I suspect that the market is finally catching up. A good dev might might generate $4M of revenue (or savings) over the course of his tenure.

I know I saved companies millions of dollars but only got $100k/yr doing it.

> I know I saved companies millions of dollars but only got $100k/yr doing it.

Let's use an arbitrary 1m saving.

If you saved a company (me) a million dollars, you just made 10% (aka 100K). That's a pretty good commission. If you got health care, retirement contributions and anything else on top of that, you have made an exceptional commission.

Because I gather you mention saving you mean on sunk costs. The second year you earn 100K, and if you don't save me money you have now made 20% commission and only saved me 800K (1m - 100K - 100k). And so on and so on, or you need to keep saving me 1m a year and there is a point where my costs will reach $0 and your salary will outpace that, increasing my costs.

This obviously is a very linear representation where you're not adding extra value, nor am I incurring any additional cost/losses by employing you. Cost savings are reflected once in my bottom line but your salary is reflected every year in my in operating costs.

However if you made me an extra 1m a year revenue (and my costs stayed the same), I would make 900K from you every year, and you make 10%. But if my costs increased then that 900K revenue is much smaller, let's say my revenue increased 900K but my costs increased 100K, you make around 12%. Now we are talking about profit.

If I provide 1M of value to the company, why would it not be ridiculously bad to get 10% of that value for myself? You call it a "commission" as if this was a salesman getting a cut of the cost of the product they sold, but a salesperson selling a $1M product is not providing $1M to the company - the $1M is split between the salesperson, people building the product, marketing etc.

On the other hand, an investor who gives the company $1M normally expects to get more than 100% of that back (with some risks, of course). Or would you say that an investment where you pay $1M to get $100K back is a good investment?

> If you are not producing sales or a product which is sold, or reducing costs just how are you adding 1m of value. By this I mean tangible value, value which you can be paid for. Because that is what we are actually talking about monetary value being added somewhere.

The precise mechanism isn't that important, but if it helps, imagine the following artifical scenario: a small startup buys 2 1000$ computers and hires a programmer and a salesperson, for 10k$ a month each. The programmer produces an app in 6 months, and the salesperson sells it for $3M. The two together have brought the company $3M in worth, minus $130k that they cost. Exactly how much esch contributed to the $2.8M is harder to say, but certainly each only contributed a portion of the $2.8M - even though the salesperson actually caused the revenue to flow in, they are not solely responsible; and neither is the programmer, even though they single-handedly created the product.

> Why would I ever say investing 1m to get 100k back is a good investment, getting 1.1m back might be a good investment depending on risk though, sticking 1m in a bank I am unlikely to get that rate of return for example. But I don't understand this part at all.

Well, a worker who, through their time and expertise, is adding $1M to the company's value is almost precisely equivalent to the investor investing $1M. However, you believe that the worker should get back 10% of what they invested, while the investor should get back 110% of what they invested. Do you see the double standard?

> The two together have brought the company $3M in worth, minus $130k that they cost. Exactly how much esch contributed to the $2.8M is harder to say, but certainly each only contributed a portion of the $2.8M - even though the salesperson actually caused the revenue to flow in, they are not solely responsible; and neither is the programmer, even though they single-handedly created the product.

This would be a rare occurrence, but let's run with it. I don't think anywhere I have alluded to anything which could be considered as making such judgement on whom is worth more but rather the idea that businesses are systems with many actors.

But I think we are running around the obvious question, out of $2.8m, and ignoring any other costs and expenses like taxes for example (21% in the US), how much should the programmer get paid, how much should the sales person be paid?

If I had a company and I had 1 person sewing t-shirts which sold for $5, and another person sewing the same amount of t-shirts, same skill level, same quality of work but they were supreme t-shirts selling for $38. Should I pay the second work many times more, since they make me 7+ times more doing the same job. I don't think the market would say I would. Unless you have a unique skill or go beyond the level of the second employee, the rate would be the same. Even your software selling for 3m is set by the market, you cannot stick a price on it and say it is worth 50m and it's worth 50m.

