Talking About Money

Twitter is presently abuzz with #talkpay folks sharing their salaries. The movement is rather Marxist in character, but this capitalist encourages you to look beyond that, as it is in the general interests of everyone who works for a salary or rate to understand what the market is like.

Why Do I Support Talking About Salary?

I was raised to not talk about salary. This was largely for sociocultural reasons in the American Irish-Catholic middle class, where money was seen as a corrupting influence which should be kept from children for as long as possible. This decision is probably the only major point of difference I have with my parents regarding my upbringing — I would have made much, much better decisions early in life if I had any clue what the world looked like.

Employers have perfect information about salaries at their firm and fairly reliable salary information for the local slice of their industry. Candidates often have no clue whatsoever. To the extent that candidates in general have accurate impressions of what salary ranges are, these accurate impressions often travel along peer networks at roughly the speed of beer. Informal networking like this is superior to no information exchange at all, but results in people who are not present in those networks being at a negotiating disadvantage.

I’m not a Marxist — and in fact so non-Marxist that I’m honestly troubled by joining a Marxist movement on May Day — but I would have to tear up my Member of Vast Capitalist Conspiracy card if I thought that one side of a negotiation having a permanent information advantage didn’t influence how the negotiation turned out.

Compensation negotiations are presently like a stock exchange where only your counterparty can see the ticker and order book. You’d never send an order to that exchange — it would be an invitation to be fleeced. “I happen to have a share of Google and want to sell it. What’s it go for?” “Oh, $200 or so.” “Really? That feels low.” “Alright, $205 then, but don’t be greedy.”

The spot price of Google when I write this is $535. Someone offering $205 for GOOG would shock the conscience. In the years since I wrote a post on salary negotiation for engineers I have received many letters suggesting folks have received and accepted employment offers much worse than that, relative to reasonably achievable market rates.

A Quick Note About Being Fortunate

I don’t know if “fortunate” captures my position in life well, since that suggests rather more luck/chance than I think was involved.  It seems to work as a word, though, given that political implications that “privileged” have come to have are not my politics. That said, for the last couple of years I have been a rather well-compensated member of a well-compensated industry, and I’m cognizant that I have advantages that many people, including myself a few years ago, lack with regards to this conversation.

One advantage in particular is that talking about salaries can expose you to disciplinary process, either formally or informally. Salary structures are treated as corporate secrets in many places ostensibly to prevent morale-sapping internal conflict and — can we be real here for a moment, fellow CEOs? — explicitly to avoid having accurate market intelligence used against the company during salary negotiations.

Consultants/freelancers/etc also have to be cagey about their rate, because very few have just one rate, and if you disclose a previous rate then you can end up negotiating against yourself when attempting to take on a new client. (Most important takeaway about salary negotiation, by the way: disclosing a previous salary is almost always against your interests because it pegs your new salary to that plus 5% rather than your value to the new firm minus a discount, which is a brutal mistake, particularly in the years of your career where natural growth in capabilities/experience/the market/etc causes you to bring vastly more to the table with each new job.)

Happily, these days I’m a) CEO of a company I co-own, b) have no investors to keep happy, and c) have no reasonable prospect of ever having a client again, so I can publish salary/rates without blowback. I’d encourage folks who are likewise well-situated to do the same. In particular, I think that Glassdoor/salary threads on HN/etc often fail to capture the top end of the distribution due to (basically) professional courtesy/discretion, and it is really, really important that young/impressionable/lacking-information members of the industry understand that the top end exists.  (Incidentally, “the top end” suggests that there’s a ceiling/asymptote, but it’s really closer to a long tail distribution.  Pick a number, any number: somebody does a lot better than that. For most numbers you’d naively think of, its an awful lot of somebodies. $100k? Not the top. $250k? Not the top. $500k? … Not the top.)

I’d encourage similarly fortunate members of the industry to strongly consider dropping some breadcrumbs for folks who are still leveling up, either on your blog or even just informally to your peers.  Remember that nobody is born in possession of reliable market data.  Make it a point to assist other people as they journey up the career ladder.  It’s the right thing to do.

Salary History

I have a pair of undergraduate degrees, one in Computer Science, from Washington University in St. Louis.  As of graduation in 2004, my impression was that $50k was a reasonable achievable mid-career salary as an engineer and that, if I worked very diligently, I might eventually hit $100k per year.

