Comment by jamesb93

Salaries usually come out of a different budget, one that has visibility all the way up to the C-suites. The web page mentioned was probably paid for out of a marketing budget, which often doesn't get as much scrutiny because (1) it's handed out in a big chunk and it's up to the business unit to decide how to divvy that chunk up and (2) marketing spend is much easier to turn down in the event of a slowdown than salaries.

These are largely fixed costs that can be cut anytime. Salaries come with benefits and healthcare and potential lawsuits. Also, as said in other threads, this gives them someone to fire when things go bad without losing their good people.

I learnt a while ago that salaries come from a different budget then the project budget. Salaries are an ongoing cost. But a contractor comes out of the project budget.

So since the salary is ongoing and a higher risk (for them), it's priced lower. A contractor the risk is less for them since the project has a fixed budget.

It's the largest line item for most companies, so apply pressure there and get the most dramatic result in the shortest time. Do that to every project and it takes too much mental overhead.

Because they have thousands of employees and squeezing salaries is an obvious easy to move the bottom line significantly. In the short term anyway.

Last year, Walmart gave US associates a bonus that were based on a sliding scale of tenure and capped out at $1,000[1]. While not a particularly large amount of money for a bonus, it is in proportion to their associate salaries. And in proportion to the amount of associates they have: it equated to a $400mm one off cost. If they had adjusted wages by the same amount (i.e. less than $1,000 per employee), that'd be an additional half a billion dollars in net new recurring salary costs that would be hard to ever walk back for what is a fairly marginal increase in compensation. And you've just made your annual increases that much more expensive by raising the baseline. Even for Walmart that'd be a big chunk of change to absorb[2].

</anecdote>

Adjustments to employee compensation can have a lot of second order effects. If you bring in a new employee above what you were bringing employees in at, that doesn't happen in a vacuum. If the employee was brought in at a lower level, you've potentially set a new baseline for where you need to bring talent in at. And also need to make adjustments to your other salary bands to compensate in order to ensure you don't have a flight of more senior or tenured talent when they catch wind of what the new people are being brought in at. It's also hard to "reset" pay tiers over time unless you have an incredible amount of turnover, since your tenured talent isn't exactly going to be happy with a pay decrease over time.

Consultants/Contractors are different. What you pay one consultant has little to no bearing on what you pay any other consultant, nor what you pay employees. The impact of that is insulated to that specific relationship, and ends when that relationship ends.

<another anecdote>

I currently work at an agency, and the client billing rates for my time varies wildly from levels I'm able to get for myself when I do moonlighting projects (and I'm terrible at sales/rate negotiations) to anxiety-inducing "how could someone ever fathom spending this much money on an hour of my time?!" that are only possible because of the particular pre-existing relationships we have with the client that anchor our value/cost at that point. We even have a few clients with multiple SOWs from different departments, where my rates for each department are on completely opposite sides of the spectrum. If you transfer an employee from one department to another for substantially the same work, you'll need to pay them substantially the same regardless of changes to their incremental value from one department to the other.

[1] https://www.thestreet.com/story/14446039/1/walmart-uses-u-s-...

[2] They did in fact absorb such an increase though - at the same time as the one-off bonus occurred, they increased their minimum wage for US associates to $11/hour, which resulted in an immediate incremental increase of $300mm in annual employee compensation.

Because they have to manage these costs at a much bigger scale.

Aren't these just terrible business-people then? If I'm in charge of something I should know the field/cost. Most people have that expectation in their job and if everyone chalked up overpaying to rounding errors a lot of money would be wasted.