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Comment by sangnoir | Hacker News Reader

> Performance management, as practiced in many large corporations in 2024, is an outdated technology that is in need of an update

Author made a couple of fundamental mistakes: the first is they assume employees are (or should be) paid according to how much they "individually" earned the company. Employers strive to pay employees the minimum they can bear, on employer's terms. Those terms are information asymmetry and a Gaussian distribution. Fairness is the last thing one should expect from employers, but being honest about this is not good for morale, so instead, they rely on keeping employees uninformed, while the employers collude to gather everyone's remuneration history via the Work Number.

The second mistake they made is assume that companies would prioritize being lean and trimming the mediocre & bottom 5%. There are other considerations, combined productivity is more important than having individual superstars working on the shiniest features. How much revenue do you think a janitor or café staffer generates? Close to zero. The same goes for engineering. Someone has to do the unglamorous staff, or you end up with a dysfunctional company, with amazing talent (on paper).

Edit: there's an infamous graph that shows when aggregate worker productivity and average income. The two tracked closely, rising in tandem until the 1970s, where they got decoupled. With income becoming much flatter, and productivity continuing to rise. That's how the world has been for the past 50 years on the macro and the micro

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> The second mistake they made is assume that companies would prioritize being lean and trimming the mediocre & bottom 5%. There are other considerations, combined productivity is more important than having individual superstars working on the shiniest features.

I'll add a perverse incentive too that I've talked about elsewhere – hiring is a goddamn mess right now.

If I trim the bottom 5% of my org (in my case, 2-3 engineers), I may not get a backfill for them. Or I'll have to drop their level from L5->L4 to make finance happy, or hire overseas or convert a FTE to a contractor.

I also have to be ready for the potential of RIFs happening, which means having an instantly identifiable bottom 5% puts me at the advantage of being ready when my boss says "give me your names".

So the time value of a staffed engineer is way higher right now than it might be in a few months. It'll never be zero, because proactively managing people out makes all of our managers happy. But for now, I definitely need my low performers.

I think the value of low performers becomes much more obvious when you separate out the concept of a toxic employee. Toxic employees hurt the team or organization whether low performing or high performing, and with rare exceptions it’s almost always worth getting rid of them. Toxic employees are the people getting into arguments and conflicts all the time, dragging others down constantly. Or they’re the managers who cause attrition or can’t retain their team or lie to their peers and own leadership until it catches up to them, often dramatically.

However, low performers are not always toxic. Often, low performers are just kind of lazy, or they take longer than they should to finish their work, or they take too long to reply to emails or messages, or their work needs extra review and checks and balances, or they are only capable of delivering on a relatively small set of fairly simple tasks, or they just want to work on the same part of the same product forever and can’t emotionally handle change, or …

Non-toxic low performers can be great because they’ll often do the unglamorous work for you for relatively low pay, and all you have to do is not bother them too much. The worst thing you can do with non-toxic low performers is try to force them into high performers. It won’t work, because they’re either not capable or they just don’t care. For some people, their work just isn’t that important to them, and there’s nothing you can do to change their perception of the relative importance of their job to the other aspects of their life. What might look like low performance in a corporate environment can just be someone setting boundaries and refusing to let work infringe too much on their personal life.

This is a great point. Toxicity is entirely orthogonal to performance. And you rarely have to worry about toxic low performers: if you're unlucky enough to hire them, they don't stay around for long.

But toxic top performers are IME one of the biggest challenges a manager will have to deal with. You have to root them out the moment they land in an organization because given enough they'll push out the non-toxic top performers, leaving you with a toxic asshole and a bunch of flunkies. And you have to convince everyone outside the team that yes, they get things done, but they're enough of an asshole that you'd rather risk hiring someone to deliver less but also destroy less.

All this reminds me of the quote attributed to everyone under the sun (Clausewitz, various US civil war generals, Omar Bradley, you name 'em) but apparently was said by Kurt von Hammerstein-Equord[0]

> There are clever, hardworking, stupid, and lazy officers. Usually two characteristics are combined. Some are clever and hardworking; their place is the General Staff. The next ones are stupid and lazy; they make up 90 percent of every army and are suited to routine duties. Anyone who is both clever and lazy is qualified for the highest leadership duties, because he possesses the mental clarity and strength of nerve necessary for difficult decisions. One must beware of anyone who is both stupid and hardworking; he must not be entrusted with any responsibility because he will always only cause damage.

Turns out this problem is quite old, indeed.

[0] https://en.wikipedia.org/wiki/Kurt_von_Hammerstein-Equord#Cl...

For leaders, Kurt von Hammerstein-Equord‘s advice reigns supreme. The diligent idiot is always the biggest threat, and the stupid and lazy are awesome as long as they stay in their lane.

> What might look like low performance in a corporate environment can just be someone setting boundaries and refusing to let work infringe too much on their personal life.

Another is poor fit between the employee and the job. One the lowest performers in a role can sometime be a great in another because they do/don’t care about clean code, long hours, spelling / grammar issues, minor aesthetic issues, minor bugs, speed, etc etc.

