ELI5: Why do tech workers make IB money and barely do any work
Would love to know the actual answer to this, my bro-science buddies can’t land on an answer.
My understanding is corporations that big would want to function like an actual business, and should be intelligent enough to pay people the least amount possible to keep expenses low and be as profitable as possible for shareholders.
Is the high pay a function of the red hot market environment the past few years, so companies just didn’t care? Is it due to a shortage of software engineers as a whole, so workers have leverage in the talent war? Is the pendulum starting to swing back?
Very confused as to what’s going on. Couldn’t you just pay one worker to do the work of two, if each software engineer only works 3 hours/day?
I don’t buy the argument that their job is so difficult and differentiated that not a lot of people can do it, so the ones who can make a lot. Maybe the barrier to entry is high but I’ve seen the work they do and 90% of people in finance could learn it.
Perhaps workers in tech like to brag and exaggerate how little they work, but it seems to be a relatively truthful and common phenomenon.
Seems like there’s so much fat to trim. I’m partially bitter because my bank is cutting costs like crazy while my friends enjoy WFH perks and catered lunches, but I’m also genuinely confused at what’s going on.
For a few decades Software engineers were very rare to come by. Therefore, companies kept upping the pay. However, since there are millions of kids going into CS going into the same jobs this will inevitably bring down the labor market. Either they will start experiencing banking hours or they'll start reducing pay.
When CS majors are a dime a dozen supply goes up and demand stays the same (or goes down right now).
The difference with banking is that there is no way anyone would be willing to actually do this job without an extreme amount of money. The hours are brutal.
https://www.wsj.com/articles/these-tech-workers-say-they-were-hired-to-…
These are recruiters not engineers.
It’s going to be fine
While the first two rounds of layoffs largely affected business and recruiting teams, the cuts expected this month will focus on tech departments, including engineers, which has surprised employees, said four employees, who were not authorized to speak to reporters. Insiders expect engineering cuts to hit teams inside WhatsApp, Instagram and Facebook, they said.
https://www.nytimes.com/2023/04/12/technology/meta-layoffs-employees-ma…
and the benefits too
My friend who works at a FAANGM on one of their cloud teams has literally been pulling 80 hour weeks since he joined a year ago.
My theory is that these firms will always need top talent but they have over hired. Moving forward the number of dev positions in Big Tech will decrease as firms cut back on hiring, which means it will get way harder to get one of these roles. But the pay should continue given the need to attract top talent.
Similar to what you see in quant positions, where a tiny few make a ton of $.
I completely agree with you and feel like I've seen this happening a lot this year. For context, I go to one of the top four CS schools (Berkeley / CMU / MIT / Stanford) and we send a shit ton of kids to SWE. During the tech layoffs, I noticed that many of the people affected by the layoffs (albeit this is given what I saw on my LinkedIn feed) were ~90% SWEs. I really do believe that Big Tech overhired during the unprecedented bull market for tech and they are just starting to pull back and think about whether all those hires are necessary. I think this will actually continue because tech won't be held on the same pedestal as it was earlier, and we can already see a lot of pushback from investors to make these companies more efficient (a la Starboard's campaign against Wix, Splunk, & Salesforce).
Got it, so you went to CMU...
It's cool just say FAGMAN, man
For a datapoint, will add I have some friends on that strat finance side of cloud at FAANG doing around 65 hrs a week.
At FAANGM you're going to pulling long hours to (60+) if you ever want to get promoted. The chiller roles are at "less prestigious" (Can't believe I said that) companies. With that you naturally do get less comp and less "Exit opps".
