Max Out Your Compensation

How to get paid more

If you follow the three easy steps in this post, you’ll instantly double your compensation.

Ha ha! Of course, things can’t possibly be that easy. Yet you’re still reading. Because deep inside, you know it’s got to be possible to be paid more. But the prima facie ridiculousness of my first sentence reveals that we all know, in another important way, that the road to increasing compensation must include significant difficulties.

I’m here to discuss those difficulties.

So if you were hoping for a “click here and read four sentences to make more money instantly” sort of post, this isn’t it. Actually, if you want that, send bitcoin to this wallet and I’ll double whatever you’ve sent back to you: 1FfmbHfnpaZjKFvyi1okTjJJusN455paPJ. Easy peasy.

This is apparently what ChatGPT thinks swimming in money looks like. I guess, in a way, it’s pretty spot-on.

Principles of Compensation

There are only three ways to make lots of money through work:

1. Luck

2. Collect economic rent

3. Produce something valuable that others want

The first two warrant more discussion instead of immediate dismissal because many forms of luck and rent may not appear to be so at first. It’s important to recognize them because you might not even be aware some of your own compensation might fall into those categories.

Obvious dumb luck includes things like winning the lotto. But the outsized outcomes of many startups is also contingent on lots of luck. (I’m not saying startups create no value and that 100% of their upside is pure luck; I’m making the subtler statement that even the best ideas executed brilliantly benefit from the tailwinds of luck).

You might join a startup that sells to Meta for $10B. I have many students in my University of Washington seminar who ask me about joining various startups they’re “sure” will succeed and make them rich. I always tell them this: if you are truly capable of reliably spotting the next unicorn, you shouldn’t join any startup — you should be an angel investor. An incredibly wealthy one, at that.

Luck in compensation comes in many forms other than “pick the right company to join.” For me, a huge element of luck has been the decade in which I was born. I started right before the dot-com debacle. Some would say this is bad luck — and in a way, it was — but the bigger picture is that software compensation went through the roof during my decades of work from the late 1990’s to now. This was completely outside my control and reflects no merit on my part whatsoever.

A second path to compensation is the collection of economic rent. Examples abound. For instance, real estate agents in the US have detailed access to the MLS database which Normal Folk don’t. If you want to see properties with keyed access via lockboxes, you’ll need to pay 2.5-3% of a house’s value to an agent who can access that database.

I won’t focus on these two methods of increasing compensation because luck isn’t something you control, and I’d hate to increase the amount of economic rent above and beyond what the world already loves collecting.

Make Something Others Want

Let’s focus instead on the third way of increasing your compensation, which is the ability to create something others want.

Boiling it down to first principles: if you want to be paid more based on merit, you need to be able to do something both valuable and rare.

“Valuable” is obvious. Security experts in the early 2000’s. Data scientists starting 10-15 years ago. AI experts in the past 5 years.

But we should talk about “rare.”

Why does ski instruction pay less than garbage collection? This isn’t as surprising once you think about it. While it’s true that ski instruction is a very valuable skill that’s also rare compared with the number of people who can collect garbage, labor markets are about relative supply and demand. How many people can (and want to) do the job, and how much do we want the job to be done?

Let me get this straight — you’re going to pay me this winter to ski every day? Spend the entire season on the slopes? Sign me up!

The reason ski instruction pays less than garbage collection is oversupply. I know plenty of ski fanatics who would love nothing more than to ski every day for entire seasons at a time. I don’t know a single person who aspires to collect garbage — yet every single block of every American city needs its garbage collected.

“Rare” is a function of:

• How many people can do what you do?

• How many people want to do what you do, relative to society’s overall demand for that job to be done?

I worked at Microsoft in Seattle from 1998 - 2010. Except in 2008, when I worked in Microsoft Shanghai for a year. At the time, as you might guess, Chinese software developers made a fraction of American salaries for the same jobs. However, this was not true at Microsoft’s L67+ (i.e. senior staff engineer and up). In fact, in 2008, being an L67 in Microsoft China paid more than being an L67 in the US (!).

The cause of this is left as an exercise to the reader.

For those who want a hint, consider this episode from my own life below.

Fireside True Story™ Time: While working as the site director of Facebook London, I set up an internal discussion board at Meta, called “FB Anon,” where employees could discuss topics pseudonymously. I had naïvely thought it’d be a great forum where feature ideas would stand on their own merits instead of being swayed by the titles or positions of the people holding those opinions.

But as you can guess, the most popular sub-forum was actually about compensation. In that forum, one person grievously lamented, “How come Philip gets paid so much?”

My answer to them was simple. We had, at that time, already been searching for a replacement site director over a year, interviewing many candidates. I told the commenter that if they were able and willing to do my job, the company would gladly pay them exactly what it paid me. In fact, it would have been a relief to find a fitting candidate so easily, especially from within.

The reality was harsher. I was able to do a job which, at that time, was both very valuable and very rare.

There have been many times in my career where I performed far less valuable and rare jobs, and was compensated accordingly less. But being the site director of Facebook London wasn’t one such time.

What to Actually Do

Let’s suppose I’ve won you over to the idea of increasing your compensation not by being lucky, brown-nosing the boss, or sitting atop some protected resource collecting rents like an enterprising troll under the Bridge of Gainful Employment. What can you do to become more valuable and rare?

Valuable skills are sometimes hard to call beforehand, yet “obvious” post-hoc. Nobody saw the spike in demand for security specialists in the early 2000’s. Few people foresaw the sharply increased value of AI expertise five years ago. For similar reasons, I question current media’s obsession with recommending physical work like plumbing and welding because it’s premised on the idea that surely robots couldn’t do such delicate work requiring the suppleness of fleshy human hands.

It’s hard to prognosticate what will become valuable in the future due to shifting technologies.

However, Jeff Bezos was famous for asking, “What’s not going to change in the next 10 years?” With years of managing teams, I’ll tell you what’s not going to change when it comes to employees who are valuable and rare:

• Only a fraction of employees will work harder than their peers and accomplish more. Those people are more valuable, and by definition, more rare.

• Many people cannot or will not change. Whether that’s about embracing new technologies or about accepting and implementing constructive feedback. The latter, let me assure you, is extremely rare: the type of person who readily accepts and immediately implements feedback. But even the former is relatively rare (and very valuable): the type of person who flows with whatever circuitous changes the industry brings.

• Most engineers share a common core skillset and disposition, and thus lack strengths in non-engineering areas like communication and persuasion. Yet the latter skills are increasingly valuable as you grow your scope and impact. Embrace and develop adjacent non-engineering skills, like the ability to reason about business strategy or persuade others about the right course of action.

Ultimately, the thing I say all the time is:

If you work just as hard as everyone else, and you’re just as smart as everyone else, you’re just as average.

Average isn’t bad. In fact, average in our industry is downright ridiculous amounts of compensation. But if you want to further exceed that, it behooves you to consider whether my statement above is true. And if so, what actions you can take to differentiate yourself.

Do something valuable and rare. If the course of action to make that happen is not obvious in your situation, the most leveraged thing you can do in the coming weeks is to think deeply on what would increase your value and rarity.

How can you gain the ability to create things other people want? What can you do that people have trouble hiring for?