The universally perfect employee basically doesn’t exist as much as organizations want everybody to be interchangeable cogs.

Or the fit between employee and manager. I've come into many teams where the employee on a PIP went to being one of my best performers while those I was given the ravest reviews for were just mediocre under me. Or even just cultural. I had to change how I managed/my expectations as I moved positions around the country or when offshore teams were brought on.

I agree with your shocking premise that people are not machines and expand it to include that they are also not numbers in a spreadsheet or HR system.

    > I had to change how I managed/my expectations ... when offshore teams were brought on.

Did you mean to say "lowered my expectations"?

I don’t think it’s helpful to use inflammatory labels like “toxic”. There’s no such thing. It’s an unfalsifiable claim.

> There’s no such thing

This is your opinion. I have worked with and managed 'toxic' employees. They are very much a thing.

...what? It's not a claim to be falsified, it's a hyperbolic metaphor. I don't particularly like it either as it's been thrown around so much as to have lost much of its meaning (like "gaslighting", "gatekeeping", "narcissistic", etc.) but it's absolutely a thing. If you call a coworker who doesn't perform while falsely accusing you of incompetence in public Slack channels "toxic" then everybody knows exactly what you mean.

There very much is such a thing, and they provide an accurate definition of it in their comment.

> It’s an unfalsifiable claim.

It is very falsifiable. Take that employee out of the team and look at the outcome.

You’re naive. God bless you for not encountering one of these people.

People like this are masters at working the system and will make everyone around them miserable. They crave attention and love to wield power.

The most toxic person I can think of spent most of his career broadly filing complaints for various forms of discrimination, which insulated him from accountability because any attempt to fire him would be seen as retaliation. His parting shot was to call the FBI and accuse a coworker of trading illicit porn on his work computer.

Nasty, evil people exist.

> What might look like low performance in a corporate environment can just be someone setting boundaries and refusing to let work infringe too much on their personal life.

After killing myself at a FAANG because it was what was expected (to my mental health detriment), I have exactly this attitude since. At the end of the day, I'm done. I'm gone. I don't care. Even while I'm there, I'm only doing the amount outlined in the job and nothing extra. When I have a task to complete, I do my best to do it well. But I also don't care and don't sweat making sure it's perfect.

This has worked out great. I think I do a good enough job to be viewed as pretty good at what I do. That's good enough for me. I don't want advancement. I don't want more responsibility. Just give me a cost-of-living bump every year and we're good.

this exactly! everyone should find the bare minimum which does not get you fired and just do that - nothing more. salaried employees just don’t grasp the simple truth that putting in more than bare-minimum-required-to-keep-the-job is absolute waste which only benefits the employer. if I have no equity or vested interest in company’s success - this is the way!

> they take too long to reply to emails or messages, or their work needs extra review and checks and balances, or they are only capable of delivering on a relatively small set of fairly simple tasks, or they just want to work on the same part of the same product forever and can’t emotionally handle change

As someone on the ASD spectrum, who has struggled in the workplace, I resemble that remark! I found my coding job to be ok before the app was converted to be web-based, then found it to be death by a 1000 distractions as I became more senior and found the web project to be too messy, too many checkins of bad code by the overseas team, team too big, etc. Anyone have tips to help someone like me?

I think one should be careful with the word toxic. I’ve seen every manner of dishonesty and unscrupulousness and in some cases outright sociopathy and I’ve seen all these things done with an eye to optics: the right language, the right audience, the right timing to present stuff somewhere between “unsavory” and “fraud” in a fashionable light. This is locally non-toxic in the sense that it is unlikely to ruin the financials next quarter. It’s globally toxic in the sense that it’ll just kill your company over years or sometimes decades.

I’ve seen aspy nerds be the squeaky wheel (and very often be correct) in the long tradition of neuroatypical people who care more about an ideal than about fashionable niceties that fluctuate like hemlines called toxic way more often over the last few years. This is locally toxic in the sense that it can be temporarily disruptive until either the problem gets fixed or the aspy nerd gets fixed. But it’s in no way globally toxic: it never kills your business unless it’s one of two founders, and often saves your business from getting hit by an asteroid when the subject matter changes abruptly. Back when there was real competition at the apex of the software business you were cooked without those people around.

5-10 years ago Elon Musk was so popular in SV that people were buying up Teslas and posting every SpaceX launch and all but naming their kids after him. Today he’s anathema in huge parts of the Valley culture. Same guy, same behavior really. Good or bad? Eh, I don’t know, seems complicated.

Palmer Luckey was forced out of Meta for giving like eight grand to a conservative PAC, today he’s the darling of everyone with a family office.

Linux was built by a Linus that would call people “fucking brain damaged” on LKML, he’s mellowed but he built one of the longest-running and most successful engineering artifacts in all of human affairs acting in the “locally toxic, globally enlightened” mode.

The thing is that bad behavior at scale, bad behavior with real, lasting, irreversible consequences is almost never called toxic. This is the globally toxic behavior of those with power.