Order entry (ages 18 ~ 20, Chicago suburbs): $10/hr, no benefits, $0.25/hr incentive pay for working in non-airconditioned parts of the operation.
Work Study (ages 18 ~ 22, St. Louis): $10/hr. Positions included data entry and basic technical support for e.g. printers.
Undergraduate research (age 22, St. Louis): $12.50/hr. My first position where I shipped code for a living.
Technical translator/researcher (age 22 ~ 25, Ogaki, Gifu, Japan): 3 million yen per year (quoted post-tax) with housing benefit with a fair-market value of approximately 500k yen per year. This was roughly equivalent to a $35k to $40k professional salary in the US, with a comparable benefits suite.
Engineer, first-class (age 25 through 28, Nagoya, Japan): ~260k yen per month (age * 10k yen is approximately the salaryman expectation for engineers in and near Nagoya), overtime pay (a lot of it — as a salaryman I routinely was compensated for more than 50 hours of it in a month… and worked “rather more than that implies”), and the standard benefits suite for professional workers in Japan. No housing benefit. Standard non-taxed transportation benefit covered more than 100% of transportation costs, as is common in Japan. I don’t want to dig out my pay stubs because seeing the number of hours I worked might cause PTSD (not a joke) but my US tax returns were generally in the $45k per year region.

A brief digression about salarymanhood: Salaries are not just internally transparent at Japanese megacorps but they’re so predictable that any middle-class adult in central Japan can accurately predict my salary history at Japanese organizations. I mention this partly because it’s an interesting cultural note and partly to say that salary transparency by itself does not guarantee happy outcomes for employees.

Consulting Rates

After that I quit my day job and started consulting simultaneously with running my own business. Now things get a little… crazy. I reiterate that this isn’t to brag, it’s just to hopefully show people how the world works.

My consultancy is shuttered now, so I can’t hurt myself with revealing the following information, but in deference to identifiable past clients I will be vague about details about particular engagements. I consulted in Tokyo, Chicago, New York, San Francisco, Germany, LA, Austin, and remotely from my then-home in Ogaki, Japan. My typical client was a privately owned software company with $10 million to $50 million a year in revenue. People generally assume that I must have been working for funded Silicon Valley startups to earn the following rates so I think I’ll explicitly call out that they represented less than 10% of my consultancy’s business.

While I was still consulting, my rates were private, largely so that I had freedom to price new engagements.  This worked out rather well, as I walked my rates up rather quickly.

First consulting gig: $100/hr
Second consulting gig: $4k/wk
Third consulting gig: $8k/wk
Fourth consulting gig: $8k/wk “Hey I wonder what happens if I just put $12k on the proposal?” $12k/wk
Consulting rack rate, year 2: $20k/wk
Consulting rack rate, year 3: $30k/wk
Highest accepted proposal: $50k/wk (The gig fell through. Had it not, my rack rate after it would have been $50k per week, at least until I convinced a firm to pay more than that.)

There were a few engagements which I priced at below rack rate, for longstanding clients, clients operated by friends, and the like. I also did a modest amount of semiformal pro-bono work.

What I did to earn those rates:

I combined a modest amount of programming skill (typically Rails, Ruby, and Javascript) with substantial experience with using engineering skills to move marketing/sales levers, including by doing SEO, email marketing, A/B testing, (light) UX design (typically around high-value parts of a SaaS business like signup flows or purchasing pathways), etc. I turned down essentially any gig which was strictly engineering in character and rather aggressively went after bigger projects which were “closer to the money” every couple of months.

I aggressively solicited formal and informal case studies from clients who had had successful outcomes, which went directly into proposals for subsequent engagements. Most of the discontinuous jumps in my consulting rate were directly occasioned by an engagement which had gone exceptionally well.

The main thing holding my rate down for the early years was personal discomfort with being “worth” the types of rates which I desired to charge. I dealt with (deal with?) impostor syndrome frequently and had little context for what alchemy one needs to work to justify professional rates.

Spoiler alert: there is virtually no difference in the mechanics of work done between $100 an hour, $200 an hour, and $30k a week — all of the leveling up there is in sophistication on who you go after, what engagements you propose and deliver, and how you package things for clients.

By the end of my consulting career, I pointed to a small pile of mostly satisfied customers and other evidence that I could do the work, sketched out a “Here’s how I plan to create a couple million dollars of value for your company” in proposals, and then just announced my rate. I received rather less pushback than I expected and virtually never negotiated on rate, using a trick from Thomas Ptacek (“If a client says you’re out of the budget, start talking about the scope of the engagement to find something they can afford rather than slipping your rate.”)

