If you’ve been around this industry for long enough, you’ve heard plenty of hiring managers complain about the difficulty of attracting and keeping good people. Often, you hear excuses that bear no resemblance to reality, like “There just aren’t any good people out there” (not true) or “Talented people just don’t want to live in the Midwest” (not true, and goddamn insulting to the Midwest). When you hear those sorts of things, you’re dealing with a losing player who doesn’t know why he’s losing. Sadly, that’s the more common case. It’s downright refreshing to hear a middle manager admit something like, “We can’t get talent because upper management doesn’t want to pay for it, and because we’re solving a stupid problem, and because we’ve fucked up our reputation with the past 5 years’ worth of short-term thinking”, but it’s not terribly common.
Winning pots vs. winning money
I’m going to use poker as a metaphor for hiring. The connection’s probably not obvious yet. The reason that it’s interesting to me is because gambling is an activity at which bad players (a) can think that they’re winning if they aren’t keeping track, and (b) usually have no insight into what they’re doing wrong. With poker, a common mistake of inept players is to focus on winning pots instead of money. Skilled and unskilled players, over time, get the same number of good and bad hands as anyone else, and the inept players tend to win slightly more (!) than their fair share of pots. They lose money, however, because not all pots are equal in value. If you play too many hands, you’ll win more of the small pots but lose your shirt on the larger ones.
The dopamine-fueled thrill of bluffing with a bad hand is powerful, but hands that can be won so easily are rarely worth much. The high-impact rounds of poker are the ones where multiple players have strong hands, and see it through to showdown, and not the ones where you can bluff the rest of the table out of the game. Good players focus on the big pots. (For an aside: good players will bluff on occasion, but it’s not to win the free pots, which are of low value. You bluff so that, when you do get a killer hand, others will play against you. If you never bluff, others will fold when you play aggressively, and you won’t make as much money.) Good players don’t set a goal of winning as often as they can, because that’s a fool’s game. They aim to maximize how much they win on good hands, and minimize their losses on the bad ones.
Hiring
What does the above have to do with hiring? Well, let’s look at just one of the cultural negatives of Silicon Valley: ageism. Why might such a prejudice be there? The answer is that most hiring managers are playing to win pots, not to win money.
The ageism and the low status of software engineers exist because most tech companies’ managers are running a pot-winning strategy. Let’s say that a 1.2-level programmer has a market salary of $100,000 per year and is worth $150,000 to the business; at the 1.8 level, we have a market salary of $150,000 and a business value of $500,000. (Are those numbers accurate? It depends on the problem. For a typical tech company, they’re about right.) From that, there’s seven times as much true profit in hiring the 1.8 programmer. Doesn’t this predict the opposite of age discrimination? From those numbers, you’d expect employers to be chasing the experienced engineers, not shunning them. That’s what would happen if these guys were playing to win money, and not pots. So why doesn’t that happen?
The common explanation given for this is a sociological one. Companies need a few 1.5 engineers, and possibly a 2.0 chief architect, but they don’t need many of them. That’s why, many argue, it’s hard for experienced and capable older engineers to find jobs. (For the incapable older engineers… forget it. Time to become a partner in a VC firm.) This explanation is a cop-out. If you can’t hire talented people, then you need a pyramidal structure and infantilizing policies. However, the success of Valve’s open allocation shows that one can build a company entirely out of high-quality people. You just need progressive management if you want to keep it that way. It’s a vicious cycle. If you structure your workplace as a pyramid, you’ll have a lot of untalented people at the bottom, and therefore need to keep the hierarchy in place.
The real explanation for this phenomenon is that hiring managers are just bad at this poker game. First of all, they’re playing for a high frequency of wins, and not for the big wins. If you tailor your hiring strategy toward mediocrity, you’re going to have a lot of catches, but they’re going to be of the “spend $100,000 to make $150,000″ variety. This actually doesn’t scale well, at all because it loads the company up with inexperienced or mediocre engineers. There are plenty of nonlinearities in software engineer hiring and building a large team is, if it can be avoided, undesirable (see: Brooks’s Law). Second, they mark their successes not based on the true profit (the difference between an engineer’s value-add and the cost of hiring her) but based on the profit relative to the market rate. It’s actually a $360,000 win to hire a 1.8 engineer at $140,000– at least, if you staff her on 1.8-level work– but HR marks it down as a measly $10,000 gain, because that’s the difference between the accepted salary and the market level of $150,000.