Transient words are routinely called toxic. This is the locally toxic, globally enlightened behavior of those with little.

This doesn’t seem like a word we use in a way that is either practically useful or morally sound.

Lazy employees are most times unmotivated for what ever reasons. Either it’s the work they do to just very hard to motivate such people. Slow employees maybe too risk adverse so they go slowly, or they don’t know to seek out better ways to do things.

Talking about a "toxic person" is starting on an ontological track that is deprived of any possible way to make everyone satisfied. Instead it’s possible to think about toxic behavior. Now, maybe a behavior is so deeply enshrined in a person that abrogating it is out of reach for the social organization that is considering this person behavior as a source of nuisance. But this is not necessarily the case and maybe there are option to help the person change and become part of a more harmonious social structure.

Using a "isolate poor performers" and "excellent beings" has well known backfire consequences that history largely document.

> Toxic employees hurt the team or organization whether low performing or high performing, and with rare exceptions it’s almost always worth getting rid of them. Toxic employees are the people getting into arguments and conflicts all the time, dragging others down constantly.

Often such people have good arguments, they are just vocal about them and not the "docile" kind of people. For example the great engineer who is willing to fight to keep the code well-architected and clean.

Of course managers hate this kind of "non-docile" employee, and thus invent terms like "toxic" to be capable of bullying (and perhaps having a "socially accepted" reason for firing) them.

> But for now, I definitely need my low performers.

Firing people if you can't get backfill is illogical, obviously. Once a company institutes a hiring freeze, low performers get locked in until forced layoffs. You'll see some people stop working and start job searching because they know that any contribution they make at all is better for their manager than having them fired.

However, deliberately keeping low performers around as a buffer becomes a self-own on a longer time horizon. Smart managers will negotiate hiring exceptions to replace a low performer now rather than keep that headcount occupied for safety. Yes, it's frustrating to have to lay off a good performer, but it's more frustrating for everyone to have a poor performer dragging the team down for some invisible game of chess that goes on for potentially years without resolution.

> However, deliberately keeping low performers around as a buffer becomes a self-own on a longer time horizon. Smart managers will negotiate hiring exceptions to replace a low performer now rather than keep that headcount occupied for safety.

This is a "the times are good" play, and it can absolutely work. But the real trick is understanding

> Once a company institutes a hiring freeze

that if you as a manager are reacting here, the die is already cast. There are plenty of unofficial "we're frozen but aren't saying it out loud" moves I & peers in other companies are seeing right now: downleveling, additional approval gates added to slow things down to a more favorable time, you name it.

Yes, over a long enough time horizon ballast will weigh down the boat, but theta is on my side right now.

The evil path for a director is to acquire a nonessential group and make it the land of misfit toys.

Bank them away from everyone else, and nuke them from orbit when necessary.

> I'll add a perverse incentive too that I've talked about elsewhere – hiring is a goddamn mess right now.

Not to take away from any of your points...

But this statement has been made every year for as long as I've been in the industry (about twenty years). I suspect it's been made much before that too.

I guess it's messy but it's not worth the cost to fix, in that case.

There isn’t a way to fix it, a new hire is always an unknown factor by definition. And if you aren’t FAANG, people usually aren’t lining up at your door to work for you, so you have to make do with what you get.

Pair that with the fact that the new hire won’t reach full productivity until at least 6 months in, it’s always going to be messy.

>a new hire is always an unknown factor by definition.

sure, that's why the entire hiring factor is an industry comprised of HR, recruiters, and hiring managers. you're supposed to minimize the odds of a bad hire. Similar to any other business that is an unknown factor until you do research.

Life's all about dealing with known and unknown unknowns.

>And if you aren’t FAANG, people usually aren’t lining up at your door to work for you, so you have to make do with what you get.

Not in this current economy. That's part of the frustration with the current market. Everyone is lining up, few are getting hired, but hey it's okay unemployment is low and the economy is great!

>Pair that with the fact that the new hire won’t reach full productivity until at least 6 months in

well that's also mitigatable. Make your process public and let candidates study to your tools and process. But that will never happen because it's more important to hide your process from competitors than get qualified candidates to ramp up quicker.

Just as a curiosity, are those 2-3 people "underperformers" or simply "Not as high performers"? In an org that size I can imagine everyone pulls their weight, but there will simply be others who are inevitably more productive for a variety of reasons.

>hiring is a goddamn mess right now.

Any insight you can give on why? I know enough from the hirees end, but how's it on the other side?

The vast majority of underperformers I've managed are people who are less motivated to perform, less technically skilled, not aligned to the team, have different values, etc. Almost always the answer is to keep them around and try to squeeze what value you can get. One engineer I have really values on-call firefighting which is great, except my entire org is aligned around avoiding that. I'm getting value out of him by letting him do the firefighting he likes, but ensuring he drives the postmortem process so we can avoid fires in the future.

At the end of the day, all I care about is getting an acceptable level of output compared to pay from an employee who knows the business and isn't particularly fussy. So I'll try to find the path to get low performers upskilled, find what interests them, or find another role in the company that fits & do some horse trading. Or I'll let them coast and replace them when it's easier for me to hire.

