> While some may be losers in that sense too, they are primarily losers in the economic sense: those who have, for various reasons, made (or been forced to make) a bad economic bargain: they’ve given up some potential for long-term economic liberty (as capitalists) for short-term economic stability.
Halfway with the author so far. Generally, being salaried is a bad economic bargain for people with the self-discipline and perseverance to go off on their own. There's other reasons it can be good - a friend of mine is a business consultant that's really good, really brilliant, could definitely run his own shop. But he makes decent enough coin and loves his work and coworkers, and said he doesn't want to deal with the highs and lows of self employment. He's trading off lifetime net income, most definitely, but maybe he's happier? I keep trying to convince him to do some kind of entrepreneurial project with me and failing, but maybe someday. He certainly is extremely happy.
But anyway, I'm still with the author mostly. Next point:
> Traded freedom for a paycheck in short. They actually produce, but are not compensated in proportion to the value they create...
This is sometimes true. If your work isn't set on incentives, then you aren't compensated in proportion to the value you create. This relates to the above: If you want lifetime net income, look to get compensation tied to incentives as closely as possible.
Being self employed and only getting paid for performance gets you there the fastest, but that doesn't only mean you only make more money! Some months you work very hard, and have LESS money at the end of the month for your troubles. This sucks quite badly when it happens.
> ... (since their compensation is set by sociopaths operating under conditions of serious moral hazard).
And herein lies the author's mistake - the reason people aren't compensated accordingly to their production is that it's incredibly hard to judge production. Jack Welch, one of the better HR people of all time, said he only got 2/3rds of his hiring decisions correct at the very end of his tenure and peak of his skills at GE.
The person who holds back the coin from the productive salaried employee is not his boss or the company owner. It's the unproductive salaried employee. Great companies recognize highly productive people and try to compensate and reward them accordingly, but production is notoriously fickle and variable.
Bosses and especially owners don't scheme to keep pay for productive people down - they want to pay stars, because they want to retain their stars. And if a competitor isn't paying their stars, they'll happily give them a raise and a signing bonus for jumping ship. It's just that it's so damn hard to evaluate who really is producing. The guy that produces 10x the normal amount of production for his job isn't having his pay thwarted by any "sociopaths", he's having it thwarted by colleagues who shuffle papers, schedule meetings, and make themselves appear busy while producing nothing of value.
There's reasons (primarily stability, but others too) to stay in this arrangement, but if you want to maximize your net income, you need to move to a way where you get paid based on what you produce, and be willing to accept the swings and bad things that come with that. That's easy to do in measurable fields like sales. To do it in a more intangible field you might have to open your own company.
"the reason people aren't compensated accordingly [sic] to their production is that it's incredibly hard to judge production." ... perhaps ....
... but perhaps Karl Marx was correct when he said that (basically) the essence of capitalism is in the systematic skimming of "surplus production" by the controllers of capital. In other words, EVERY employee is not paid according to their production.
I also think that this commenter has really swallowed the ideology (ie, is clueless): not every boss wants production from their underlings. Perhaps the owners want production, but managers don't necessarily -- changes in production might make them look bad, it might reset the expected quota level for their department, it might upset next years budget, etc. The interests of employees <> interests of owners, and managers are employees.
Marx's argument is not based on this kind of thing at all, but rather on the mere existence of profit.
It all comes down to your theory of value. Marx uses a labor theory of value that might say that a chair is worth exactly the wood and the human labor that is invested in producing it. When a chair manufacturer employs people to build chairs, they pay the employees less than their labor is worth, sell the chairs, and pocket the margin.
The market theory of value says that something is worth what someone is willing to buy and sell it for. So if you decide to work at the chair factory for $5/hr, you and the chair company have agreed that your time is worth $5/hr. If the chair company sells a chair for $50, the chair company and the consumer agree the chair is worth $50. (Of course, the chair company might be willing to sell for $20 and the consumer might be willing to pay $70, so there is a "surplus" to both sides. But that simply arises from the distinction between individual value judgments and market value.)
The market perspective is the only one where productive activity makes any sense at all. From a labor theory of value, a chair, a table, a skyscraper, or a startup is only worth the amount of labor that was invested in it. But if this was true, then wouldn't we be just as well off to spare the labor and hang out on the beach instead of working? The market theory of value says that if you invest labor, you might create something more valuable than the labor you put into it, which is the only theory that justifies productive labor in the first place. It also says that if you invest your labor into building something no one wants or is willing to pay for, you simply waste it. The labor theory of value would gel with many people's naive ideas here: I put so much work into this damned thing, isn't it worth something?
