6 ms·

I own a small but quite successful software business and struggle with how much to pay people. Our developers are all quite happy with their jobs and (as far a

I own a small but quite successful software business and struggle with how much to pay people. Our developers are all quite happy with their jobs and (as far as I know) compensation. Several of them have spontaneously told me it's the best job they've ever had. When hiring, I will ask if there's a level of compensation they have in mind, but I don't press if they don't want to state a number. However, any who have stated a number tend to quote ranges which I find quite reasonable. (In the 60k range for intermediate to senior people.) We're not in an expensive area, and those ranges line up with average to above average from what I can tell on Payscale and such. So, I end up paying people around, or even slightly over, the top of the range they quote. It's certainly within our means, and being well paid should allow them to focus on the work and not worry too much about compensation. (From my own past experience, normally if you say you're looking for $X to $Y, the employer hears $X.) So far, so good. I certainly wouldn't want to pay less. However, our profits are still very healthy. In other words, I effectively still make considerably more than my developers. Of course, I would expect to make more given the time I've put in and the risk I've taken. It's just a job to them. And they're happy with what they're making, and it IS market level. But... I still feel awkward about how much the company is making compared to their salaries. I wonder how they would feel if they knew the exact numbers. (Although I imagine they could estimate it fairly closely if they wanted to.) I wonder if I'm being greedy watching my savings rapidly grow while my employees make good but not fantastic money. But at the same time, I have trouble with the idea of voluntarily paying everyone considerably more than they a) are happy with and b) asked for, given that I know the rates we're paying are already competitive and we have no trouble hiring.