>> hiring is a goddamn mess right now.

> Any insight you can give on why? I know enough from the hirees end, but how's it on the other side?

Someone smarter than me might know the true answer. I've heard three compelling arguments:

* tons of companies were irrationally exuberant and overhired, cut roles, and now we're seeing the impact of those workers looking for new work

* increasing shareholder greed means running a threadbare team and driving the company into the ground is better than staffing appropriately if it means next quarter looks good

* most companies are big dumb herd animals and hey, if the big guys are downsizing, so should we

But even though the market is saturated, profitability is now king, so if I'm going to hire someone I need to have a compelling answer to finance saying "how does this new role guarantee us ROI?"

All I really know and can see is the knock-on effect: I posted the same role in 2022 and last month. In 2022, I had to recruit like crazy, to the point that I had external vendors placing below-average employees at above-average salaries. Last month I had the pleasure of sifting through 700 applications, and plenty were "pass: overqualified, won't stick around".

So it seems there are tons of people out there competing for fewer roles.

FYI: I assume RIF means "reduction in force" (involuntary layoffs).

From the view of senior management (and yours), would these layoffs adversely harm your business model or profitability? If the answer is no, then layoffs are probably the economically correct decision. (Of course, there are many other factors to consider.)

Completely agree. Yes, great engineers tend to be compensated well, but only slightly more than the median performer. In other words, a 10x engineer isn't getting paid 10x more. It's probably more like 1.5x to 2x. If we somehow invent a magical way to track productivity numbers exactly, I suspect we'd see something closer to Price's Law [1] (Pareto distribution) which is essentially what this post is about, where something like 20% of workers contribute to 80% of the results. However, that doesn't means the other 80% is expendable which relates to your second point.

Paying what employees "earn" for the company is incompatible with our economic system where companies want to be profitable. Paying employees what they "deserve" based on contribution is probably also undesirable. I think you'd get the same income inequality dynamics but within companies. There is an averaging effect when you work at large corporations. That's either a good thing or a bad thing depending on the person. Individual contributions are averaged out, but so are responsibilities. I think Paul Graham articulated this wonderfully in his essay on what a job is and why some prefer to work for startups [2].

[1] https://www.kienbaum.com/blog/prices-law-and-the-trouble-of-...

[2] https://paulgraham.com/wealth.html.

It's also just embarrassing that this is supposed to be a data science blog about employee performance and the only non-simulated data directly presented or discussed is the US wage distribution, where the author has just cavalierly marked the x-axis as "Performance". There's all this spew, and the author makes claims about what good data scientists do ... and there's no data in this discussion that's directly relevant to their rambling claims.

That’s on par with most data science projects I’ve seen in my corporate job.

This topic is written about better elsewhere.

Here's an opinion piece in the Harvard Business Review in 2022: https://hbr.org/2022/01/we-need-to-let-go-of-the-bell-curve

Here's another article on the same topic from 2014: https://www.forbes.com/sites/joshbersin/2014/02/19/the-myth-...

Here's more press on the same topic from 2012: https://www.npr.org/2012/05/03/151860154/put-away-the-bell-c...

From a data science point of view, if you want to compare the fitness of different distributions to data, go ahead and do some fitness tests, like AIC or BIC, to compare distributions. Ordinary Gaussian outperforms skew-normal and log-normal in many settings where the physics of the measurements would suggest otherwise.

However, it matters what you are measuring.

Here's a summary quote that explains what this Pareto versus Gaussian stuff is talking about:

> "We found that a small minority of superstar performers contribute a disproportionate amount of the output."

That is very different than saying that employee performance is Pareto instead of Gaussian distributed. "Output" and "employee performance" measures two different things. If there is any big picture flaw to all of this: it is quintessentially Individual Contributor to conflate output with employee performance.

Another POV is that people who get fired from IC jobs understandably lament a lot of the details of their circumstances. One detail that comes up is that other people take credit for their work, which should illuminate how output and employee performance measure different things in a way that interacts in the opposite of what the article is advocating for.

I have a crazy idea.

If a corporation lays off any people in a particular job category/title, that corporation should not be allocated ANY H1B visas for that job category/title for the next year.

If a corporation institutes any policy that requires decimation (or any other statistic-based termination program) of employees with a particular job category or title, or if IN EFFECT they perform this (because they will just hide it otherwise), then they will not be allocated any H1B visas for that job category or title, for the next year following any such act.

In essence, the point here is that if a corporation decides it can live without X% of their workforce, then they don't get to go bring in foreign workers. The H1B program is to help find workers for positions that can't be filled; if you're laying off or mass firing people then obviously you CAN find people to fill those jobs.

The play devil's advocate, presumably they're fired because they didn't meet standards (in whatever vague way they can justify) and they want foreign workers because local workers didn't meet those standards.

Parent's point was about lay-offs, not firings. I'm very comfortable with their suggestion. Make the company be explicit. If it's a firing ("they are underperforming") then sure, that doesn't affect H1B eligibility, but you have to actually fire them. If it is a layoff ("we don't need those jobs") then why are you turning around and hiring for them immediately afterwards?