In reality, most employees are paid more than they produce, and a large part of the surplus generated by a productive minority inside a company goes to an unproductive majority rather than being skimmed by the controllers of capital. Therefore Marx' argument can only hold true in the aggregate.
"The guy that produces 10x the normal amount of production for his job isn't having his pay thwarted by any "sociopaths""
While it suits the company to identify and retain the productive, management's incentive is to minimally reward producers.
Productive losers are, by definition, not those who will take a risk to ensure maximal compensation. Their wages are therefore easy pickings for a sociopath manager who is willing to take risks to ensure their own maximal compensation.
The author has simply assumed that at some point any budget will cross a sociopath's desk, thereby guaranteeing the productive loser's compensation will be depressed in the sociopath's self-interest.
Have you managed or employed people? I ask because paying people well is a bit counterintuitive , but most owners and managers figure it out pretty quickly. Paying more than minimally typically increases morale, loyalty, and retention.
Sometimes you wind up working for an oblivious or sociopathic boss - but then you need to go apply for another job elsewhere. It's like if the closest restaurant to your house is no good: You ought to take the effort to get out of there, and that is your responsibility.
But generally speaking, even halfway decent managers and owners go out of their way to compensate their best people. Now, low-middle managers are not always halfway decent, but then, they're probably not getting directly compensated on production either. Once you get to "head of division", "head of region", and any ownership role or incentive based on real production from a manager's unit, you're going to get managers that want to pay their people well. It makes a bigger pie, so to speak.
Wages are a hygiene issue: people will quit over low wages, but high wages rarely encourages morale, loyalty, or retention. (Herzberg)
Instead, autonomy, complexity, and achievement, and recognition are related to motivation. I'd rather make $80k a year doing something I love than $95k a year doing something I hate (assuming that $80k is enough to meet my living expenses and other hygiene needs).
In large organizations, the managers themselves don't decide on their employees' compensation-- HR or executive committees do. Their mandate is to compensate minimally, and they are disconnected from the actual performance of the employee and thus has only their self-interest and political considerations (whose department got the last raise and for how much?) to take into account.
Like the other reply said, not every organization does bonuses. My BigCorp, being in retail, only does bonuses as profit-sharing, based on total company performance.
Job performance objectives are overwhelmingly based on overall company performance and department-level performance scores, and individual performance has almost nothing to do with it. And even then the whole salary situation is cloaked in smoke and mirrors and is essentially irrational and adversarial. Your scorecard numbers have nothing to do with it.
But if HR doesn't get any bonuses, then they really have no incentive to do a good job at all. You would then just need to do enough work so as not go get fired.
I work in an organization that fits your parent's description and it sucks. HR doesn't do anything except administrative work and the departmental managers don't have any authority in regards to salaries and benefits.
The other (very good) responses cover relevant ground, but I wanted to address one additional point:
"Sometimes you wind up working for an oblivious or sociopathic boss - but then you need to go apply for another job elsewhere."
The author's term 'productive loser' is defined by the unwillingness to accept risk to ensure maximal compensation. If you agree that the willingness to take such risks is required, I'm not sure that you're truly at odds with the author's original statement.
Further, your 'upper management' examples all live at the 'sociopath' level of the author's corporate pyramid. Sociopaths are eager to pay other talented sociopaths fairly, because they know that they must.
Subheading "What a Job Is", 5th paragraph down or so:
In a company, the work you do is averaged together with a lot of
other people's. You may not even be aware you're doing something
people want. Your contribution may be indirect. But the company
as a whole must be giving people something they want, or
they won't make any money. And if they are paying you x dollars
a year, then on average you must be contributing at least
x dollars a year worth of work, or the company will be spending
more than it makes, and will go out of business.
And in the next subheading:
I think the single biggest problem afflicting large
companies is the difficulty of assigning a value to
each person's work. For the most part they punt. In a
big company you get paid a fairly predictable salary
for working fairly hard.
....
the company has no way of measuring the value of your
work.
Salesmen are an exception. It's easy to measure how
much revenue they generate, and they're usually paid a
percentage of it. If a salesman wants to work harder,
he can just start doing it, and he will automatically
get paid proportionally more.
Just want to point out that "stars" doesn't always equate to value. There's lots of developers out there that create amazing software (produce a lot and do things which are technologically very difficult) which does nothing for the customer.