The same argument goes for developers, it's a generic pool of skilled workers. While there maybe an argument for paying a high profit generating developer more, the majority of developers are likely to be the lower end. Maybe some people just get lucky, for example it is probably easier generating 1m of revenue working at Facebook (developer A), than it would be working at a small boutique development firm (developer B), developer A being no different than developer B, should developer A get paid more just because of the opportunity they have.

> Well, a worker who, through their time and expertise, is adding $1M to the company's value is almost precisely equivalent to the investor investing $1M. However, you believe that the worker should get back 10% of what they invested, while the investor should get back 110% of what they invested. Do you see the double standard?

There is no double standard, and they are not equivalent. The employee earns a salary, the invest earns via capital gains (excluding cases of dividends and profit shares). An investor can lose everything, while an employee gets paid.

If you think an employee == investor then you should not expect a salary at all, you getting paid depends on whether the company makes a profit and if there are capital gains to be had.

I think you should consider that employees are more like businesses, you are selling you product/services (aka skills) to a customer.

> Cost savings are reflected once in my bottom line

Recurring costs and savings of the same are very real things, and there is a ton of money to be saved by streamlining this for many businesses that have grown without pruning and/or streamlining their internal systems.

For most software businesses, it is more lucrative to spend resources increasing revenue, but at some point decreasing costs becomes worth it. For non-software businesses, the “some point” is usually right now.

> Recurring costs and savings of the same are very real things, and there is a ton of money to be saved by streamlining this for many businesses that have grown without pruning and/or streamlining their internal systems.

Yes, streamlining can save a great deal of money, and consultants and businesses are making good money offering such services. But they are only represented once generally in financials of a company, unless that cost is reduced over time.

> For most software businesses, it is more lucrative to spend resources increasing revenue, but at some point decreasing costs becomes worth it. For non-software businesses, the “some point” is usually right now.

In general this is correct, but there are situations where cost savings aren't worth it. We see this play out with the idea of Linux vs Windows quite often, the reduction in cost switching to Linux is over shadowed by other issues such as training etc. Switching accounting systems, service providers etc might just not be worth the cost reduction.

The opposite is also often true. Especially in tech, where we build things computers do ever afterwards. If my team implements a feature that generates $5M per year, and gets $500k that first year (10%), the expectation is that they don’t just sit back and maintain the feature ever after. They’re expected to maintain it while implementing the next $5M/year feature. By the end of year two, for the cost of $1M, they’ve given you $15M plus $10M/year going into the future. Of course it’s not that simple, because maintenance costs are crazy and nothing lasts forever, but the idea holds.

If you imagine the ongoing revenue to be worth 10x today, that 10% commission is just 1%.

> The opposite is also often true.

I think it is very admirable for a company to pay profit sharing, and at the very least pay bonuses for good work. But that is because I am an employee :)

I just don't think profit sharing is realistic in the majority of situations for many reasons, and people over value their own worth. There's like a bias, if I generate multiple of millions for a company, then I must be highly skilled. That may be the case but sometimes it is the business itself which provides the environmental factors for that to be possible.

> The second year you earn 100K, and if you don't save me money you have now made 20% commission and only saved me 800K (1m - 100K - 100k).

I disagree. Savings is a competitive advantage usually dropping your costs, time to market, and increasing profits, or efficiency, even if you don't reflect that on the books. Managers could ask employees to do more things as opposed to reducing the labor costs (layoffs), e.g.

Also since it's software, those savings typically compound. E.g: so I save tedium in accounting for $1M in the first year. It's so successful that you expand my efforts to other parts of your company. The next year you still have $1M + whatever I have added. Or $2M+ over the course of 2 years.

If you decide to go with a external package and pay a recurring licensing cost -- which is pretty common in the software industry, then you'd be paying maybe 10% of whatever you save per year. One software package we were looking at was $6M/annum. That's roughly 30 engineers being paid $200k for a year to come up with an alternative. We're using 5 engineers to do the same thing for less.