My understanding is that this notion is actually quite rare, having worked with a ton of SaaS / Tech companies. The dudes who absolutely BANK without working a ton of hours are the prodigious ones who are just so fucking intelligent in coding and troubleshooting code issues that they are paid just to hang out, oversee shit and roll up their sleeves once in a blue moon but only when necessary. Also sometimes people who have previously built-out extremely high-value products / applications for their company get to the point where their product pretty much operates itself automatically but the guy that built it still gets to stick around and enjoy high comp for as long as the product he built keeps paying major dividends for the company. This was sort of the case with that one dude who worked at Twitter, that Elon Musk tried to shit on. A few years ago he sold a valuable company/asset to Twitter for about $100M, and now he gets to stick around and presumably is one of the higher paid guys on the crew. In that specific case I believe the SWE in question was actually actively working on high-priority projects though.
The middle class of SWEs aint that rich though, they're typically either working harder these days (leaner staff) and/or are paid well but not $300-$600K as a 20-something well. At the end of the day these Big Tech companies are pretty sharky only once they have to be. If they notice the average SWE is making hundreds of thousands and only working a few hours a week they're going to cut staff until that's not the case anymore.
exactly. don't let those stupid gen z tiktoks fool you into thinking everyone in the tech industry is banking as 20 year olds. most don't even go past $300k in their lifetime, believe it or not, let alone get into big tech..
So tech is a bit different than banking in that if you’re really good, you can code 10x faster than someone who is decently good. That’s why there is a very big spread between decent and amazing peogrammers and a lot of the very smart people can work 3-4 hours a day and still be way ahead of their peers. Then there’s the average programmers (and most people who graduate top schools with good GPAs fall into this bucket) and they do work 50-60 hours, you just don’t hear about them as much because it’s not as interesting
This. You basically get a certain amount of workload / code to fix. If you’re really good you can do it in 3-4 hours and then just chill.
^ Seconding this as well.
I've heard this explained to me (I believe it was said by Steve Jobs) that the best programmer is 1000x better than the worst, while the typical employee of any job may be at best twice as good as the worst. This well summarizes why top talent in that space will likely always command large paychecks. Even when (perhaps especially when) CS majors are a dime a dozen, getting top talent will always be challenging, require lots of recruiting, and involve shelling out big bucks.
The best bankers are few and the worst are also few. Most of us end up in the middle, but many of us could end up in any bucket for the skills we have. The same can't be said about programming. I'll probably never be as good of a programmer as the best out there, no matter how much I try, just because many of the best are extremely experienced and may even be fairly prodigious (i.e., they've been doing this since they were literally <10 years old, and it may be all they've ever done or wanted to do). I don't think many in banking or PE has known since they were 10 that they wanted to be there since they were 10 and decided to follow deals.
bit of a correction. it's not 10x faster, but 10x in impact. it's about taking a business requirement and knowing which directions are even worth pursuing. aligning the team in the right direction and designing the right solutions which won't create tech debt in 12 months, just because a junior member thought he could outcode everyone else with his (suboptimal) solution.
All of the above is true / correct. There’s a very small subset you see who make incredible money but they’re true outliers. There are others who work very long hours to get there in things like cloud, AI, etc. - it’s actually very comparable to IBD (albeit in a much cushier environment). The fluffy tiktok jobs are getting axed left and right and are mostly a low interest rate phenomenon.
The other thing to keep in mind is that tech people are notorious for inflating their comp. People on Blind etc. will include stock appreciation and signing bonuses in their annual comp which skews things quite a bit and when you take that away the actual cash comp is a lot lower.
It’s easy to spread money around when you aren’t regulated to death by the government
Having hired/built dev teams...
1. A lot of dev comp stems from equity and equity-like vehicles. This is all underperforming quite badly now, so net comp is much lower.
2. Fixed comp in general has fallen a lot. I am hiring a CTO for one of our portfolio companies right now. Asks that were $400k are now $220k - $250k. This is because the idiots with VC funds have rightfully been eviscerated.
