In the vast majority of cases, I agree. If someone is working at CompuTech for $100K per year, and gets an offer from TechuComp for $110K per year, that's market forces working in favor of the developer. This is a good thing.
But there is the possibility for entities the size of Google to ignore market forces entirely in order to better position themselves. For example, a guy working on self-driving cars might command a salary of $400K in most cases, but Google or Tesla or someone might offer them $600K just to prevent competitors from having access to them.
Most companies couldn't afford to do that, but FAANG are so vastly wealthy that they can hire entire engineering teams as a loss leader.
This is still good for the developers involved, at least in the short term, but it isn't so great for the market, or society, overall.
Yes, literally speaking, it's "worth it" to Google, or they wouldn't do it. Being so large, Google can throw advertising money on their self-driving car division, no problem. They can take a loss for 5-10 years, no problem. However, it's extremely anti-competitive, which is the problem others are pointing out here.
Then the Goog enters the picture and is willing to add another $200k premium to that, in order to prevent you from working for that employer. This isn't sustainable; you're still you and your direct value to Goog is only $100k. The additional amount represents how much damaging a competitor is worth to Goog. As soon as the competitor goes out of business or Goog stops having piles of cash laying around to fight with other companies, that additional value evaporates.
If you decide to leave Goog, you should probably not expect to get $300k or more. In fact you may get less than $100k, if Goog has eliminated the competitors to whom you are valuable.
"Market rate" is extremely unstable.
This is true of everyone of course. Even a more or less commodity junior Javascript developer isn't worth much more than their generalized ability to do random tasks to a company that doesn't do any software development.
But some people have a skillset and track record that is very valuable to some companies but that would make it hard to be hired at most.
Imagine some market where 10 companies sell bread and it costs $5. And lets assume that the costs are $4 and $1 is profit.
Then comes a company that makes its money on selling water and it is doing very well. It comes to a bread market and starts selling bread for $3.
The competition is quickly destroyed and the bread prices rise.
Edit: as a sibling comment mentioned: https://en.wikipedia.org/wiki/Predatory_pricing
Maybe 50 of the other 99 bakers at the 10 bread-selling companies are also capable of making good bread and will feel bad, maybe the company that lost the baker will feel bad, maybe that company will even fail because it turns out that really was their best baker... but in that case, it just proves that the water company was paying the market price for that baker. Which they were.
Spending more on talent is not predatory pricing.
Yes it does: Google makes money from advertising, not from self-driving cars.
This is not possible according to the usual definition of "market rate".
If Google is willing to pay X, that is the market rate.
edit - I see how my post was misleading. I should have said X is a "lower bound" for the market rate.
This puts Google in the position of being a monopsony for the labor of programmers; that is, they're the only or primary buyer of that commodity. Part of antitrust laws is preventing that, so, yes, there is a problem if a monopsony arises, but Google isn't in that position anyway because jobs aren't completely interchangeable the same way programmers aren't completely interchangeable. For example, companies can compete on the basis of not being Google, which attracts some people. Companies can compete on the basis of being based in some other geographic location, or having other things to work on, or having a different mix of salary and benefits.
Google offering the highest salary doesn't mean they automatically get everyone. It means they get people who want the highest salary to do what Google's interested in as opposed to wanting to work on some kinds of technology Google isn't pursuing.
Single-firm anticompetitive behavior, as defined by FTC: (https://www.ftc.gov/enforcement/anticompetitive-practices)
Single Firm Conduct:
"It is unlawful for a company to monopolize or attempt to monopolize trade, meaning a firm with market power cannot act to maintain or acquire a dominant position by excluding competitors or preventing new entry. It is important to note that it is not illegal for a company to have a monopoly, to charge “high prices,” or to try to achieve a monopoly position by aggressive methods. A company violates the law only if it tries to maintain or acquire a monopoly through unreasonable methods."
Horizontal Conduct:
"It is illegal for businesses to act together in ways that can limit competition, lead to higher prices, or hinder other businesses from entering the market. The FTC challenges unreasonable horizontal restraints of trade. Such agreements may be considered unreasonable when competitors interact to such a degree that they are no longer acting independently, or when collaborating gives competitors the ability to wield market power together. Certain acts are considered so harmful to competition that they are almost always illegal. These include arrangements to fix prices, divide markets, or rig bids."
