I realized that I don’t understand how to think about the prices for programmers. This is me thinking aloud so I’ll be clearer the next time pricing comes up.
First, there are at least three audiences for prices:
- The programmer. The price says how seriously the company takes me. I can also spend the money (hooray).
- The company. The price comes out of revenue in hopes that future returns will be higher.
- Signaling. Colleagues use the price of a programmer as a measure of relative value. College students, for example, use the price as a way of evaluating potential courses of study.
You can never say a price is high or low without asking, “Compared to what?” Here are some of the bases for comparison:
- Value created. If I create $1M of value for the company, you can compare my price with $1M. Value is notoriously hard to measure in isolation. If a team gets rid of a bad apple, their value created goes up but their price goes down.
- Opportunity cost. If the company took my price and paid for something else, how much would they make? If two junior engineers could make the company $1M, then I shouldn’t get paid as much as that.
- Market value. How does my current price compare with the price others are willing to pay? Interviewing is expensive and stressful, and what happens if I find a job I like better?
- Replacement cost. How much would it cost the company to get “the same” job done?
- Comparables. How much are other people “like me” getting paid?
- Needs. How much am I getting paid compared to how much I need to eat, sleep, educate children?
Is a price high or low? It depends on how you look at it. All of these measures for comparison are impossible to pin down precisely.
So, what can I say for sure about pricing programmers?
- Reasonable prices are a range, not a point.
- Prices will look very different to people observing from different perspectives.
- In the best case the programmer and the company will both think they are getting a good deal.
- If the ranges of acceptable don’t overlap, it’s worth stepping back and clarifying what glasses people are using to look at the numbers.
(It bothers me that I wrote about “the company” in the abstract. The company is just a bunch of people, each of whom has their own perspective, history, biases, and incentives. Need to think about this more.)
