It’s autumn 2013, and there’s a lot of discussion around the current bubble (now obviously one) in the VC-funded technology world and how it will end. Business Insider acknowledges that a bubble exists, but gets some crucial details wrong. Let’s talk about one that most of us actually care about. Business Insider claims: “It’s not just tech asset prices that are high. Salaries are high, too.” Them’s fighting words. Is it true? Well, sort-of. Here’s the evidence, from tech recruiter Matt Allen:
Instead, we’re seeing sign-on bonuses for individuals five-years out of school in the $60,000 range. Candidates queuing-up six, eight or more offers and haggling over a few thousand-dollar differences among the offers. Engineers accepting offers and then fifteen minutes before they’re supposed to start on a Monday, emailing (not calling) to explain they found something better elsewhere.
Ok, let’s dissect this. One: a few people (and it’s not clear that they’re engineers) are getting huge signing bonuses. $60,000 isn’t a number to sneeze at, but it’s not that extreme. Management-level hires typically get signing/relocation bonuses that cover the cost of a cross-country move (easily over $20,000, for people with families) and there’s no reason software engineers shouldn’t get the same. Additionally, signing bonuses usually have clawback provisions if the employee leaves (even involuntarily) in the first year, penalizing the job-hopping for which the worst of our generation is known. Given the tax penalty associated with receiving a bonus and risking having to pay it back, I’m not sure I’d want a $60,000 bonus under typical terms. Two: some candidates are queuing up 6 to 8 job offers. I call bullshit on that one, if only because of the scheduling difficulties in a startup ecosystem where 7-day exploding offers are the norm. I’m sure there are people getting 6-8 offers in the course of an entire job search (I’ve had that) and that people are claiming to have portfolios of excellent offers in negotiation, but the logistics of getting 6 active, credible job offers at one time are unfavorable, to say the least. Three: people are being unprofessional dickbags, pulling out of accepted offers on their start date. I’m sure that that is happening, but how is an occasional episode in which a privileged young hotshot acts like a jackass newsworthy, much less the sign of a bubble? It’s not.
Managers and product executives are making a killing in the present-day startup economy, no doubt, and some of those people might be able to pass as programmers due to some PHP scripts they wrote in their teens, but when one actually studies the contemporary startup economy, there are not a lot of software engineers making over $200,000 per year outside of finance– and those who are tend to be either very good or unusually lucky. For a VC-funded startup to offer $200,000 to an engineer would be incredibly rare, even in the Bay Area, and equity allotments after VCs are involved are notoriously stingy.
Twenty years ago, when startups were underdogs almost by definition, the scene had a “Revenge of the Nerds” feel. A bunch of ragtag computer aficionados, typically from middle-class backgrounds and far away from the East Coast’s financial and corporate elite, were showing up the old guard. New, powerful technologies were being developed, and power shifted (temporarily, perhaps) to those few who understood them at a deep level. There was slight subversion of the 1%; they weren’t destroyed or even harmed, but they were visibly outperformed. For a contrast, the hot properties of the current VC-funded world almost entirely come from the 1%. Behind almost every single one of the VC darlings, there’s a series of strings pulled by powerful people repaying favors to the rich daddies of the founders. There’s no meritocracy in it. It’s not a challenge to the established and rich; it’s a sideshow for the supercapitalists. In a surprising reversal, the old-style corporate world (and the enterprise companies existing and being formed to serve their needs) has a much more middle-class culture, because the current-day rich find it boring.
Software engineer salaries in the VC-funded world are not especially low (nor are they high). They’re usually 75 to 95 percent of what more typical employers are offering. Equity distributions, on the other hand, are extremely lopsided. I worked for a company once where the board refused to allow more than 0.04% to go to an engineer. (Why? Because fuck the people doing the work, that’s why.) There’s something that needs to be discussed here, because it applies to the age-old question of why people who do actual work are modestly compensated, while vacuous celebrity types take the lion’s share. It’s the Teacher-Executive Problem.
The Teacher-Executive Problem
As a society, we need teachers, police officers, park rangers, and other such people who are modestly compensated. We don’t need celebrities, business executives, or professional athletes. I’m not going to argue that the latter are overpaid, insofar as it’s difficult and competitive to get to the top ranks in any field. That would be a subjective argument; all I intend to say is that, objectively, the need for the latter class of labor is smaller. If we didn’t have teachers or police, society would fall apart. If we didn’t have corporate executives, companies would find other ways to survive. So why are the more necessary people paid less? Because being necessary means that more workers will be drawn into the field, and that limits individual compensation. We probably pay more, as a society, for teachers and police than we do for corporate executives (as we should) but the individual slices for the larger, more necessary, job categories are smaller.
We have 3 million teachers in the US, and we need that large number of them, because individual attention per student is important. The functioning of society would be greatly impaired if that number dropped to 2 or 1 million. One might argue that competent teachers are “worth” $200,000 (or much more) per year– and I’d say that the best are worth several times that– but can society afford to pay that much for teaching? Three million $200,000 paychecks is a $600-billion annual liability. Taxes would go up substantially– in a time when the base of political power is (unfortunately) divided between a structurally disadvantaged (read: mostly fucked) emerging-adult cohort and retiring Boomers whose children are out of school– and society would likely determine that $200,000 annual paychecks for teachers “can’t be afforded” (especially given the claim that “they get off work at 3:00″). $200,000 isn’t a large amount of money for a single person, but for people who are actually needed in significant numbers, the multiplier of 3 million makes it seem unacceptable. (I am not arguing that teachers don’t deserve $200,000 salaries; only that it would be politically impossible to get them there.)