Staff aren't a product or commodity.
I have a relative who bought a very nice beach house from his legal fees suing a hospital network for doing something similar.
I don't think what you're describing is anti-competitive behavior, rather it's omni-competitive. Pretty much all the money Google throws at anything is "advertising money" but if they are really trying to make self-driving cars, what's wrong with that?
Should my Brad Pitt Summer Blockbuster profits not be able to bankroll my Teletubbies Christmas Special?
There's plenty of antitrust fodder already with their stranglehold over the web and the behavior they've taken to protect their search/ad business. But if they're hiring people away in cutting edge areas of research simply to destroy startups, that's abhorrent. That means they're pouring their obscene wealth from advertising into unrelated fields in order to dominate them.
Monopoly.
This doesn't mean that the market price of a McDonalds burger is $0
If all I can afford to pay a developer is minimum wage, is he or she now obligated to work for me at my "market rate?" At what point does it go from not having enough money to afford a highly qualified developer to becoming "poaching?"
ed: Toned it down a little. I think tech is making an absurd amount of money and it's exasperating to see people complain about paying their workers too much.
Let's say you're a company in a field, competing against other companies in that same field. Everyone is basing wages on how much money they expect to make and so on. Not everyone has the same estimations, but in the end they're all grounded in that market.
Now comes a company with virtually limitless from some other market, who doesn't care about making money but about achieving dominance. All of the sudden, they're throwing wages around you can't compete with because they're not trying to be profitable.
Did I miss something?
The market will correct very quickly, as competitors will immediately head over to McDonalds to purchase $\infty$ burgers at $0, killing MCD dead in seconds.
The moment McDonalds applies a purchase limit (Free burgers! Limit 5 per customer), the burgers have non-zero cost, as they require a person's time in order to purchase.
If McDonalds does have enough capital to buy long-term customers and kill off competition with free burgers, perhaps they should consider it. I assume that they've considered such a strategy on occasion and concluded that it isn't worth it. Burgers are probably worth more than $0 to McDonalds, too.
I'm pretty sure they should not consider it, because it is generally illegal.
It is really not. At least in America. In America, where laws are based on consumer benefit, it is extremely difficult to prosecute companies for having too awesome of a service, that they give away for too good of a price, in a way that helps consumers too much.
It really just isn't something that gets prosecuted, except in absolutely exceptional circumstances.
But of all the things that Uber has gotten in trouble with, do you know what they have not been prosecuted for? They have not been prosecuted for selling taxi services for too low of a price to consumers.
Breaking taxi laws = yep prosecuted
But price dumping = nope, not in trouble for that.
If walmart takes its surplus capital and decides to sell toilet paper at a loss, to run everyone else out of business (till they're the last man standing), I'm not sure its correct to say that the market value of TP has reduced during that time period. Walmart has undercut the market value (the point where buyer and sellers generally meet) -- it hasn't actually changed the market value, except temporarily, in whats effectively a hack. The permanent shift in this case would occur when the dust has settled, and all competition has been eliminated
All market values are temporary. Walmart absolutely has changed the market value in this scenario. It might be anticompetitive in the Walmart example, but in the case of one company paying their staff better than another I don't think the company paying less and complaining about it is going to get much sympathy :)
I think the S&P is overvalued today. The market thinks otherwise. No matter how much I would like to purchase reasonable stocks at P/Es of 15, by and large, I can't. If someone else wants to buy them at P/Es of 21, they are going to attract every single seller.
https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L...
a) These companies are much bigger than they were, which increases the impact a programmer can have. This means the amount of money a programmer can bring in for one of these companies is much higher than previously, and so they're willing to pay more.
b) Previously, programmers were capturing a much smaller share of the value they were creating for their employers. Either through explicit collusion to keep employee salaries down (https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L...) or because the threat of startup founding (which is both easier and more normal relative to 10y ago) has pushed salaries up.