3. A 10x engineer is VERY REAL. I have worked with some devs with insane output, they 100% deserve the premium.
In some careers you can get insane leverage. Code is a clean form of leverage because there's no incremental cost in most cases. Not the case in something like IB or law. For example, your MD would need a larger team to scale revenue. Not the case with code, this is why GREAT engineers make bank.
because it's a bubble
Tech has insane margins, plus coding is a different job than banking. There is a limit on how long your brain can produce quality technical work before starting to produce pure shit that can lose millions PER SECONDS. Even in finance, quantitative jobs don't have banking hours because unless you are a true genius, you are going to burnout if you code for 12 hours a day for years. You can't burnout coders the same way you do with analysts because teaching someone how a system built by someone else works is a nightmare. And imagine doing that when that developers is gone.
You shouldn't compare tech engineers and scientists to bankers just because they make "good" money. You should compare coders with other engineers and the reason why they make way more is because the product they make way more money and way faster.
One thing people are forgetting here is developers today are capping out at $500k. Great money, yes, but you can far eclipse this in banking. As others have stated I don’t think these salaries are going to hold long-term.
Not true. I have multiple friends and some ex-employees making much more than that. Obviously they are in managerial-type roles, but they are still in "dev". You can't make that much as an individual contributor in finance unless it's something like a seat at a top tier fund with insane AUM per head. And there are not many of those roles...
Most dev engineers don’t want strategy and managerial roles. You can make more than that in a more managerial or strategy role anywhere, but the “do nothing” engineers cap out unless they work a lot more. In IBD you can eclipse $500k as a VP.
I work in finance for a big tech (FAANG) supporting a 500+ person organization and the top distinguished principal engineer does make > $1 mil a year. But there’s only 1 in the entire org, and no he doesn’t manage anyone. He’s an individual contributor.
The WSJ recently put out a piece on this - but throughout the recent growth cycle, and particularly towards the end, tech companies were taking advantage of easily accessible capital to balloon their head counts and hoard talent, creating a high number of “fake” jobs that entailed virtually no work. Tech firms saw having a deep bench as a status symbol, and, at least at the time, could afford to offer inflated pay to build out teams that didn’t even have enough work to justify the increased headcount.
The music has stopped and now these fake jobs are being shredded by the day. The remaining high-impact roles are actually quite intense and require long hours. But a lot of the crap circulated on TikTok by corporate influencers bragging about their 2-hour WFH days were people in the type of seats getting eliminated.
Tech labor market in 2010’s was similar to banking labor market in 80s. It was new sector with explosive growth and value, yet there were very few qualified folks and organizations were completely devoid of being top heavy. In the 80s, This made it very easy for young bankers to extract premium compensation but also fill leadership positions faster (since nobody was on top of you). Labor notices this “arbitrage” opportunity and flocked towards banking, bringing down market compensation due to simple supply / demand AND top ranks fill up, slowing down advancement. This takes years for this shift to happen, but completely reduced the max amount a 2020s banker can ever earn relative to an 80s banker (on real basis). Before the finance explosion, this was true of auto industry in 50s/60s. This exact dynamic is playing out in technology sector currently and will continue to diminish earnings potential. A great tool to track this dynamic is MBA career decisions - MBAs index very high on groupthink so the most popular sectors of mba career are good leading predictors of labor market bubble pops. See mba banking placement in ‘07 and tech placement in ‘20/‘21
Zig when they zag
Insightful comment about the trend for MBAs to flock towards sectors foreshadowing labor market bubble.
Yeah, I had a profession in my MBA program who said (half jokingly) you know there is a real estate bubble when more than half the real estate class wants to do development. Typically it's about 15-25% of the class.
What sector do you think MBAs are flocking towards now?
product management in big tech. mckinsey consultants regularly apply to google under biz ops and then internally transfer to pm
Tech right now as an industry is making supernormal profits and they have decided to share those with high potential programmers and engineers who could otherwise disrupt their business models.
Can't believe no one has spoken about this.
SWEs are soyboys, the trade off for the extra money is permanently unused genitalia
tech pay has definitely dropped from it's peak in 2022. A lot of place are reevaluating pay bands, leveling etc. However some devs are still able to maintain large pay packages. Those focused on real-time, data consistency, operations, ML, and to some extent, performance and crypto will continue to do very well. Basically the stuff that isn't already solved by easy to use frameworks and taught at bootcamps.