Oh yes I agree!

If some % of workers were hired that didn't meet standards, then it seems like those doing the hiring are the ones that need to be replaced first.

In France, if you lay off people collectively for economical reasons, those people have the right to be re-hired first should the company open jobs that are compatible with their qualifications within 1 year after the layoff (it's called "re-hire priority").

Interesting. Is that a law or a typical contract term?

It's labour law. If you want to read some french law ^^ https://www.legifrance.gouv.fr/codes/id/LEGISCTA000006198540

It’s common with unionized workforces.

Usually there’s a layoff list with a timer.

I think this is true already. Companies who lay off do not get to sponsor for green card. I am not sure about h1b

There’s a 6 month window between layoffs and PERM filings (green card). Employers can still submit PERM filings, but AIUI, doing so risks audits.

But this is not punishing the company. If anything it is helping the company to avoid having all those H1B workers looking for another job. "Oh, surely, we'd love to sponsor your green card, but you see? we can't! This senator that we incidentaly gave millions for his campaign got this idea out of his mind, alone, that we now can't sponsor your green card, and yes, it is horrible to work here after the layoffs, but looks like you're stuck with us."

It's entirely possible to need to lay off people for one type of work while being unable to staff up for a different skillset. I would expect software developers, of all people, to understand that we're not commodities.

I'd also expect that Software Engineers can ramp up surprisingly fast in different skillsets as needed. But that requires time to train (independently or otherwise), and no one wants to do that anymore.

> In essence, the point here is that if a corporation decides it can live without X% of their workforce

The open secret is that layoffs are also used as a gentle way to fire low performers.

By including people in layoffs, you can give them a potentially very generous severance package and you allow them the courtesy of saying they were laid off as opposed to being fired. They get mixed in with all of the good performers who were laid off due to budget cuts.

Putting a lot of restrictions on a company that does layoffs creates a perverse incentive to fire these people explicitly instead of giving them a gentle landing with a layoff. You would see far more people fired instead of "laid off".

At the extreme, you incentivize companies to start firing people to make budget cuts.

So, this is actually a very bad idea. You do not want to start putting handcuffs on companies who do layoffs instead of constant firings.

I think it's exceptionally unlikely that companies are doing layoffs instead of firing for the benefit of employees. You're holding up reasons like severance and saving face.

From everything I've seen, the much more common reason is that firing someone typically entails a much longer paper trail for CYA reasons. Batching them up and including them in the next round of layoffs is easier and safer.

Severance packages always requires signing a “I give up my right to sue you” document. It is 100% about lawsuit reduction and 0% about being gentle with employees.

>Putting a lot of restrictions on a company that does layoffs creates a perverse incentive to fire these people explicitly instead of giving them a gentle landing with a layoff. You would see far more people fired instead of "laid off".

Given that we long since decoupled terminations for being based on performance, I'd rather employers just be honest.

But they won't do that because they don't want any risk of lawsuits. Even if they are truly low performing, firing a pregnant woman or someone who happens to be an outlier race in the company is just too easy a setup for scrutiny. I've seen plenty of those kinds of people mixed up in these layoffs as well.

Why can't people just suck, why does it have to turn into some anti-immigrant narrative.

>Why can't people just suck

Because most people after a few years of experience do not simply "suck" in a vacuum. If you need to get rid of 2-3 people it might be a "suck problem". if you need to get rid of 200-300 people it's a more systematic issue or incentive being driving such mass actions.

This is indeed a crazy idea (your words, not mine). Why should a foreign worker who can do a job in the US that pays 2,3,4x what they make at home be forced to languish underpaid because of where they were born? And why should the US economy be denied their talent to protect inherited privilege of an American worker who can't compete?

There is arguably no way to judge "fairness". Employee A gets assigned to work on LLMs. Employee B gets assigned to work on Android 9/Mac OS 12 security patches. Another example includes unforeseen difficulties. I have a friend that signed up to implement a feature. That feature would have taken 1-2 weeks in any standalone app, but, he happened to be on web browser team and the number of edge cases that came up and the amount of back and forth between standards committees meant it ended up taking 2 years. He was judged poorly even though all of it was out of his control because everyone though it should have taking 1-2 weeks.

I feel like I'd prefer some balance. There are superstars. We know them. We can easily point them out in peer reviews. But, we're also a team, there's lots to do, not everyone gets to work on the high profile easy to identify "impact" parts.

>. How much revenue do you think a janitor or café staffer generates? Close to zero. The same goes for engineering. Someone has to do the unglamorous staff, or you end up with a dysfunctional company, with amazing talent (on paper).

There's two ways to make a profit. Gain more revenue, and not lose more revenue. Those kinds of staff are the latter, in addition to other aspects like HR (preventing lawsuits/settlements which are expensive).