If it does nothing for the customer, then what's the value?
It's also not usually (at megacorp) the developers responsibility to decide what will be valuable to the customer.
Comments
It gets this half-right/half-wrong:
> While some may be losers in that sense too, they are primarily losers in the economic sense: those who have, for various reasons, made (or been forced to make) a bad economic bargain: they’ve given up some potential for long-term economic liberty (as capitalists) for short-term economic stability.
Halfway with the author so far. Generally, being salaried is a bad economic bargain for people with the self-discipline and perseverance to go off on their own. There's other reasons it can be good - a friend of mine is a business consultant that's really good, really brilliant, could definitely run his own shop. But he makes decent enough coin and loves his work and coworkers, and said he doesn't want to deal with the highs and lows of self employment. He's trading off lifetime net income, most definitely, but maybe he's happier? I keep trying to convince him to do some kind of entrepreneurial project with me and failing, but maybe someday. He certainly is extremely happy.
But anyway, I'm still with the author mostly. Next point:
> Traded freedom for a paycheck in short. They actually produce, but are not compensated in proportion to the value they create...
This is sometimes true. If your work isn't set on incentives, then you aren't compensated in proportion to the value you create. This relates to the above: If you want lifetime net income, look to get compensation tied to incentives as closely as possible.
Being self employed and only getting paid for performance gets you there the fastest, but that doesn't only mean you only make more money! Some months you work very hard, and have LESS money at the end of the month for your troubles. This sucks quite badly when it happens.
> ... (since their compensation is set by sociopaths operating under conditions of serious moral hazard).
And herein lies the author's mistake - the reason people aren't compensated accordingly to their production is that it's incredibly hard to judge production. Jack Welch, one of the better HR people of all time, said he only got 2/3rds of his hiring decisions correct at the very end of his tenure and peak of his skills at GE.
The person who holds back the coin from the productive salaried employee is not his boss or the company owner. It's the unproductive salaried employee. Great companies recognize highly productive people and try to compensate and reward them accordingly, but production is notoriously fickle and variable.
Bosses and especially owners don't scheme to keep pay for productive people down - they want to pay stars, because they want to retain their stars. And if a competitor isn't paying their stars, they'll happily give them a raise and a signing bonus for jumping ship. It's just that it's so damn hard to evaluate who really is producing. The guy that produces 10x the normal amount of production for his job isn't having his pay thwarted by any "sociopaths", he's having it thwarted by colleagues who shuffle papers, schedule meetings, and make themselves appear busy while producing nothing of value.
There's reasons (primarily stability, but others too) to stay in this arrangement, but if you want to maximize your net income, you need to move to a way where you get paid based on what you produce, and be willing to accept the swings and bad things that come with that. That's easy to do in measurable fields like sales. To do it in a more intangible field you might have to open your own company.
"the reason people aren't compensated accordingly [sic] to their production is that it's incredibly hard to judge production." ... perhaps ....
... but perhaps Karl Marx was correct when he said that (basically) the essence of capitalism is in the systematic skimming of "surplus production" by the controllers of capital. In other words, EVERY employee is not paid according to their production.
I also think that this commenter has really swallowed the ideology (ie, is clueless): not every boss wants production from their underlings. Perhaps the owners want production, but managers don't necessarily -- changes in production might make them look bad, it might reset the expected quota level for their department, it might upset next years budget, etc. The interests of employees <> interests of owners, and managers are employees.
Marx's argument is not based on this kind of thing at all, but rather on the mere existence of profit.
It all comes down to your theory of value. Marx uses a labor theory of value that might say that a chair is worth exactly the wood and the human labor that is invested in producing it. When a chair manufacturer employs people to build chairs, they pay the employees less than their labor is worth, sell the chairs, and pocket the margin.
The market theory of value says that something is worth what someone is willing to buy and sell it for. So if you decide to work at the chair factory for $5/hr, you and the chair company have agreed that your time is worth $5/hr. If the chair company sells a chair for $50, the chair company and the consumer agree the chair is worth $50. (Of course, the chair company might be willing to sell for $20 and the consumer might be willing to pay $70, so there is a "surplus" to both sides. But that simply arises from the distinction between individual value judgments and market value.)