One under-appreciated benefit of charging premium rates is you get to be really picky about engagements. This lets you both deliver only engagements where you have an expectation of being able to do meaningful, successful moves-the-needle-for-everyone work, and it improves your negotiating position. If you charge $60 an hour and desire to be middle class, you have to jump on virtually every engagement which comes your way and if someone counterproposes $50 an hour you virtually have to hear them out.  If you charge more professional rates, you have the wherewithal to decline work below your prevailing rates and simply take an unpaid vacation or concentrate on building higher-quality pipeline for new full-rate engagements.  That is a high-quality BATNA to have, and existence of it helps close negotiations successfully all by itself.

My impression is that my consulting rates are both high and not nearly the top of the market for professional work done in our field. I could substantiate that with data from other people, but that would require divulging confidences.

Folks occasionally think I’m a member of a shadowy cabal for being able to charge the above rates, but believe me, I was nearly exactly the same level of capabilities at $30k a year as I was at $30k a week, I just got better at organizing the business to expose me to opportunities to capture the better rate. I’m good at what I do, but the premium built into the rates versus many other people who can knock together a Rails app is not, not, not due to superior skill with Rails, the elite fraternity of the Ogaki tech industry, etc.

Business Results vs. Wages

I ran a succession of small software businesses between 2006 and 2015, which both earned money and gave me the skills/platform which allowed me to do the consulting thing described above. They’re not directly relevant to discussions about “pay”, as running a business has many types of tradeoffs not directly comparable to those experienced by employees/consultants.  In particular, running a business exposes you to substantially higher risk.  Business owners have a huge variance in outcomes due to factors both inside and outside of their control.

That said, I originally got on the transparency train back when I had $25 a month in revenue and just never stopped publishing numbers. There exists a fairly comprehensive breakdown of my business’ numbers every year since starting (c.f. 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, and 2014).

Equity

As a small-business owner, my net worth is dominated by equity I own in my company. This is important to discuss in any conversation about wages in the tech industry, because for historical/cultural/tax reasons we put a large percentage of the industry’s total compensation in equity grants. This is particularly true as you get increasingly advanced in your career.

It’s extraordinarily difficult to value equity in a small company prior to selling it. At one point, I wanted to invest a small amount of money into startups which were owned by other people. This requires one to be an “accredited investor” in the US, with either $250k salary for two years (a bar which I did not hit) or $1 million in assets aside from the value of one’s primary residence. After speaking it over with my accountant, we mutually decided that we could attest to me being an accredited investor in good faith.  (Somewhat surprisingly to me, a two-sentence letter from a CPA suffices to establish accredited investor status.  I had a vague notion that it would probably require a balance sheet or complicated well-researched valuation of assets, but no, it’s basically “I’m professionally responsible for looking after this client’s finances.  His assets exceed liabilities by more than a million dollars.”)

I recently sold my first SaaS business, Bingo Card Creator. I want to disclose how much it went for, but am prohibited from doing so by the terms of my agreement with the purchaser. Speaking generally, small SaaS businesses are presently valued at between 2X and 3X “seller discretionary cash flow” (SDC), which is essentially “how much money could the owner extract from this, totaling profits and their salary, if they only paid absolutely necessary expenses.” BCC’s SDC can be reasonably estimated from previously published numbers. That’s all the bars I can hum.

I have another SaaS business, Appointment Reminder, which I am a 100% owner of. The business is modestly successful. I have a particular number in mind for it, which I’d be crazy to quote publicly prior to selling it, for the same reason that you’d be crazy to quote your desired salary in a salary negotiation.

If a buyer pitches me on 2X my desired number I will, naturally, say “That’s an interesting number. If you were offer insert 2.2X here I think we’d have a deal.” No buyer will pitch 2X if they know what X is, though.  A younger, less savvy me would interject here “Why ask for more money given that they’ve already offered you enough?” and my answer to that is “Because everyone in the negotiation is a businessman and any number we are mutually happy with is a morally acceptable number.  Given this, and keeping all else equal, I prefer ‘more’ to ‘less’ and always, always, always ask for ‘more.’  You should try that — it’s a trivial tactical suggestion which helps address you systematically low-balling yourself, which you’re prone to.  You think that asking for ‘more’ will result in ‘less’ being yanked from the table, but you believe this because you’re young, inexperienced, and working from a narrative about desert which is quite disconnected from how rational businessmen actually operate.  No counterparty who you actually want to work with will hold good-faith negotiating against you.”)

I expect, regardless of the outcome of negotiations over the business, that the sale will pay for my daughter’s college education, repay the out-of-pocket investments I made in growing the company, and establish a healthy buffer for my family.  That said, I’ll still need to draw a salary for the near future.

I did not accept equity in any of my consulting clients.  I own a very modest amount in two companies which I am an angel investor in (Binpress and Riskpulse) and one company which I am a formal advisor in (MakeLeaps).  Like most angel investors in tech, most career returns will likely come down to equity awarded as wages rather than equity purchased primarily for cash consideration.