And if a bunch of homeowners are willing to drive up housing costs and prevent building out an adequate supply of housing in an area, that's just the market.
I don't have a horse in either race, but I think there is an appreciable difference between paying a premium for a resource that you use, vs paying a premium solely to prevent someone else from having access to it.
but as a contrapoint; in capitalism there's a trend of selling a product or service substantially below market rate as a way of gaining significant adoption, once you have significant adoption- you raise the price as best you can.
This is called: undercut, corner and squeeze.
Often this results in monopoly positions or at least significant leads which are hard to overcome. (Uber, is a famous example).
Obviously this is only possible with significant financial capital, which google have.
I can see how the undercutting analogy has synergies with overpaying for talent. It's worth making a loss on hiring me if it means that someone else doesn't get the (lesser) value of me.
Arguably. But, if 10 average people are worth $200k and one exemplary person is worth $500k... and the company pays the 10 average people $100k instead, then the company can hire two exemplary people where it only needed one.
Scale it down to minimum wage and you end up with people who are worth way more than they're paid -- you literally don't have a business without their work -- who are held under by telling and treating them like they're worthless.
That's what predatory behavior disguised as a market looks like.
On the other hand, does it mean that some employers won't have money to hire talent? And will that result in some businesses failing? And is that ultimately bad for developers? I don't know, but it feels like it's such a big system that it will balance itself if that is the case.
Long term, however, there's a risk of a monopoly forming, which isn't good for developers or society. FAANG are willing to pay big salaries because they are competing. If they use their power to destroy the competition, that market force goes away.
Big companies have been overpaying developers for almost a decade now. It is not going away. It is not some short term thing. Instead, that is what these elite tech companies pay.
It is not some singular company, that is buying up all of the tech talent. Instead, it is a whole bunch of elite tech companies, paying lots of developers lots of money.
The idea that there is one singular company, that is a monopoly on developer talent, that is false, given that there are a whole bunch of them doing it.
But there is competition among those companies even if "everyone" else pretty much doesn't even try to compete with them based on comp. (Which makes talking market price a bit odd in this case. I imagine an economist has some term for it. I guess there's a market price for developers who can get a FAANG offer and then there's a market price for everyone else.)
If the companies sell ads, ads get more expensive. Then the items those ads promote get more expensive, working its way down to the rest of the population again.
Those developers will also see the increasing prices, but the extra cash will hopefully keep them happy for a while.
On the other hand, capitalism has this great thing where going bust is not the end of the world (or life), compared to previous eons.
A system which allows (and encourages) failing is great.
After the first $100k or so in salary - enough for living expenses, soft things like culture fit, are able to become more important to employees, and by offering services like on-site massages directly, employers are able to offer more value than employees could capture themselves. (On-site massages are also used to keep employees on campus longer, but once you start getting "free" massages, they're hard to give up!)
I'm not sure I think this is bad but I believe this is the argument.
That's the crux of the argument, though. Google can afford to take a loss on the employee's salary for years, just to keep them from a competitor. We're not talking about Google arbitrarily paying a developer more than their competitors, we're talking about Google diverting funds from other business units to cover costs.
Googled: https://www.ftc.gov/tips-advice/competition-guidance/guide-a...
It’s called predatory pricing in that case and legality is unclear. It seems you probably get away with it in the US.
This arguments fails on so many dimensions that it must just be a meme. I’ll use Google as the example. For it to work Google has to be able to monopolise the buying of talent.
Most damning, the premise itself is self defeating. Somehow Google is picking the most talented people (delivering far in excess of say $1M marginal returns), yet somehow it is paying well below that to steal that talent and furthermore Google is then wasting that talent (employee delivering value below their pay+overhead). To assume Google chooses to waste talent merely to achieve some low value outcome (damaging a competitor by $1 doesn’t magically enhance Google’s returns by $1 so the factors are way out here) seems to assume the Google is somehow acting against their best financial interests. I don’t think Google is as poorly run as that.