But yes, there's so many hidden factors on measuring "productivity". That's why stack ranking is a bit stupid in the long run. Some people aren't just producing value but bringing out productivity in others. But that's an opportunity cost for a stacked system. Such individuals should be considered for management, not kicked out.

>The two tracked closely, rising in tandem until the 1970s, where they got decoupled. With income becoming much flatter, and productivity continuing to rise. That's how the world has been for the past 50 years on the macro and the micro

Yup, very well known that we really should be close to that ideal John Maynard Keynes predicted all the way in 1930 of 15 hour workweeks by 2030. Instead, I believe the average work week in the US is 50 hours and it's still a very controversial battle to get to a 4 day work week.

Employers want to pay the minimum, clearly, but until a person’s salary exceeds the value they bring to a firm, there will be other firms willing to pay more and attract that talent. So provides some upward pressure on wages, which the author addresses:

> Economists will teach you something called the Marginal Productivity Theory of Wages, the idea being that the amount of money that a company is willing to spend on an employee is essentially the value that the company expects to get out of their work. This strikes me as mostly true, most of the time, and likely to be the case in the corporate world that we’re considering here.

> but until a person’s salary exceeds the value they bring to a firm, there will be other firms willing to pay more and attract that talent

This is false. Supply and demand is a factor. I could clean the toilets at the office, if janitors were in short supply my boss might setup a rotation schedule - nobody wants to but it must be done and so he would pay me. However because janitors are cheaper than me he doesn't. This isn't just theoretical - McDonald's mostly has the crew clean the floors - janitors make more money than McDonalds crew.

I don't see the contradiction. Janitorial duties are at the very worst easy to train any person off the street for. As long as people need any sort of minimum wage to survive you can find a janitor.

But that also means that, because minimum wage, your salary will almost never exceed the value brought to that business. Outside of some super crazy regulations of cleanliness.

Not necessarily true. You either pay the margin for a contractor, or pay the janitor more in-house.

Janitor is a messy and low prestige job. As such some will choose a lower paying job if they get the option and the pay isn't too much worse

"provides upward pressure on wages" is true, but you simply can't get from there to actually demonstrating the "marginal producivity theory of wages".

It is pretty clear that the employment market suffers from severe inefficiency and information asymmetry. It takes a pretty bad economist to look at a market like that and think that its pricing is accurate.

Employees often don't know how much value they bring and thus are severly limited as counter party and other companies have a hard time predicting how much value you'll be able to add for the. These (plus many other factors) mean that you should expect significant mismatches between pay and performance.

Edit: None of this is evidence against performance being a paretor distribution (which makes sense to me), but we're gonna need more than just pay data to determine that.

> there will be other firms willing to pay more and attract that talent.

...marginally more. Still nowhere near the actual value their labor brings in. We simply don't have a competitive enough employer market to provide the upward wage pressure that would be sufficient to pay people fairly.

If you think you're not getting paid enough you should quit and start your own company. The fact that google/apple/amazon make 5-10x per employee is not proof that you're underpaid. The chef at French Laundry makes $$$$$$$, does that mean the apple farmer who supplied the apples for $ is underpaid?

> If you think you're not getting paid enough you should quit and start your own company.

I'd rather eat a bullet, thanks. I have dignity and I'd like to keep it.

> The fact that google/apple/amazon make 5-10x per employee is not proof that you're underpaid.

That's exactly what it means.

> The chef at French Laundry makes $$$$$$$, does that mean the apple farmer who supplied the apples for $ is underpaid?

The chef is paid for their labor. Shareholders contribute nothing to society.

>I have dignity and I'd like to keep it.

it's not about dignity, it's about history. That's why those FAANGs offered crazy salaries before tapering off some 5 years ago.

The last thing they wanted was for the true 10x'ers to become tomorrow's competition, or for others to work for such 10x'ers. Because if such an engineer could make a 10m/yr business vs being hired for 100k, many would take that business opportunity.

>Shareholders contribute nothing to society.

they contribute money, and that's all that matters. quality, long term profitability, and worker dignity be damned.

The original shareholders created the company. Without them there wouldn't be jobs.

The newer shareholders provided liquidity to the original shareholders. Their benefit to society was helping to incentivize the people who created the company (and all the jobs) by making them rich.

> The original shareholders created the company. Without them there wouldn't be jobs.

For a nation with so many smart people we sure pretend to be dumb.

What do you mean exactly? Literally every job that exists in the private sector is created by a company, and companies are created by shareholders.

Can you not see how there's a massive barrier to doing that? That's exactly why there's not enough of a competitive labor market. And at that point, they're not doing their job anymore: they're doing the CEO's.

>Can you not see how there's a massive barrier to doing that

yeah, business is hard. FAANG paying a very cushy salary is relatively easier. The ambitious would still consider such a choice tho, and those are the ones they want to keep in their own company instead of as a future competitor. They literally paid off a competitive labor market.

The actual value is complex. The only reason an engineer’s presence at the company generates $X in revenue is because the company already has sales, marketing, finance, legal, and all the other necessary functions covered. On their own, that engineer’s output is worth less. So a light switch test does not tell the whole story. The surplus from the combined output is deserved by everyone whose input is required for those $X, not just the engineer.