While it's hard to gauge true costs, paying my team $1M to save you $6M in recurring costs seems like a bargain, and something that's hard to argue against. In fact $2M might not be a bad number either depending upon how management sees it.

> If you decide to go with a external package and pay a recurring licensing cost -- which is pretty common in the software industry, then you'd be paying maybe 10% of whatever you save per year. One software package we were looking at was $6M/annum. That's roughly 30 engineers being paid $200k for a year to come up with an alternative. We're using 5 engineers to do the same thing for less.

Ok fair enough, now lets say I am an Accountant and I work out that I can increase profits even further by hiring 5 people offshore for 30K a year. I am paying now $150K to save $6m. You cannot deny me the accountant, the same opportunity to earn from cost reductions if you profit from it, that would not be in the theme of rewarding people for giving an advantage to a company.

If you look at both situation, mine is more efficient based on cost.

But most all you're playing an unfair advantage. You say the following: (* caveat lets say fair market value is 100k per developer)

> That's roughly 30 engineers being paid $200k

What happens if there are only 5 developers working for that company too, and working on the same profit-reward model as you are working on, they are getting paid 400K a year each because they are making the company $4m. So what's their true value, if they are being paid 400K and they can be replaced by your team for 200K it seems that they are being over paid 200K. Your way of justifying your 2x pay is that you decreased cost, their justification of being paid 4x is that they increased profits, but you're doing the same job, aren't they worth more than you are.

I the accountant see a business opportunity, and start a company the same as the 3rd party software company. I know that developers like you work on a profit-reward model of 20%. So your job did get outsource, but you were getting paid 200K to save the company a part of the 6m before that. I reduce the cost of the software by 50% to 3m, I offer you and your team 100K base salary and 20% of profits (2.5m for ease, 3m - 5x developers @ 100k), so would you take the job for 150k, a 25% reduction in pay for doing the same job based on the same model?

Here's the final point, how much do you pay a cleaner, they are a cost they don't produce profit.

> Ok fair enough, now lets say I am an Accountant and I work out that I can increase profits even further by hiring 5 people offshore for 30K a year.

Sure and then you'd find yourself without a job, thinking an accountant can understand what a software engineer does.

> Here's the final point, how much do you pay a cleaner, they are a cost they don't produce profit.

If they're cleaning up people's shit in the restrooms? Above market rate to make sure they're happy.

Plus it costs a lot more than salary to employ an engineer. You also need to pay hosting and operating costs for the product, office and technology support costs, support personnel costs (hiring, HR, procurement, secretarial, finance, payroll), business insurance. All of that needs to be amortized across the 'front line' costs. The cost of employing someone is generally about double what you actually pay them and can be a lot more.

> Plus it costs a lot more than salary to employ an engineer.

Yes, the operational costs can be substantial.

I fixed a single bug that recovered amount (in todays terms ) in my mid 20's.

Neither I or the company secretary I worked with to ever got a word of thanks.

To be fair, someone else made a bug that cost that much. I don't think you want to be in the business of getting a say 20% of revenue from big fixes, but also get 20% of revenue from bug creation? Or hey maybe you do, you could try to get that in your next contract.

Sales constantly generate revenue and costs (feature requests) - do they get penalised when they don’t win client?

Yes they do, their commission drops. Which could be something like 50% of base pay.

Imagine if as a dev you want to make 100k.. so instead you make 50k guaranteed (base pay), but then bonuses based on how many JIRAs you close. Hit your bug target make 100k. Get stuck on a nasty one? Opps, only 90k.

To be fair, sales teams lose commissions, bonuses, and are more easily tied closer to performance metrics -- which makes them easier to be fired.

Business is incredibly willing to accept bugs and often extremely unwilling to fix them.

Yeh a previous FD who brought that POS accounts receivable.

At least you can be sure that the deed was not forgotten, someone higher likely took credit for it.

It doesn't matter how much revenue you generate. It's irrelevant. People get paid based on supply and demand.

Yes, and generating more revenue would tend to instead demand for your skills, no?

That's actually kind of the point.