For a contrast, the social need for corporate executives (excluding entrepreneurs) is pretty minimal, and society recognizes this in a rational way: there aren’t a large number of slots: title inflation aside, there might be ten thousand truly executive roles in powerful companies. However, when the number of people performing a job is low, gigantic salaries (if those people control the distribution of resources) become socially affordable. Three million somewhat high salaries is a problem, ten thousand enormous ones is not. This is paradoxical because the middle-class conceit is that the way to become wealthy is to make oneself valuable (or, better yet, necessary) to society. What the Teacher-Executive Problem shows us is that there’s more potential for outlier compensation in doing things that aren’t necessary, because asking for more compensation doesn’t carry the implicit multiplier based on the size of the labor base. Society “can’t afford” to pay the 3 million teachers such high salaries, but it can afford the huge salaries of corporate executives, and the $850-million acquisition that enriches the top executives of IUsedThisToilet.com.
Why do so few software engineers get a fair shake in the VC-funded world? They’re on the wrong side of the Teacher-Executive Problem. They’re actually necessary. They’re required in order for technology firms to function.
What about 10X?
The generally accepted consensus (even among software engineers) is that average programmers aren’t very valuable. They write all that buggy, hideous legacy code. There’s little that software engineers and business executives agree upon, but the low status of the average programmer is probably not a point of disagreement. I don’t care to speculate on what the “average” software engineer is like, because while I have seen a ton of incompetents (and a smaller number of good engineers) out there in the world, I don’t have a representative sample. I also think that most of the engineering incompetence comes not from a lack of ability, but from an anti-intellectual culture originating in business culture at large, as well as nonexistent mentoring, so it’s not programmers who are mostly at fault. However, I will agree readily that the bulk of software engineers don’t deserve high ($200,000) salaries. They might have the talent, but few have that level of skill.
However, there is the concept of the “10x” software engineer, one who is 10 times as productive as an average engineer. It reflects a truth of software engineering, which is that excellence and peak productivity are tens to hundreds of times more powerful than the average-case output. (In fact, often that ratio is infinite because there are problems that require top talent to solve it.) Moreover, groups of engineers often scale poorly, so a team of 10 isn’t really (most of the time) 10 times as productive, but maybe 2 or 3 times as strong, as an individual. So it’s not surprising that a great engineer would be 10 times as valuable. The degree to which “10x” is real depends on the type of work, the context, project-person fit, and the competence of the engineer. It’s highly context-dependent, it’s not always the same people, and it’s quite unpredictable. The national average salary for a software engineer is about $90,000. The 10x-ers are not earning 10 times that and, to be honest about it, they probably shouldn’t. You can’t know, when hiring someone, whether the context that supports 10x output for that person is going to exist in the role. The bona fide 10x engineers typically earn 1.5 to 2 times that amount ($135,000 to $180,000) in the U.S. I’m not going to argue that they’re underpaid at this level– although, at least in comparison to MBA graduates earning twice that before age 30, I think they clearly are– but they’re far from overpaid at that level.
Why don’t 10x engineers get paid astronomical sums? For a large part, I think it’s because of the context-dependent nature of “10x”. It doesn’t require only a good engineer, but a good engineer connected with the right kind of work. Companies can’t afford (obviously) to pay $900,000 salaries to senior engineers just on the hunch that those (typically highly specialized) talents will find a use. When engineers do find environments in which they can deliver 10x output, they’re happy– and they’re not liable to clamor for huge raises, or to move quickly and risk starting over in a defective environment. This isn’t especially wrong; engineers would rather have interesting work at “merely” 1.5x salaries than risk happiness and growth for a chance at more. It’s just worth pointing out to establish that, in general, software engineers (and especially the most capable ones) are not overpaid. Moreover, the people commanding $500,000+ salaries in technology are typically not real engineers, but managers who might occasionally “drop down” and hack on one of the sexier projects to keep their skills sharp. Finally, the few (very few) software engineers making that kind of money are generally worth it: we’re not talking about top-1% talent at that level, but top-0.05% (and a level almost never achieved before age 40). There are plenty of people drawing undeserved high salaries in the Valley, but they aren’t the ones writing code.
Why must I point this out?
This (bubble) too, shall pass. The era when a well-connected rich kid can raise a $1-million seed round rather than eating his lumps in an investment bank’s analyst program will end. I don’t think that that’s a controversial assumption. Timing the end of a bubble is nearly impossible, and I don’t think anyone has shown reliability in that particular skill; but predicting that it will die off is trivial– they always do. When this happens, there will be a lot of job losses and belt-tightening. There always is. It’ll get ugly, and that’s fine. Most of these businesses getting funded and acquired don’t deserve to exist, and the economy will inevitably purge them. What I don’t want to see is the bubble made into an argument against the middle-class, hard-working software engineers. When the bubble ends, there will be losses to eat and austerity to go around, and it ought to go right to the people who reaped the benefits while the bubble existed. The end of the bubble should not be used to reduce the compensation of software engineers as a whole, whose pay is currently (I would argue) not quite unfair, but on the low side of the fair interval.
For the 99 percent, there is no software engineer salary bubble.