Hiring managers operate as if they’re trying to maximize the bulk number of wins itself. The going strategy, then, is to target the young, because they are the most likely to under-value themselves by large margins. A 30-year-old who is any good, knows it. A 23-year-old on an H1-B visa has no idea where he stands relative to other programmers. You can probably get him to agree to a salary that’s $30,000 per year below market. From an HR perspective, that seems like a massive victory. Really, it’s not. Compared to the gain in hiring a more experienced programmer, even at market salary, that $30,000 is a rounding error.
“Toxic wins”
Gambling and business both have a pattern that I call the toxic win. That’s when a bad strategy delivers wins that “feel good”. Subjectively, it feels like like it’s working, because of peoples’ optimistic memory biases. Even most gamblers don’t keep good track of their wins and losses and, in business, it’s nearly impossible even to measure (in the short term) wins and losses at all.
To use poker for an example, a toxic win would occur where an inept player aggressively bluffs, wins a small pot uncontested, and congratulates himself. What he learned: bluffing aggressively makes you win more often. What he should have learned: the other players had weak hands. Aggressive bluffing into a hand when others have strong hands is a quick way to lose a lot of money in the hands that actually matter.
In hiring, the toxic win is when a talented young programmer sells himself egregiously short. Coming out of college, he values himself relative to his peer group (0.9 to 1.2) when he’s actually a 1.4. It doesn’t happen often, but once a hiring manager gets that kind of win, it becomes expected. It’s like the “short commute bias” that explains chronic lateness. In many cases, it’s not that chronically late people are inconsiderate, but that they suffer from an optimistic memory bias: based on that one time that the road was absolutely clear, that they could drive 80 miles an hour, and they got to work in 20 minutes (in a commute that typically takes 30) they’ve begun planning as if the actual time-cost of the commute is 20 minutes. This means that they’re typically late, and usually have excuses (bad traffic, poor weather, misbehaving pets or kids) for being so because, goddamn it, that commute should only take 20 minutes. In short, a rarity is presumed to be a permanent entitlement, and suboptimal decisions result.
You see the short commute bias all over the place in business. It explains why managers (and engineers) systematically underestimate how long it takes to complete a project, but you also see it in HR. As soon as That One Kid takes a $25,000 drop relative to an appropriate salary (never mind that he left, one year later) hiring managers take that to be the new appropriate salary for that level. When they struggle to fill the position, trying to replicate that rare toxic win rather than building a business, they bitch about “inflated salaries” and a “talent shortage”.
Mixed messages…?
It’s subtle, but I’ve actually argued two cases that seem to contradict each other. My first complaint is that hiring managers over-focus on a high frequency of mediocre wins, to the detriment of experienced software engineers, and fill their companies with inexperienced or mediocre people that they often don’t know what to do with. This accuses them of over-hiring. My second complaint is that they suffer from “short commute bias” and that they therefore miss opportunities to hire, because they’re holding out for that rock star who severely underprices himself. This accuses them of under-hiring. Oddly enough, both are true. (Generally, it’s not the same people who are under-hiring and over-hiring.) But why is this? What would impel people toward two opposing kinds of incompetent play?
Oblique arbitrage and social status
If you’re an economist, you might view wage-setting and talent standards in such terms and expect software companies to staff themselves with the (seriously underpriced) more senior engineers. This assumes that companies are rational actors. But companies don’t “act” at all; people within them do. As it turns out, people are more sensitive to social status than quantifiable economic gain.
We can’t measure social status precisely, but we can estimate it. Every corporation conceives of itself as a meritocracy; there’s no company that cites “Nepotism, Mediocrity, and Chicanery” in its “core values” statement. Job title, salary, autonomy, and reporting structure are all forms of social status that, at least in theory, the company attempts to correlate with a person’s capability. Often, these assessments are way off; but companies tend to converge, at least, in consistency in how they are inaccurate (overpaid people will also be over-titled and given more difficult project, for example). In software, I’ve developed a scale for estimating engineer maturity. It’s not perfect, but it’ll work for our purposes, and I think it reasonably models social status at a typical tech company. An engineer considered to be at the 1.5 to 1.7 level will usually be called a senior software engineer. If the person’s estimated at 1.8 to 2.0, you’ll see a title like staff or principal given. At 2.1 to 2.3, you start to hear terms like fellow. However, titles are, in general, the least interesting variety of social status. More interesting are compensation (which we’ve discussed) and project allocation. If you’re perceived as a 1.5-level engineer, you might expect the company to line you up with 1.5-level work. In practice, most people get work below their level of capability, because companies want to avoid the risk involved in 1.5+ level projects whenever possible. They still want to align the people they consider best with the hardest projects, but usually the desire is to have people working half a point below their actual capability, because employers believe that it minimizes risk.
