"What engineers really need to do is to put more skin in the game. Push for more equity, even if it means accepting a smaller salary. All too often I see programmers who just want a 9-5 that pays 6 figures"

A lot of engineers I know are like this because they were badly burned earlier on in their careers with promises of equity (while working below-market paying job for that equity) that turned into dust (due to massive dilution and other factors) even when the company had a very successful exit.

One could argue there they only have themselves to blame for not being sure of the actual value of their position in all possible exit situations, but now you're arguing they shouldn't just be engineers but also financial/contract law experts, which is especially unrealistic when they are just getting out of school.

This isn't as simple as "push for equity". There are plenty of companies where equity makes no sense (say, a private consulting company, or a company with no plans to sell a la 37signals)

What other options are there? Guaranteed end of year bonuses? Commissions in the form of profit sharing?

It is funny that options are now so associated with a company exiting that we totally forget that their original purpose was as an efficient mechanism for profit sharing

I was thinking exactly the same thing, about the parallels between speculative bets on appreciation and dividends.

For private companies with no plans to sell, ideally it would be an arrangement where the engineer receives shares (in a C corp) or is written into the operating agreement as a partner (in an LLC or LP) but a profit sharing agreement would have the same effect.

In major law firms, the associates aspire to become partners in the firm, which is analogous to my interpretation when saying "equity".

Actually, setting up software firms where the best developers can "make partner" would be quite an interesting approach.

I'm not sure it would work, but if it did, it could be a perfect solution for keeping a great team together for the long haul.

See: Accenture.

It's a consulting company not a product company; it may be significantly different when "making partner" at a product company. However, from what I've heard, each partner at Accenture essentially runs his or her own business within the larger scale of the organization. Success is directly tied to the success of the internal mini-businesses. It is, however, an example of a company where IT professionals can become equity stakeholders in a private firm.

I imagine a product company would need to make the partners in charge of one product each (or maybe a couple of partners on one product) in order to avoid the "Too many cooks in the kitchen" problem.

Though your premise is correct, Accenture is public, not private. They (like many others) wanted to expand beyond pure consulting, and the partners wanted to cash out.

Accounting and law firms may be a better example, though even they aren't as entrepreneurial as you think. They have their own regulations and internal politics.

The amount of politics and backbiting and sabotage that gets mixed in with partner-track programs is horrifying. Find an incentive scheme that empowers first-year hires to do amazing things for your company.

That's sorta the YCombinator model, isn't it? If you do really amazing things, you get acquired for a few hundred million. If you do somewhat amazing things, you get acqhired for a million or so. If you don't do anything, you get nothing.

Seems to be largely working within the specific space of Silicon Valley YCombinator-funded startups, but I'm not sure how well it scales. There's a pretty sharp filter for getting into YC, and for someone without access to PG's connections, the chance of hitting it big or getting acqhired may not be worth the risk they take.

But YC invests in technically-competent businesspeople, not engineers

As someone who left software engineering for law, I have to say that partnership is a great motivator.

I don't want an incentive scheme to help make you money. Pay me 20-25% of the revenue I generate for the company and give me a non-zero chance to be a stakeholder and I'll work my ass of for you.

Most traditional firms, to make partner, you have to be personally responsible for a large amount of business.

At Andersen, at one point, I heard the number was $10M/yr of revenue.

It would be harder to figure out how much revenue is generated by an individual contributor (even if they are a superb coder).

Also, partnership usually involves leadership decisions

Private consulting companies have all sorts of var comp plans; the most common is profit sharing.

Presumably, equity in these companies would be like being a "partner" in a law/accountancy firm.

I hope not. If you talk to folks in law, in particular, the partnership system is broken. It basically results in a situation where it's in the interest of the existing "partners" to have as many "non-partner" employees as possible, dangle the carrot of partnership in front of them so they work really hard, but in reality only promote 1% or so to partner. That maximizes the return to existing equity holders but it means life sucks for everyone junior.

Yet the partner/director carrot in law/banking/consulting convinces tons of Harvard, Yale, etc, grads each year to work 80 hour weeks for their 20s for a shot at equity (which realistically is more like 5-10% at big NYC type places and upwards of 30% in secondary markets).

This is really mostly a law thing - banks and consulting firms, by and large, aren't partnership models any more and haven't been in a long time. Any large bank or consultancy is public now, which means they give equity to employees out of a huge pool and it has relatively little effect on the comp of their managers. That's different from a law firm, where even in fairly large ones the addition of new equity partners can have a material impact on the existing partners' comp.

As for making partner in a BigLaw firm, folks I've talked to describe it as "a longshot" to "nearly impossible." A firm like Skadden will hire 500+ new associates a year (worldwide) and name maybe 4-6 partners, not all of whom started as associates. Unlikely the chance of going from associate to partner breaks 1%.

(Updated #s after asking someone who worked for Skadden.)

McKinsey and Bain are incorporated partnerships, and BCG is still an actual partnership. Goldman Sachs, JPM, etc, are public companies, but their investment banking and trading divisions operate very differently from a typical public company. GS, for example, pays out 50% of revenues as compensation, with MDs and PMDs (partner managing director) sharing from a huge profit pool. Internally they function very much like partnerships.

As for the chances of making partner, it depends heavily on the firm and the year. Skadden is something of an outlier[1]. The other big NYC firms bring aboard about ~100-120 associates per year, and promote between 5-15 depending on the economy. The last few years it's been around 5 and during the boom it was around 15. At medium-sized firms outside NYC, the %-age is more like 20-35%, though profits-per-partner at those firms are more like $300-500k/year, versus $2m+ at Skadden.

[1] Though your numbers seem grossly exaggerated. Worldwide Skadden brought aboard ~200 this year, which was a big crop. The two years before that were ~100 put together. And over the last few years, the partners promoted counts have been: 2007 (29), 2008 (25), 2009 (8), 2010 (6), 2011 (8).

I read in an interview that at the end of the year, 37signals takes most of its profits, and pays them as a dividend to its shareholders. I don't know if lay employees get a chance to own stock, but if they did it could be a great incentive.

Having worked on the Priceline campaign and with Mr. Shatner, I can tell you he laughed significantly less than halfway to the bank. He cashed in his shares ten years ago, well before Priceline's recent stock blast-off. Your point, however, is valid: he was paid with shares.

structuring compensation as base / bonus could also alleviate this. at least that's the carrot finance industry is using to get most performance out of developers even though the bonus is usually exactly what promised/paid last year + n%. but it seems to work (especially around 3rd/4th quarter). but the higher you go, the higher % of your pay is bonus and supposedly tied to co performance. though this is not as good as equity as there is still no real ownership incentive.

"structuring compensation as base / bonus could also alleviate this" <-- I am not convinced. If you knew that your bonus was a percentage of your salary, the only way that it would motivate you is if your salary was low (or if your bonus was extremely large). And for developers, the bonus is generally in the 10-30% of base salary range. There really has to be a variable component depending on the firm profits that isn't capped at a percentage of salary.

"though this is not as good as equity as there is still no real ownership incentive." <-- this was the largest complaint to the investment banks transforming from partnerships to corporations (in the former case, the partners were personally liable for losses)

In fact, I think this problem is even worse in the CEO world due to the legacy MBA culture of greed.