In different terms, maybe you leaving costs the company $X. But if product engineer Joe Bob left first, maybe you leaving suddenly only costs the company $Y, where $X > $Y. Are you really worth $X?

There’s a “marriage problem” element not covered here. The marginal value of an employee is higher if the team they join is small. Eventually, the team reaches a size where more employees add little value. Most people understand this. However, it follows that the marginal productivity theory of wages gets more complicated. They might not be willing to pay you the full value they get from your work, for example, because they might suspect a replacement (e.g., keeping team size constant) would likely produce higher value. Or, they might pay you much closer to the full value of your work than others because they fear a replacement would likely bring lower value.

Two problems with this are 1. It is very difficult for outside employers to tell is someone is a high performer, and 2. Economists also teach to always think on the margins. A employees value isnt the amount you bring in more than if they didnt exist, it's the amount they bring in over a replacement. If people are willing to replace you for $5/hr even if you make the company $100/hr you wont get anywhere near that amount.

The thing is, even if performance was Gaussian, even if we run with the following 2 statements:

- IQ is gaussian

- IQ correllates well with performance

hiring practices would probably produce an employee population that went through some right-curve cutoff test, meaning most people would be much closer to the hiring threshold, with a few positive outliers.

For a given arbitrarily chosen values, you could massage the distribution and make it look Pareto, but I'd be hard pressed to come up with a reason why it makes rational sense.

Those two assumptions are not particularly well-supported by data or modern thought on capabilities. Even the construct of "IQ" is probably a post-hoc explanation of data rather than a predictive thing. If you want an hours-long discussion of that in the context of the book, The Bell Curve, have a look at: https://www.youtube.com/watch?v=UBc7qBS1Ujo

> Employers strive to pay employees the minimum they can bear, on employer's terms.

This is one of the things I try to drive home when I mentor young people. Employment is a market and it responds to the forces of supply and demand. Never think that your relationship with a company is anything other than a business transaction.

It's a hard lesson for young people to accept these days, but everything becomes much more clear once you stop fighting the idea.

I believe the graph you're referring to is here: https://wtfhappenedin1971.com/

Also: the specific choice of the year 1971 (as opposed to say "the 70s" or "the late 60s") is usually meant to call attention to the fact that in 1971 the US abandoned the gold standard for the US dollar.

https://en.wikipedia.org/wiki/Nixon_shock

> mistakes: the first is they assume employees are (or should be) paid according to how much they "individually" earned the company

From the article:

  Economists will teach you something called the Marginal Productivity Theory of Wages, the idea being that the amount of money that a company is willing to spend on an employee is essentially the value that the company expects to get out of their work. This strikes me as mostly true, most of the time

From internet:

  The marginal productivity theory of wages states that under perfect competition, workers of the same skill and efficiency will earn a wage equal to the value of their marginal product. The marginal product is the additional output from employing one more worker while keeping other factors constant. However, the theory has limitations as it assumes perfect competition, homogeneous labor, and other unrealistic conditions. In reality, competition is imperfect, labor is not perfectly mobile, and other factors like capital and management efficiency affect productivity.

The marginal argument is confusing to me.

> The marginal argument is confusing to me.

When economists say “marginal” they usually mean what an engineer would call “derivative”. So “marginal cost”, for example, is usually “d(cost)/d(production)” or “d(cost)/d(sales)”. Similarly, marginal productivity means “d(productivity)/d(workers)”.

Usually this pops up in ideal economics because under ideal circumstances, maximizing revenue and productivity and so on means “set the derivative of something to zero” to find the optimum point.

(Disclaimer: I’m a physicist not an economist, but I’ve taken an intro economics course. The above was my main takeaway from that…)

That's very insightful. Thank you.

When I first heard of the Work Number, I thought there's no way they stay in business given the Real Page suit.

What is the RealPage suit?

Lawsuit for price fixing for landlords using RealPage.

https://www.justice.gov/opa/pr/justice-department-sues-realp...

Thanks.

Note that with the Work Number, you can at least freeze your file, much like a credit report. Employers will still submit information, but potential employers (or lenders, or anyone else) will not be able to access the report.

My takeaway ( and an indication of who actually needs a performance review [ e.g. the manager ])

“ It’s my opinion that the biggest factor in an employee's performance – perhaps bigger than the employee’s abilities and level of effort – is whether their manager set them up for success “

Or other way around - in bigcorp (or in startup) choosing what to work on have much bigger impact than the work you do.

On very low level it's up to your manager. As time goes, even as IC you have a lot of agency. It's not just company selection, team selection, but also which part of the project you are working on and how you are approaching solving it.

Of course "if everyone does this, who will fix the bugs". However, the quickest promoted people I've seen are the people who were excellent at politics-izing (and sometimes foresight) the best work assigned to them.

It's not so much that managers need a performance review per se, but they need training and useful feedback.

If you've ever worked in tech management, your experience likely was "IDK, you're senior, you vaguely have an idea what we should do, here, go manage a few folks".

