If my company competes successfully in its niche because of the level of fit and finish, and design, should I pay Andrew/Alice proportionally more than Barbara/Bob or Carol? Now what if my company competes successfully because of the scalable infrastructure - it's really an ops company, and it's just a faster service and that's why everyone uses it. Nobody cares about design. Then suddenly does Carol deserve more money than Andrew/Alice or Barbara/Bob? Now what if it's an excruciatingly tough market where everyone is incredibly price-sensitive. But by doing market research and have our financial acts together the best out of the companies competing in our space, we grow and prosper and persevere over them? No. This is wrong. This leads to talented designers and finance gals and guys leaving because they're not being paid what they're worth OR appreciated. It leads to the ops company saying: "You don't get what you'd make elsewhere BECAUSE you're less important". This is the WORST POSSIBLE SOLUTION. Of course, at an executive level you can choose to hire a BETTER designer/lead designer in one type of company, a BETTER or BETTER-CONNECTED or MORE EXPERIENCED finance gal or guy in another context, or a BETTER or MORE EXPERIENCED or whatever gal or guy for ops and back-end in a third context. You pay them more because they're WORTH more. If you really want to go above and beyond, sure, pay them MORE than they'd get elsewhere. Show appreciation by paying or rewarding above market. But your suggestion is right in line with command Communist economies, and goes about as far. By the way I think that's great in a small 1-5 person socialist setting (as in a family for example!). It's no way to run a company though. *I also want to add that on the small level, "to each according to need" is also valid! If only one of the three first employees has a mortgage, then they might get a bit more to start off. This doesn't scale, and I'm telling you what needs to be done when you become an actual company with sound finances and a desire to grow, acquire and retain talent that won't be bitter.