Present Salary / Equity Situation

I’m presently an equal co-owner in Starfighter with Thomas and Erin Ptacek. As the CEO of a pre-revenue company, I don’t presently take a salary. After Starfighter has revenue, I expect all the co-founders to draw substantially identical salaries (pegged at market rates for senior technologists). We will also receive distributions.

Wrap-up

Anyhow, that’s the boring-but-hopefully-instrumentally-useful discussion of ten years in a rather quirky tech career. I am impossible to bore or embarrass on this topic, so if you ever want private advice, drop me a line.

Final words of advice: Technologists are in a wonderful position presently to create a heck of a lot of value in the world. Don’t be hesitant to be compensated equitably for the value you are creating.

About Patrick

Patrick is co-founded Starfighter, founded Appointment Reminder and Bingo Card Creator, and presently works at Stripe on Atlas. (Opinions on this blog are his own.) Want to read more stuff by him? You should probably try this blog's Greatest Hits, which has a few dozen of his best articles categorized and ready to read. Or you could mosey on over to Hacker News and look for patio11 -- he spends an unhealthy amount of time there.

24 Responses to “Talking About Money”

  1. man May 1, 2015 at 1:28 pm #

    It’s great that we’re talk about salaries without being fired. I wonder who advocated for all those employee protection laws… they must have been capitalists or another comfortable and historically popular group of people

  2. Chris May 1, 2015 at 2:21 pm #

    Very interesting piece. One minor typo: I think you meant “dessert”, that treat your mother uses as leverage, rather than an arid place.

    • Karl May 1, 2015 at 3:29 pm #

      He means “desert” in the sense of “what you deserve,” like in the phrase “just deserts” referring to criminals being caught and punished.

      • Kyla Cromer May 3, 2015 at 5:19 pm #

        No, he means the barren, arid landscape. Paucity rather than plenty. Through your experiences, lack of confidence, and lots of conventional wisdom, you assume there isn’t much out there.

        “Working from a narrative of,” means a framework or perspective. (More literally, story.)

        Correct me if I’m wrong, of course, Patrick.

  3. Lockedown Design May 1, 2015 at 3:14 pm #

    So much great information! Thanks, Patrick for leaving breadcrumbs for those of us trying to find the path. ;)

  4. mb May 1, 2015 at 3:39 pm #

    Thanks for sharing! re: consulting, would be interesting to know how much time you spent on actual client-billed work as opposed to ancillary work like putting together proposals, building pipeline, etc.

  5. Nick Pachulski May 1, 2015 at 4:29 pm #

    Thank you for taking the time to write this. As someone new to the industry who’s self-confident in his engineering abilities, yet still feels a bit imposter-syndrome-y for collecting a good first job’s salary, this made me feel a lot less like an imposter. Thanks again.

  6. Steven hui May 1, 2015 at 5:45 pm #

    Thank you so much for thr advice. I haven’t read anything this useful in quite a while….

    I am a 27 yo asian male who was born in san francisco but lived in bong kong for half my life. I felt disconnected to both cultures . Reading the artical here give me even more insight to the complications of the culture in the states.

    I went to uc davis and got a bs in biomedical engineering and a ba in japanese. First job out of college i was paid 30k in 2010. Got promoted to a “manager” of the small engineering department in that biotech company and got paid 33k, which i thought was decent at the time.

    In just three months i went back to get my mba while working full time and in just six months i quitted my job and focus on school. A year later i would graduate with a 3.9 gpa with an mba in finance and tried to start my career in hong kong without success. I came back to the states and was unemployed for a yeAr until my friend refered me into an utility consultant company as an engineer. I started making 58k, got promoted to team lead in half a year and made 61k.

    I decided it was time for some change and i got a position at the biggest utility company in CA as an analyst got 65k (and finally with benefits). Im currently pursuing my MS in finance ( probably graduate 6/2016) and im still thinking about my next career move. I wonder when will i break six digit and if i ever will be near the seven digit mark.

    Any advices?

    Thank you so much and this article really did change my perspective in things and will definitely change my life for the better.

  7. Jonathan Stark May 1, 2015 at 5:56 pm #

    Any @patio11 fans in here know what P means by “consulting rack rate”? I’ve never heard that term. TIA!

    • Ryan Petrich May 1, 2015 at 6:19 pm #

      Rack rate is the published price for a hotel room if you book it same day. The “default” price.