Also:
1. Occam’s razor: Could it be that a Google is actually getting good value by paying very high salaries?
Yes. The average revenue per person for Google is about 160G$ / 115kiloemployees = 1M4 per employee. I do note that using an average is silly because the value distribution is not flat, but neither is the employee salary distribution flat. But the figure is so large, average does say something useful for back-of-envelope calcs.
2. Can Google monopolise by buying power alone?
No. Other companies have similarly high returns per employee (Apple is 260G$/160kiloemployees, Netflix is 20G$/20kiloemployees) so for Google to outbid them, it needs to outbid above the marginal revenue per employee, which clearly is well above a 600k$ salary.
3. Can Google corner the market for talent by restricting supply?
No. We know that there are plenty of talented developers because Google isn’t the only company making over $1M revenue per employee. Google employs about 115000 people. Let’s say 50000 of those were “overpaid“ to remove them from the competitors. If the total pool of equivalent talent were as small as 250000, then Google couldn’t monopolise talent. Yet other companies with high revenues per employee have a sum total of employees higher than 250000. Furthermore Google’s returns per effective employee become ~$2.8M/employee, so Google can obviously afford to pay $1M for talent it really wants!
> just to prevent competitors from having access to them
They don't ignore the market, they use their resources earned from participating in that market to keep and/or improve their current market positioning. Which is exactly what their shareholders want, and is fair game until treated as a monopolist.
Those are still market forces. They aren't paying the worker value, but the damage they will cause to competitors. Welcome to capitalism.
I think back fondly about the managers that genuinely wished me well at those exciting but scary junctions, even if I had my frustrations with them while I worked there. And if I'm being honest I still hold grudges against the ones that tried to make me feel bad and acted like I was betraying them for taking another job that I felt was the right decision for me at the time.
Even from a purely self-interest perspective, it seems to me that it's in every manager's interest not to try to guilt employees that are leaving or talk negatively about them. It's the last chance you have to leave a good impression, it costs you nothing at that point, and you never know when you may cross paths again, or the employee that left may be friends with someone you want to hire in the future and warn them not to join you, etc.
Employee value generation isn't fixed. It is entirely possible that the employee can generate more value in the same role at a different company. For example, if the product is more valuable, so is the work.
It is also possible that the "poacher" has such a ridiculous amount of money at their disposal that they're able to suck a talent pool dry with "so-much-money-you-can't-refuse" offers. I think, however, that enough employees are getting wise to the fact that a FAANG offer isn't an automatic "yes".
People do turn down offers even if the money is crazy high, especially older folks who have gained some control over their career path, have job-satisfaction, and don't want to stage-dive into a competitive hellscape of Type-A 20-somethings.
And why not? Are you saying that a market of free and voluntary exchange where every part has access to equal information cannot exist?
An exchange where a part is better informed than the other and thus gains profit, is the exact definition of "taking advantage". Wait, isn't that how all exchanges work in the capitalist's workplace?
Outside of very limited circumstances, how could it? Only for the simplest of products can you really grok them as well as the people making them.
The employer sees employees as resources. Property. Property doesn't have agency. Someone else is taking the employer's property, but the employer isn't being compensated for the loss of their property.
But buying a whole company? That's paying the shareholders for their property. Therefore that's good.
What other word would you recommend? Lured? Hired? They're not as precise.
Otherwise "they hired people who worked for me" and "they poached my employees" describe the same thing. If the bitter attitude is important to express, then it could be phrased as: "They hired people who worked for me and I have a stick up my ass about it."
"Did the employee reach out, or was he poached?"
I just do not think it's worth getting anal about the terminology. Who gives a shit if your old employer says "poached" when you just got a $50k pay rise?
'Poached' is inherently and deliberately demeaning terminology. There's no reason to not criticize it's use.
It's intentional language used by employers because it has preconceived notions and they succinctly communicate a story that benefits the employer.
When you hear poached, you think illegal and victims. It makes you think that the employer has been wronged in some way and that the employee was both participatory in something illegal or at least underhanded and at the same time being taking advantage of.
The reality is that the employee was being taken advantage of by the employer and received an offer more closely aligned with their actual value.
But that's the nature of the employer/employee relationship, it's never truly balanced and one party is always benefiting more than the other.