Friend in tech said that something common that led to overhiring and not enough work was budgeting for hiring managers.
Ex. Hiring manager gets $5m for first quarter. If they don't use up all of the $5m, then they will get a lowered budget for the next quarter. So, what do you do? Max out the budget by hiring extra employees even if there isn't a need for that many.
most engineering managers just hired like crazy. it helps their cause because they are rated and promoted based on the output of those under them (obviously) but also the number of people under them. usually called empire builders (notorious for adding unnecessary people to the team in order to increase scope). not always the case though lots of good managers exist
Hi, I'm in SWE, can explain. There's a few factors at play here:
One more thing I'll mention. You know those "day in the life" videos? Where someone at a FAANG company posts about how they get up, go to the office for breakfast and lunch, then go back home and WFH for 2-3 hours, then go work out at the complimentary gym and then head back home for the rest of the day? That's not exactly reality for junior devs. That's definitely a case of overhiring, and we are starting to see it being reversed. Senior devs do sometimes live that kind of lifestyle, but it's well-earned: they are in charge of signing off on all the code that the newbie juniors write, and they are always on call to put out fires. The guy that "does nothing and ticks the check-boxes" is arguably the most important one, with the most experience and skills.
are you even a developer? This is literally false
Yes I am actually a developer lol. Proof: SSH is port 22, postgres is port 5432, only a developer would know that off-hand. I'm happy to concede any of the points I made if you make a good counterargument instead of just saying "this is false". Of course I'm only speaking from my own experience and that of my peers, so everything here is anecdotal evidence.
OP, I think you have a ways to go when it comes to understanding software and technology businesses. The gross margin of their product is 90%+.
Banking and other "human capital" businesses are def high margin (probably 40-50% contribution margin), but dont come close to tech and software.
Also tech and software have the oppotunity to reach millions of users if they get the product right. The industry is set up to shoot for the moon because if you win, you win big and those expenses for free lunches, wellness, high salaries for employees that dont work much are a literal drop in the bucket. In other words, paying employees a ton and giving great perks to attract top talent (paid for by VC money) is the name of the game - why penny pinch if when you succeed the penny pinching would not have mattered, and if you failed then you are out anyway?
Tech and software workers may not work as hard, but the products they work on have a much further reach than anything banking related. I find it funny that young bankers get salty and try to justify why they work 10x more for 20-30% more pay compared to their SWE counterparts.
I have numerous numerous friends that do not work at FAANG, but have just worked at regular VC backed startups that have been pulling $150K since undergrad and now probably make $250K a year working 40-50 hours a week
The gross margins are irrelevant. Shareholders will want to maximize profits, no matter the business model or the margins. If something is inefficient, they’ll demand you fix it. That includes some coder who does 2 hours of work per day looking up everything on ChatGPT.
I’m not talking about the prodigies, there are prodigies in every industry that justify their value while doing little work, tech included. Moreso talking about the tik tok people who brag about barely working and make $200k+
Point taken on the “upside model” of tech, but during a risk-off environment, that approach no longer cuts it. In a low interest rate environment it’s easy to buy into the hype and pursue growth at all costs, not so much now.
Was moreso asking when shareholders will recognize this… seems like they’re lagging and the cutting isn’t close to being over.
do you honestly believe this? there are literally millions of software engineers in the US alone, the idea that a significant number are inefficiencies to be ironed out by shareholders is absurd. im sure its comforting to think that the people making your salary on half the hours "have it coming for them", but after tech valuations tanked last year median SWE salaries fell 2% (wall st bonuses went down 26%). apple last year had the same net income as JPM, GS, MS, citi, and bofa put together with 1/7 the employees. the very simple reality is that people continue to want software products more than ever, and companies are willing to pay a salary premium to compensate for the mismatch of demand and available talent. the same cannot be said for ib.