Osiris 11y ago
Why not have the employees participate in a profit sharing program? On a quarterly or annual basis, any profits over a minimum level get split so a percentage gets put into a pool and distributed to employees as a bonus. This distribution could be based on salary or just an even split. The advantage here is that employees are 1) rewarded for the work they do, and 2) shows that the company understands the value that they bring, 3) the employees become invested in the success of the business because they benefit directly from it (as opposed to a flat "10% bonus based on salary"). As an employee myself, it's hard to look at companies that make massive profits but don't reward those responsible for helping make that happen (the labor force). One could argue "anyone could do that job", or "if it wasn't him it would be someone else", but that doesn't matter. Just because you CAN take all the profits for yourself doesn't mean that you should. From an economic perspective, funds going to employees are turned around in the economy and generate more economic activity that money sitting in your bank account.
- throwaway879168 11y ago
  Certainly if I did decide to start paying considerably above-market rate, I would do it in the form of profit sharing, because anything else would be taking a considerable risk should profits decline. However, there's still the question of whether that's the thing to do. I mean, certainly it would be a nice thing to do. But so would giving more to charity, or to my parents. Or lowering the price of our product for that matter. The only difference is that, as you say, the employees help generate those profits. But only to a point; the first developer I hired was after the company was profitable, and she's actually moved on to her own startup. So it would be more about sharing the current wealth than rewarding people for getting us where we are. Still, obviously it's something I'm considering, or I wouldn't have posted. And I guess it doesn't have to be all or nothing; I can obviously choose to share any amount of the profits. Really don't follow the last argument. I would hope if my employees got a sudden large raise, they would put most of that money into their own retirement savings, rather than just increasing their spending. But even if they didn't, by your argument the best thing I could do would be to just blow the profits myself buying cars or whatever. I think the money does the economy just fine in an investment account, providing capital to public companies and the government.
  - Osiris 11y ago
    The last argument was really more of a macro view. Economists have shown that reducing wealth inequality actually increases economic output more. For example, for someone that makes $10k a year, give them an extra $10k, that whole $10k is going back into the economy as an increase in demand. For someone making $100k, maybe 50% of an extra $10k goes back into circulation through spending, for someone making $1m/yr, the extra $10k does nothing to increase demand. Economic activity = spending. The more wealth that's concentrated in investments and saving, the less is available for increasing economic output. This type of argument is used to explain how an increase in the minimum wage would actually make the economy better for everyone, not just those that get the pay increase. Simple supply and demand. Increase demand (higher income for laborers) increases supply (which increases employment by requiring more workers). Think of it another way, would $10k make a bigger difference to your employee or to yourself?
ScottBurson 11y ago
I guess you need to get over feeling awkward :-) You successfully started a business. Not many people even try to do that, and of those who try, not many succeed. You have created jobs that people are evidently happy to have. In short, you have come by your wealth honestly. The only other thing I would encourage you to do is, if any of your employees express interest in the entrepreneurial path, encourage and even mentor them. Maybe even be their angel investor, if you believe in them and like their idea. That would be a great way to give back to the world out of what you have received.
- throwaway879168 11y ago
  Thanks. My first employee did actually leave to start her own company, and I did try to be as supportive as possible, although I was sad to see her go. (I did decline to invest, as I wasn't really confident in the concept, but I certainly tried to give any useful advice I could.)
cam_l 11y ago
"the risk I've taken." Really curious about this part of your comment. People with more to lose often imagine that they risk more than someone with little to lose. I think of it the other way around, do you risk more but betting a hundred k if you still have fifty in your pocket? or a hundred bucks if it's your last hundred? My take is, your risk gets higher as you get to the point of only having your health and future well being to lose. And have you done your sums as to when your risk / reward profile starts getting even? maybe that is the point you start thinking about sharing the profit? "It's just a job to them." I have had a few jobs where my employers treated me as 'just' an employee.. though i never treated it as 'just' a job. If your employees stay with you for any length of time, then it is not 'just' a job, but a step in their career. You are in a position of power to help them in their career, or 'just' exploit them for profit. It is not all about money for employees.. if you are giving them a boost in their career, maybe that is more valuable than the cash for them?
- throwaway879168 11y ago
  Perhaps "just a job" was a poor choice of words. I certainly don't think of my employees as "just" anything. I do everything possible to help them advance in knowledge and abilities, and as I said, I have had extremely positive feedback. My meaning by both that and the risk comment was the same: as employees, they have a guaranteed salary from day one. They're not taking an appreciable risk, at least not as I understand the term to be commonly used. I spent years of my free time working on this project before I ever knew it would make money. Then when it started to look promising, I quit my day job, and built it to profitability myself before hiring anyone. It could have easily failed along the way, in which case I would have been out everything I could have earned in the meantime, not to mention all my free time invested, or the fact that unless I wanted to work at another startup I would've had more valuable experience in my day job. I do agree with you that there is value in providing a positive work environment and helping further employees' careers, so I'm happy to be able to do those things.
  - cam_l 11y ago
    cool.. thanks, i got the impression from your original comment that you are not a run of the mill employer. plus, it sounds like you did a fair bit to manage the risks appropriately for yourself. but i also think employees risk a fair bit in moving to a new job, and in the the success or failure both of the job and the business. particularly if they aren't able to build savings of cash or spent time behind them to start the new step in their career, if something goes wrong. to add to that, they typically have no power in managing the risks of the business, and little power in how their efforts are valued in the job. so, anything you can do to minimise those sorts of risks for employees—like you say, positive work environment and helping further employees' careers—also goes towards reducing their risk/reward profile.. and perhaps some way toward assuaging your doubt about pay?
Frondo 11y ago
Everyone takes a risk. It isn't just you. Your developers don't know whether the company's going under tomorrow, they don't know if you're running off to Mexico. They've thrown in their lot with you, and they have a ton riding on you being honorable, a good businessperson, etc. Using your "risk" as a way of explaining why you take way more than one of your staffers sounds like the typical post hoc ergo propter hoc handwaving. Exploitation by any other name. Sorry, I don't mean this to sound totally dismissive, it sounds like you run a decent shop and I like that your devs are happy, but talking about your pay disparity in terms of "risk" just sounds like a thin explanation for "because I said so".
softbuilder 11y ago
Worry less about the average you're paying and focus more on the spread. Employees can always rationalize the big picture. (Our employer pays less but is stable. Our employer pays very well because they hire the best. Etc., etc..) It's a totally different story when a employee discovers that they are making $20k less than their comparable co-worker.
- Osiris 11y ago
  I've never understood the taboo for saying how much you make. I've tried to avoid this taboo. When my previous employer closed the office I was in, I shared all the offers I got with a co-worker as did he. I was getting better offers, but I had more experience and neither of us felt embarrassed or insecure about it. We both ended up with pay increases at our new jobs. Companies rely on this taboo to negotiate the lowest wages possible for each employee, to the point that I know managers that made less than the people they managed, or a developer doing the same level as work as me making $48 when I was making $83, because he came in as a junior developer rather than being higher at the level he was producing at. I encouraged him to ask for $70k or get another job. He got another job at $67k. The only reason he knew he was underpaid was because I brought up the topic and shared what I was making.