No training, or minimal training. Often with an expectation that of course you can still be a strong technical contributor, because how much time could managing folks possibly take. And then mostly being evaluated based on how your reports delivered.

As long as we follow that approach, we'll struggle with managers doing the right thing, because they neither have learned it, nor have they seen it modelled.

Sure, that expresses in bad manager performance, but often nobody can really see it or tell people what they should do better. Performance review is too late to fix that. (This is, btw, mostly true for employees as well - if you only talk about performance 1-4 times a year, people are being set up to fail)

As someone doing this transition, I would love some references that help me... Train myself I guess? Other than by doing and analyzing myself, which is my current situation

I have realized I can give so many tips and reference so many great content online to learn math, programming, engineering... But find myself missing anything about managing

There are a number of decent books.

"Become an Effective Software Engineering Manager", "The Manager's Path", "Becoming a Technical Leader", "An Elegant Puzzle", "Resilient Management".

But your best bet is either finding an experienced manager who's willing to coach you, or working with a management coach.

(There's a number of folks blogging as well. Gergely Orosz, Laura Hogan, Camille Fournier,...)

I disagree. The best employees are the employees who don't need to be managed. They figure what out what needs to be done and walk into the business (from day one to the last day they are there) thinking like owners. Google in its very early days operated without managers. Some of the most successful companies / start-ups delivered what they delivered not due to management, but due to having a few highly-motivated individuals who were dead set in delivering something outstanding to the world. They didn't need to be micro-managed into doing what they did - they figured out what needed to be done and figured out how to get there.

> Employers strive to pay employees the minimum they can bear, on employer's terms

I don't think it's worth thinking like this. An employee's salary is floored by their value to any company, and ceilinged by their value to the company currently employing them.

The absolute numbers are hard to accurately calculate for every employee, and change all the time, so at best, the limits are fuzzy.

That said, do you care to guess where in this floor-to-ceiling range the employers' ideal would fall? Does that answer conflict with my thesis?

Would you care to guess where in the range the employee's ideal would fall? The answer is missing from your thesis.

If you look at those graphs you’ll see a more telling tale. US productivity has skyrocketed but Europeans are not that productive in comparison and are stagnant. Might help with understanding what’s going on.

> How much revenue do you think a janitor or café staffer generates? Close to zero.

This completely depends on how you do your internal revenue accounting.

> the first is they assume employees are (or should be) paid according to how much they earned the company

From the perspective of a employee and/or human, that does seem like the most fair way of distributing what the company earns, sans the money that gets reinvested straight back into the business itself. But I'd guess that'd be more of a co-operative, and less like the typical for-profit company most companies are today.

Did you even finish reading the comment you're replying to? It explicitly explains why employees who do not generate revenue are still valuable.

What you're describing, that money would go to whoever brings in revenue directly, is the myopic viewpoint of Sales with an emphasis on closing deals with nothing else. If it wasn't for the rest of the work, there'd be nothing to sell!

There is no way to unambiguosly decide who is responsible for which earnings.

Hipothetical two people cooperative that produces simple hammers. One specializes on wooden part, the other on metal part. How much each of them earned to the company? (Or producing and selling; or one spending his lifesavings to buy pricey hammer-making-equipment while other presses buttons on said equipment)

Goes further than that too, suppose the one working on the wooden part is slow and the one on the metal part is faster. And surely the value of one part or another is also different, even though its the combined value that's relevant.

Suppose as well there are a thousand people lined up to make the wooden part but hardly any for the metal, then surely the ones who work on the metal part will (try to) command a higher wage too.

Hopefully you don’t get assigned to fixing bugs, because then you may not earn any money.

Unless you fix bugs in the payment systems, then you'll probably earn more than anyone.

Even with sales based around commission, the most objective sort of salary determination, businesses still find ways to undercut payouts if they don’t think it’ll hurt the bottom line or employers won’t notice

If an employee wants to get paid according marginal company earnings, they should not be an employee. They should be self employed.

Would you pay a farmer or doctor how much value they give to you? You die without their service.

The problem with calculating based on value provided not market rate is value provided easily sums to more than one unless you consider replacement cost.

About your last "edit" paragraph: You can read more about it here: https://www.epi.org/productivity-pay-gap/

TL;DR: Productivity–Pay Tracker: Change 1979q4–2024q1; Productivity +80.9%; Hourly pay: +29.4%; Productivity has grown 2.7x as much as pay

Also, if people are unfamiliar with economics term "productivity", it roughly corresponds to profit per employee, or better, return on equity (ROE).

That “infamous graph” is mostly pop nonsense. Simply google productivity graph versus income debunk economists.

The problem is bad Econ like that latch onto certain untrained brains like quack cures to an antivaxxer, because they reinforce unfounded beliefs (beliefs formed by eating too much of stuff like this).

The actual items under consideration are far less spectacular or supporting the dearth of conspiracies, so the truth doesn’t spread as fast. It’s not so shiny or conspiracy reinforcing.

That's really interesting, can you provide some links to the sources you reference?

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