From day to day in the workplace, people don’t assess their wins and losses in terms of dollars, but in social status. If you get a 1.5-level engineer to accept terms of employment (including, but not restricted to, compensation) appropriate to 1.4, then you’ve made a 0.1-point gain. But if you get him to accept a package appropriate for a 1.2 engineer, that’s a 0.3-point gain. The economics aren’t really considered. That’s three times as much “winning”! A huge win, in this calculus, would be to have CS doctorate from MIT fixing bugs. In terms of social status, it’s a great brag; “I’ve got MIT PhDs sweeping my floors”. In economic terms, it’s pissing away millions in lost opportunity.
Do I mean to suggest that companies, or even managers, are out to deliberately underemploy people? It’s probably not in their interest to do so. After all, if you give a 1.5 engineer the work, autonomy, and conditions appropriate to the 1.2 level, you’re probably not going to collect 1.5-level work. What most companies (and managers) want is excess capacity: a 1.5+ who’s willing to take 1.2-level conditions and do 1.2-level work, but can bring out the bigger guns when needed.
What am I suggesting? Some say that companies are in the business of buying low and selling high. Not so. Often buying high and selling higher is a better move. It’s the difference that matters. People intuitively understand this, and make good choices when the decisions are quantifiable and purely economic; but when shit gets sociological, and the nonlinear transforms come out, they start making terrible decisions. A 0.3-point difference between quality of programmer and work conditions isn’t what you should be optimizing for; social status “points” don’t really matter when you ought to be focus on delivering value to customers and making money. You should be in the money business, not the social status business. If you systematically under-employ and under-reward people, that’s not an arbitrage; you’re probably pissing away millions of dollars in lost opportunity.
Results… ?
One typical corporate-political tactic is to use phony existential risk to argue for what one wants. “Using <outdated technology X> will annoy me and hurt my career” evolves into “We’ll get no talent if we continue with <X>.” This is how we get into the religious wars for which technology is notorious. Because many software engineers are petty, short-sighted, and socially inept, premature escalation to management is commonplace (and that’s one of the reasons why we get no fucking respect). Managers are so used to hearing “we’ll get no talent if we…” that they pretty much ignore that complaint. The problem, of course, is that many of the things that management does (closed allocation, low compensation, micromanagement) are genuinely talent-hostile; but our tendency to present minor differences of opinion as eschatological matters has stripped us of any credibility when we’re actually right. Closed allocation is talent-hostile and does destroy technology companies, but not with immediacy (and, sadly, its tendency toward decline takes long enough that most executives don’t care).
I’ll say one thing: the “we’ll get no talent…” exaggeration is inaccurate, and a tad bit offensive. I’ve worked in some mind-bogglingly shitty companies, with awful health benefits and stupid policies all over the place, and they all managed to have at least a few talented people within them. Those high-talent people may have been systematically underutilized, but they were there. A company that doesn’t offer relocation, skimps on health benefits, or deducts sick leave from an already tight vacation allotment is clearly not playing to win. Or, in the poker analogy, it’s playing for irrelevant small wins while missing high-impact opportunities. That’s awful, and it leads to mediocrity, but the “we’ll get no talent” argument is just empirically wrong.
If you don’t play to win, you still get some talent. The difference is in degree. Do you want to be MIT, or a second-tier state school? The second-tier state schools still have some talent, and their best students would easily fit in at the Harvards and MITs of the world, but the synergistic “energy” that you get when a large number of talented people come together is usually not there. Since organizations are driven by group dynamics rather than talented individuals, a company needs that “energy”… but usually has no idea how to get it.
Of course, it’s quite possible that one’s company doesn’t need or want to be an MIT. There’s a lot of unglamorous work that needs to be done in this world. Even the most wrongheaded, talent-hostile companies can attract smart individuals. That’s not even hard to do, because even smart people need to eat. If you want your organization to lead, however, you’ve got to play to win the game, and stop optimizing for silly, small-ticket micro-victories. The good news (for the progressive executive) is that the technology industry is so badly run, right now, that good leadership is a welcome and extreme rarity. There’s a lot of untaken reward sitting out there for the few that have the courage to come out, show genuine leadership, build talent-friendly companies as opposed to social media cantrips, and actually play to win this game.