Osiris 11y ago

Why not have the employees participate in a profit sharing program? On a quarterly or annual basis, any profits over a minimum level get split so a percentage gets put into a pool and distributed to employees as a bonus. This distribution could be based on salary or just an even split. The advantage here is that employees are 1) rewarded for the work they do, and 2) shows that the company understands the value that they bring, 3) the employees become invested in the success of the business because they benefit directly from it (as opposed to a flat "10% bonus based on salary"). As an employee myself, it's hard to look at companies that make massive profits but don't reward those responsible for helping make that happen (the labor force). One could argue "anyone could do that job", or "if it wasn't him it would be someone else", but that doesn't matter. Just because you CAN take all the profits for yourself doesn't mean that you should. From an economic perspective, funds going to employees are turned around in the economy and generate more economic activity that money sitting in your bank account.

throwaway879168 11y ago
Certainly if I did decide to start paying considerably above-market rate, I would do it in the form of profit sharing, because anything else would be taking a considerable risk should profits decline. However, there's still the question of whether that's the thing to do. I mean, certainly it would be a nice thing to do. But so would giving more to charity, or to my parents. Or lowering the price of our product for that matter. The only difference is that, as you say, the employees help generate those profits. But only to a point; the first developer I hired was after the company was profitable, and she's actually moved on to her own startup. So it would be more about sharing the current wealth than rewarding people for getting us where we are. Still, obviously it's something I'm considering, or I wouldn't have posted. And I guess it doesn't have to be all or nothing; I can obviously choose to share any amount of the profits. Really don't follow the last argument. I would hope if my employees got a sudden large raise, they would put most of that money into their own retirement savings, rather than just increasing their spending. But even if they didn't, by your argument the best thing I could do would be to just blow the profits myself buying cars or whatever. I think the money does the economy just fine in an investment account, providing capital to public companies and the government.
- Osiris 11y ago
  The last argument was really more of a macro view. Economists have shown that reducing wealth inequality actually increases economic output more. For example, for someone that makes $10k a year, give them an extra $10k, that whole $10k is going back into the economy as an increase in demand. For someone making $100k, maybe 50% of an extra $10k goes back into circulation through spending, for someone making $1m/yr, the extra $10k does nothing to increase demand. Economic activity = spending. The more wealth that's concentrated in investments and saving, the less is available for increasing economic output. This type of argument is used to explain how an increase in the minimum wage would actually make the economy better for everyone, not just those that get the pay increase. Simple supply and demand. Increase demand (higher income for laborers) increases supply (which increases employment by requiring more workers). Think of it another way, would $10k make a bigger difference to your employee or to yourself?