Because outside of Amazon, bananas aren't a primary food source, unlike in banking.
It is / was a bubble lol
Having worked in Google and Amazon and some other techy jobs, I’ll give my 2 percent
Those “Days in Life of xxx Tech worker” Tik Tok videos are soooo misleading !!! Tech has NDAs, so those video makers are not allowed to mention job content on social media despite their impulse to do so, Imao. So they only mentioned free food and chilling in the lounge etc, but not mentioning the work. In reality, tech people work 40-60 hours and also do on-calls late night.
Tech people are NOT making IB money, I don’t know where you get that perception from. More like 60% of IB money honestly. IB associate make 400k, VP make 600k, and tech is no where close to that, many techies get stuck at L4 and L5 for 5+ years ( so they’re L4 when they’re 30 ) and keep making 250k for decades of their youth. Also promotion is really slow in tech companies. Unlike in IB where promotion is automatic once you hit the year mark, in tech promotion is way harder to come by
The engineers getting paid 400k at big tech / funds are NOT doing the same work as most bootcampers and low-end enterprise IT, despite both of them being called “SWEs”. Just like back office vs front office in finance, tech career also has distinction and disparity between different types of tech roles. The tech jobs that have low barrier of entry and good wlb are not the high-paying ones
this. those stupid gen z tiktokers made a bad name for us. most of the time, it wasn't even engineers. it was the PMs.
and everyone outside the tech industry shits on us because they think we are lazy and overpaid (i will admit, some are)
Because value/compensation is not about how much time you spend grinding in an office. It's about how much value you create/contribute at the margin.
this. people don't realize that the higher up you go, the more your responsibility and impact scale disproportionately. not about hard work (although it helps). not about being the smartest (although it helps). it's about delivering results with enough scope (people under you) to create massive outsized value for the firm.
Dumb question (I just don’t know) but are there really SWEs making 7 figures.
In banking even the most mediocre MDs are on a million and I know plenty of average bankers on 2-3.
There are a few but they’re like top 0.01% and very few get there
only a few software engineers make 7 figures as an employee. majority do not even cross $600k.
there's two branches: ic (individual contributor) and engineering management (em).
most people branch to (em) because it's way easier to climb the ladder, and more openings.
only a few companies are big enough at a scale to have those upper levels of $1m+.
in google, it's L8 or director. it's minimum 15 years of experience, so probably around the same comp as goldman sachs ib.
facebook used to pay more, but it's minimum 50% more effort. so effective rate is about the same.
most other tech companies can't even pay employees above $500k unless executive position.
The guys making a ton of money in tech actually have a skillset. I'm a first-year analyst at GS/MS and can honestly say that any kid willing to put in the hours and have attention to detail could do my job. 95% of the work I do is completely braindead.
Willingness to put in the hours and having attention to detail is a skillset.
Sure, but not one that is very unique. Much easier to find kids with basic skills in PPT / xls who are willing to put in the hours to make $200k a year when they're 21 years old than it is to find people who are skilled software engineers. I think that this is also the reason that junior bankers put up with the completely insane hours, bad culture and all the other BS. We know that our competence is really not that unique and if we start complaining there are thousands of other kids who would be happy to take our position and be equally good at the job.
I'm no expert but isn't it because tech companies have massive profit margins?
I think it’s partially driven by a long bull market in tech, so there’s not been a need to cut costs. As long as the market was good and growth robust there was no pressure to cut wages. Partially comp was inflated by RSUs, Alphabet was trading in the $40s-$50s in 2017, it was almost 3x higher in 2021. PE multiples are substantially higher in tech than finance Alphabet is 24, META is 25, Netflix is 35 compare to MS and GS at 14 and 11. Generating a marginal dollar of earnings is more valuable.
Lmao not every tech firm is chill. Go to Amazon and enjoy their PIP culture there.
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