  8. Geoff K May 1, 2015 at 10:24 pm #

    Much appreciated advice! I assume you’re looking over this email, though – and since I’ve had a few drinks and have gone from Libertarian to Meta-Progressive just on the basis of various readings, I think I might point out that the country grew not on capitalism (at least, not as currently defined), but rather on a pseudo-Marxism:

    The rationale behind higher salaries for men was that they required higher salaries to support a family, whereas women (commonly removed from the workforce after marriage) did not require such support. This has been removed in the modern era, though one may comment on the process used to achieve ‘equality’ as having hampered the overall process.

    We seem to have stagnated compared to say, China, in the recent era (post Reagan); currently I believe (and the supposition is supported at least somewhat by philosophy’s rejection of truly private property due to the requirement of the existence of a second person, not accounted for in Locke’s foundational works) that society’s raison d’etre is as an enabler of the individual in every possible way (which sounds more libertarian than socialist/Marxist but ultimately leads to at least some conclusions, notably education, drawn by the latter camp(s)).

    This is at least in some sense countermanded; psychologically, thinking capitalist is very helpful when dealing with problems involving the self, but abysmal when thinking of the group. A certain combination of virtue ethics with the utilitarian approach seems to be required, however odd that may seem.

    Hope I said something of interest!

    -Geoff

  9. Dan May 2, 2015 at 1:30 am #

    Did you have a choice between 22-28?
    Looking back now, would you ask for more in the same circumstances?

    Very interesting read.

  10. Johnny Five May 2, 2015 at 2:16 am #

    What does it mean to build higher qiality pipelines? What are pipelines, how one build them, and why?

  11. Sil May 2, 2015 at 12:44 pm #

    Was wondering how you were marketing yourself to get these clients for the consulting. I do have similar skills but are unable to get the clients.
    Please let us know

  12. Yury Kusik May 3, 2015 at 6:33 am #

    Patrick, thanks a lot for sharing this! It’s a great read and a very valuable insight!

    In my opinion, there is a number of reasons why the current approach with undisclosed salaries prevails, and it can’t be changed just by sharing that info. It’s more about changing what employees/contractors are paid for – giving up 40 hours of their life a week, or brining the value which can be clearly assessed and fairly compensated. I’d say there are quite a few reasons for the current state of the things (which doesn’t mean that I agree with that status quo, quite on the contrary):

    * There are people with similar skills (or creating a similar value for the company) who would work for different salaries at the same company and be genuinely happy about that (yes, only until the know how much their equal-level-colleague makes).
    * This works because after certain income level earned money don’t affect the level of employee’s happiness that much – better car, bigger house and other consumerism doesn’t really affect the happiness level that much (the best what you can buy with money is time and freedom, but this is again usually out of the employment paradigm).
    * Undisclosed salaries approach is certainly more cost efficient for the employer and allows to attract a wider range of people: e.g. John for X, Jane for 2X and Justin for 3X compared to paying 2.5X to everybody and being able to attract only John and Jane). Even if it works only until the moment John finds out that he’s underpaid and successfully negotiates a higher salary it is usually still worth for the employer (at least that’s my guess, companies who chose openness say otherwise but they are still a minority).
    * Employees put up with being paid differently until they find out that “the other person doing the same job” is paid more. When that kind of unfairness is discovered it significantly damages the morale, hence legal prohibition of disclosing salaries or the same norm imposed by culture.
    * There can be a situation that a person paid X times more is X times more valuable for the company. The problem is that the most companies can’t really assess the value employee creates for the company (not necessarily absolute value, rather relative value compared to what other employees produce). This means that company can not justify the salaries objectively enough and prefer an easy way – the salary secrecy approach.

    My guess is that you were able to achieve that great success with your consulting rates because you were able to show the absolute value you expect to bring for the client (supported by testimonials from your previous gigs) and, as you put it, by getting “closer to the money” in work you did.

    Talking in terms of hourly rate just doesn’t make much sense for me. Actually, Patrick, can I ask you if billed your consulting clients by hourly rate, or it was rather for your internal assessment of how well you’d done and comparing different gigs?

    But still I’m pretty sure that disclosing and comparing hourly rates or yearly salaries wouldn’t bring us anywhere – people are different, even the same person can have different performance and bring different value. It looks for me like a searching for the keys under the lamppost, because it’s harder to try finding them in the darker, harder to explore area, by which I mean building the organisational system where the value every employee generates is clearer, and substantially different compensations are objectively justified (by the value the person generates).

  13. paysafe card May 14, 2015 at 12:01 pm #

    Awesome issues here. I’m very satisfied to look your post.
    Thanks so much and I’m having a look forward to touch you.
    Will you please drop me a e-mail?

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