Managers have been pretty much in control of the narrative about what's happening underneath them when relaying to up the chain, and therefore they could overstate their own self importance -- when really it was the people under them that came up with the ideas, found the savings, made the efficiency gains happen... etc etc. (There are many managers that are good, but there are a god awful lot that are bad.)

So now in 2021, people have figured out they like having their own private bathroom, and a 43" monitor on their desk (because the company won't pay for it), and not doing the brutal commutes anymore.

The reality of the employee's true monetary value in a company is becoming starker and starker by the day.

No, and the inverse can also be true that a low-revenue generating skill might be in high demand. There are many factors which impact on this.

Also there is a difference between revenue generating and cost reduction.

That's precisely the problem facing society right now, isn't it?

$4M sounds low.

Example.

Let's say someone in accounting is responsible for combing through invoices, extrapolating data from them, and entering those extrapolations into a spreadsheet, perhaps with some calculations.

That someone is earning $75,000/year (not including benefits and other costs) to do this job. $75,000/year is the market rate for someone experienced enough to do this correctly, and since this is accounting, outsourcing this would be difficult because of US tax law.

This task consumes approx. 10 of their 40 hours/week. There are 261 working days in the 2021 fiscal year. This means that this $75,000/year person costs the company $288/day. Of that $288, it costs $231/day to do this particular task. $231/day * 261 days = $60,291.

You come along. You discover this madness and write a script to do it. You are paid $150,000/year (not fully loaded). Since you're subject to capital-A Agile, you do this in the very little downtime you get between playing stories.

You write the script (with no tests, because you ain't getting time for that) in six hours, or about 3/4 of a day. Since you cost $575/day ($150,000/261 days), this work "cost" the company $431.

However, the script does what the person in accounting did in 30 seconds and does so completely automatically.

In essence, the company "paid" $431 to automate what cost them $60,291 to get done.

_Per person_.

That's where the real savings comes from. Tech can scale so much more efficiently than people can. If this task needed 10 people worth $75,000/year to accomplish, it would have still "cost" the company $431 to automate what is now a $600,000 annual job!

If you were an entrepreneur selling this as a solution, you would probably sell this to the company at, say, $100/month. ($9.99/mo would be too low, and you do have to charge a "throat to choke" premium). That's $1,200/year of super sticky recurring revenue that you can sell to multiple companies with minor refactoring (because big companies generally don't abandon things, especially not things this cheap). Not a bad return on something that took six hours to write!

If you were working for this CEO, you would get scolded by a PM for working on an item that didn't have a story, which would percolate up to a negative mark on your yearly review that shunts your chance at a raise. Sure, you'll still get your 5% bonus of $7,500...but your six hour BS project literally saved the company over $59,000! PER PERSON!

See why what this CEO said is incredibly insulting?

What I find interesting, is that instead of taking that savings directly (by firing accounting employees), managers will just increase the load on accounting now that they are more efficient.

And when reporting those same efficiencies up, many managers will take the credit for any efficiency gain, rather than give credit to the employees that made the gain happen.

That is precisely why the managerial class see themselves as so important. They generally view employees as exchangeable livestock in a sense, with managers being in charge of choosing the right stock and seeing that each cattle is optimizing production.

And just as you don't pay your cattle much (food, benefits) but you do pay a good herder, similarly you shouldn't pay your employees nearly as much as the manager.

>The reason developers are paid a lot is because they're worth a lot. That's it.

That is circular reasoning. The reason developers are paid a lot is because employers have bid up the compensation of developers.

I actually wonder how many people might be employed by FAANG companies on high salaries just to deny their competitor from getting access to that person's skills. If I am Google, it is in my best interest to hire as many skilled people in AI for example to deny Facebook from accessing those skills.

But yes, I can see what you are saying that employers drive the demand which puts the value on developers. Kind of like my wife and multiple other people in the world putting a price on a LV handbag, without the demand the LV is probably not worth more than a few hundred dollars.

Yes, and gold and jewelry are worth a lot because people have bid up prices for them. That is how worth is determined on a market.