It's almost certainly for the companies to pay less money, but with a more generous reading, I think it could be argued that that doesn't necessarily have to come out of employee salaries. That data could be used to:
- Set reasonable ranges to find the right candidates they are looking for faster and minimize hiring friction
- Standardize payment levels in a way that reduces legal liability in certain states like Colorado/California. Or the most generous reading of "reduces legal liability" would be "promoting fairness".
- Reduce the time spent by HR/other teams of negotiating or setting salaries, as they can simply target some target like "we want to pay more than 60% of companies like us"
- For budgeting/forecasting with new hires, this allows companies to have more confidence in their estimates as they plan hiring.
I routinely get emails like "we'd like to hire you as our CTO, and because we just got a bunch of VC money, we're prepared to offer you a generous comp package of up to $90,000 salary plus .05% equity! Must be onsite in San Francisco."
If they were aware of market rates, they could avoid making potential candidates laugh at them.
Literally the worst experience of my life. I don’t even mention it on my resume or LinkedIn or anything. I suppose it was a success and the product is still doing fine. I just never want to do that again unless it’s for myself.
Which would be perfectly fine if you made this completely transparent and made the same information available to your applicants. Them not knowing the market rates (at least not even remotely as accurately) puts them at a significant disadvantage and you can't expect that most company won't exploit because it would be irrational to do that.
It makes me wonder how it would affect salaries if companies were required to make the salary distribution public for all their roles. So you knew both the range where you were applying, as well as at other companies.
And also how that would interact with unionization. E.g. would it make collective wage bargaining less necessary to some degree? If workers felt they had the data to know they could bargain individually for more money?
What I've heard from leadership at more than one company is that they choose a percentile of the market they want to pay and then set the compensation there. For example, they may say "we want to pay at the 75th percentile for SWEs with X experience in the Bay Area".
I certainly don't trust that this doesn't hold wages down overall, particularly in the boom hiring market we had until recently.
And how do they arrive at the budgeted number? Lots of companies want to ensure they are paying a sufficiently high number to get sufficiently capable employees in a competitive market. While many (including me) find things like Pave gross, it's not a one way street, they can push wages up.
It's almost certainly for the companies to pay less money, but with a more generous reading, I think it could be argued that that doesn't necessarily have to come out of employee salaries. That data could be used to:
- Set reasonable ranges to find the right candidates they are looking for faster and minimize hiring friction
- Standardize payment levels in a way that reduces legal liability in certain states like Colorado/California. Or the most generous reading of "reduces legal liability" would be "promoting fairness".
- Reduce the time spent by HR/other teams of negotiating or setting salaries, as they can simply target some target like "we want to pay more than 60% of companies like us"
- For budgeting/forecasting with new hires, this allows companies to have more confidence in their estimates as they plan hiring.
- Some companies now offer calculators even before you're hired with what your salary/compensation might look like, such as https://posthog.com/handbook/people/compensation
But yes, overall I do believe that most companies also expect a general reduction in salaries when they use these tools.
I routinely get emails like "we'd like to hire you as our CTO, and because we just got a bunch of VC money, we're prepared to offer you a generous comp package of up to $90,000 salary plus .05% equity! Must be onsite in San Francisco."
If they were aware of market rates, they could avoid making potential candidates laugh at them.
Founding engineer is the biggest ripoff in tech.
But... but... they already did the hard part of coming up with the idea! All you have to do is code it.
Literally the worst experience of my life. I don’t even mention it on my resume or LinkedIn or anything. I suppose it was a success and the product is still doing fine. I just never want to do that again unless it’s for myself.
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> plus .05% equity!
"Dilution? What? Stop worrying about made-up words and let's go change the world!"
That actually made me shudder.
Because it's just as much to pay more money and get the employees you want.
When you don't know what the market is paying, you're liable to lowball offers and refuse to raise them, and not get the employees you want.
If you know market rates, you can provide reasonable first offers, or have a more accurate idea of how high you should go.
Which would be perfectly fine if you made this completely transparent and made the same information available to your applicants. Them not knowing the market rates (at least not even remotely as accurately) puts them at a significant disadvantage and you can't expect that most company won't exploit because it would be irrational to do that.
That's a really interesting idea.
It makes me wonder how it would affect salaries if companies were required to make the salary distribution public for all their roles. So you knew both the range where you were applying, as well as at other companies.
And also how that would interact with unionization. E.g. would it make collective wage bargaining less necessary to some degree? If workers felt they had the data to know they could bargain individually for more money?
What I've heard from leadership at more than one company is that they choose a percentile of the market they want to pay and then set the compensation there. For example, they may say "we want to pay at the 75th percentile for SWEs with X experience in the Bay Area".
I certainly don't trust that this doesn't hold wages down overall, particularly in the boom hiring market we had until recently.
To pay more money.
The limit on pay is the amount of money they can budget to the position not what other people are paying.
And how do they arrive at the budgeted number? Lots of companies want to ensure they are paying a sufficiently high number to get sufficiently capable employees in a competitive market. While many (including me) find things like Pave gross, it's not a one way street, they can push wages up.
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