The market perspective is the only one where productive activity makes any sense at all. From a labor theory of value, a chair, a table, a skyscraper, or a startup is only worth the amount of labor that was invested in it. But if this was true, then wouldn't we be just as well off to spare the labor and hang out on the beach instead of working? The market theory of value says that if you invest labor, you might create something more valuable than the labor you put into it, which is the only theory that justifies productive labor in the first place. It also says that if you invest your labor into building something no one wants or is willing to pay for, you simply waste it. The labor theory of value would gel with many people's naive ideas here: I put so much work into this damned thing, isn't it worth something?
In reality, most employees are paid more than they produce, and a large part of the surplus generated by a productive minority inside a company goes to an unproductive majority rather than being skimmed by the controllers of capital. Therefore Marx' argument can only hold true in the aggregate.
"The guy that produces 10x the normal amount of production for his job isn't having his pay thwarted by any "sociopaths""
While it suits the company to identify and retain the productive, management's incentive is to minimally reward producers.
Productive losers are, by definition, not those who will take a risk to ensure maximal compensation. Their wages are therefore easy pickings for a sociopath manager who is willing to take risks to ensure their own maximal compensation.
The author has simply assumed that at some point any budget will cross a sociopath's desk, thereby guaranteeing the productive loser's compensation will be depressed in the sociopath's self-interest.
Have you managed or employed people? I ask because paying people well is a bit counterintuitive , but most owners and managers figure it out pretty quickly. Paying more than minimally typically increases morale, loyalty, and retention.
Sometimes you wind up working for an oblivious or sociopathic boss - but then you need to go apply for another job elsewhere. It's like if the closest restaurant to your house is no good: You ought to take the effort to get out of there, and that is your responsibility.
But generally speaking, even halfway decent managers and owners go out of their way to compensate their best people. Now, low-middle managers are not always halfway decent, but then, they're probably not getting directly compensated on production either. Once you get to "head of division", "head of region", and any ownership role or incentive based on real production from a manager's unit, you're going to get managers that want to pay their people well. It makes a bigger pie, so to speak.
Wages are a hygiene issue: people will quit over low wages, but high wages rarely encourages morale, loyalty, or retention. (Herzberg)
Instead, autonomy, complexity, and achievement, and recognition are related to motivation. I'd rather make $80k a year doing something I love than $95k a year doing something I hate (assuming that $80k is enough to meet my living expenses and other hygiene needs).
http://www.netmba.com/mgmt/ob/motivation/herzberg/ for a brief overview.
In large organizations, the managers themselves don't decide on their employees' compensation-- HR or executive committees do. Their mandate is to compensate minimally, and they are disconnected from the actual performance of the employee and thus has only their self-interest and political considerations (whose department got the last raise and for how much?) to take into account.
HR's bonus, tho' is calculated on metrics like staff turnover.
Like the other reply said, not every organization does bonuses. My BigCorp, being in retail, only does bonuses as profit-sharing, based on total company performance.
Job performance objectives are overwhelmingly based on overall company performance and department-level performance scores, and individual performance has almost nothing to do with it. And even then the whole salary situation is cloaked in smoke and mirrors and is essentially irrational and adversarial. Your scorecard numbers have nothing to do with it.
But if HR doesn't get any bonuses, then they really have no incentive to do a good job at all. You would then just need to do enough work so as not go get fired.
I work in an organization that fits your parent's description and it sucks. HR doesn't do anything except administrative work and the departmental managers don't have any authority in regards to salaries and benefits.
The other (very good) responses cover relevant ground, but I wanted to address one additional point:
"Sometimes you wind up working for an oblivious or sociopathic boss - but then you need to go apply for another job elsewhere."
The author's term 'productive loser' is defined by the unwillingness to accept risk to ensure maximal compensation. If you agree that the willingness to take such risks is required, I'm not sure that you're truly at odds with the author's original statement.
Further, your 'upper management' examples all live at the 'sociopath' level of the author's corporate pyramid. Sociopaths are eager to pay other talented sociopaths fairly, because they know that they must.
You're last point was well presented. I have never looked at salary based compensation in that way. But it does make a lot of sense now.
pg wrote an essay about it.
http://www.paulgraham.com/wealth.html
Subheading "What a Job Is", 5th paragraph down or so:
And in the next subheading: Gosh, that's a good essay.Just want to point out that "stars" doesn't always equate to value. There's lots of developers out there that create amazing software (produce a lot and do things which are technologically very difficult) which does nothing for the customer.
If it does nothing for the customer, then what's the value?
It's also not usually (at megacorp) the developers responsibility to decide what will be valuable to the customer.