ScottBurson 11y ago

I guess you need to get over feeling awkward :-) You successfully started a business. Not many people even try to do that, and of those who try, not many succeed. You have created jobs that people are evidently happy to have. In short, you have come by your wealth honestly. The only other thing I would encourage you to do is, if any of your employees express interest in the entrepreneurial path, encourage and even mentor them. Maybe even be their angel investor, if you believe in them and like their idea. That would be a great way to give back to the world out of what you have received.

throwaway879168 11y ago
Thanks. My first employee did actually leave to start her own company, and I did try to be as supportive as possible, although I was sad to see her go. (I did decline to invest, as I wasn't really confident in the concept, but I certainly tried to give any useful advice I could.)

cam_l 11y ago

"the risk I've taken." Really curious about this part of your comment. People with more to lose often imagine that they risk more than someone with little to lose. I think of it the other way around, do you risk more but betting a hundred k if you still have fifty in your pocket? or a hundred bucks if it's your last hundred? My take is, your risk gets higher as you get to the point of only having your health and future well being to lose. And have you done your sums as to when your risk / reward profile starts getting even? maybe that is the point you start thinking about sharing the profit? "It's just a job to them." I have had a few jobs where my employers treated me as 'just' an employee.. though i never treated it as 'just' a job. If your employees stay with you for any length of time, then it is not 'just' a job, but a step in their career. You are in a position of power to help them in their career, or 'just' exploit them for profit. It is not all about money for employees.. if you are giving them a boost in their career, maybe that is more valuable than the cash for them?

throwaway879168 11y ago
Perhaps "just a job" was a poor choice of words. I certainly don't think of my employees as "just" anything. I do everything possible to help them advance in knowledge and abilities, and as I said, I have had extremely positive feedback. My meaning by both that and the risk comment was the same: as employees, they have a guaranteed salary from day one. They're not taking an appreciable risk, at least not as I understand the term to be commonly used. I spent years of my free time working on this project before I ever knew it would make money. Then when it started to look promising, I quit my day job, and built it to profitability myself before hiring anyone. It could have easily failed along the way, in which case I would have been out everything I could have earned in the meantime, not to mention all my free time invested, or the fact that unless I wanted to work at another startup I would've had more valuable experience in my day job. I do agree with you that there is value in providing a positive work environment and helping further employees' careers, so I'm happy to be able to do those things.
- cam_l 11y ago
  cool.. thanks, i got the impression from your original comment that you are not a run of the mill employer. plus, it sounds like you did a fair bit to manage the risks appropriately for yourself. but i also think employees risk a fair bit in moving to a new job, and in the the success or failure both of the job and the business. particularly if they aren't able to build savings of cash or spent time behind them to start the new step in their career, if something goes wrong. to add to that, they typically have no power in managing the risks of the business, and little power in how their efforts are valued in the job. so, anything you can do to minimise those sorts of risks for employees—like you say, positive work environment and helping further employees' careers—also goes towards reducing their risk/reward profile.. and perhaps some way toward assuaging your doubt about pay?

Frondo 11y ago

Everyone takes a risk. It isn't just you. Your developers don't know whether the company's going under tomorrow, they don't know if you're running off to Mexico. They've thrown in their lot with you, and they have a ton riding on you being honorable, a good businessperson, etc. Using your "risk" as a way of explaining why you take way more than one of your staffers sounds like the typical post hoc ergo propter hoc handwaving. Exploitation by any other name. Sorry, I don't mean this to sound totally dismissive, it sounds like you run a decent shop and I like that your devs are happy, but talking about your pay disparity in terms of "risk" just sounds like a thin explanation for "because I said so".

softbuilder 11y ago

Worry less about the average you're paying and focus more on the spread. Employees can always rationalize the big picture. (Our employer pays less but is stable. Our employer pays very well because they hire the best. Etc., etc..) It's a totally different story when a employee discovers that they are making $20k less than their comparable co-worker.

Osiris 11y ago
I've never understood the taboo for saying how much you make. I've tried to avoid this taboo. When my previous employer closed the office I was in, I shared all the offers I got with a co-worker as did he. I was getting better offers, but I had more experience and neither of us felt embarrassed or insecure about it. We both ended up with pay increases at our new jobs. Companies rely on this taboo to negotiate the lowest wages possible for each employee, to the point that I know managers that made less than the people they managed, or a developer doing the same level as work as me making $48 when I was making $83, because he came in as a junior developer rather than being higher at the level he was producing at. I encouraged him to ask for $70k or get another job. He got another job at $67k. The only reason he knew he was underpaid was because I brought up the topic and shared what I was making.