"Charlie didn't make $20M for cooking, he made $20M for taking the risk that the company he was joining would fail and that he could end up five years older, unemployed, and with nothing to show for his trouble."
Precisely--and the article should have ended there. It's all about the risk. Arguing for the raw amount of contribution a chef can have is a distraction from the core point and detracts from it.
I disagree that the rest is a distraction. It makes the article have a different point, but it is not an invalid one - there is a certain amount of elitism or classism (depending on your personal analytical bent) in statements about "Google chef syndrome". The fact that people find it acceptable to minimize a person's contribution based on job title or perceived place in workplace and social hierarchy, rather than actual contribution, is silly. The fact about rewarding the risk is a good supporting argument to the elitism point, and could be an essay of it's own sure, but again - a discussion about elitist attitudes isn't bad.
One thing I find weird about all of this (tangential tho) - When this article first made the rounds, many people defending the derisive attitude of towards the chef ("he's just a cook, he doesn't deserve it" type arguments) also make the opposite argument in opposition to unions ("why base pay and benefits on seniority rules rather than on actual skill and hard work"). It's a cognitive dissonance I feel would be interesting to explore.
Or how about "So this one guy effectively won a lottery, and is unusual enough that it's a story in itself. Let's move on to the next thing in life". It's not like there's a torrent of support roles walking away with golden handshakes.
That doesn't happen because most start-ups don't think most support roles are worth it until one of two things happens: Management gets tired of losing people to 24-hour on-call rotations or the company gets big enough that "the devs who wrote this stuff should be able to get some sleep" becomes a valid consideration. Almost every aux position is considered "needless" until, well, it isn't. Granted, I say this from being in the Operations and Support worlds for years since I get to see the other side of not having a functioning Ops model before making it big.
I think by support it's more the office manager, cooks, call-center style customer support, etc. Ops is pretty core to any software company that has servers.
I don't even think risk is necessary to consider. I am going to say anyone who help growing a company is valuable. Even a receptionist is critical. If you have a clumsy or rude receptionist, I will have a bad impression of your new startup.
> taking the risk that the company he was joining would fail and that he could end up five years older, unemployed, and with nothing to show for his trouble.
Isn't that what happens at most restaurants? My brother works as a chef, and that seems like a pretty common pattern. 20 million dollar payouts are not, from what I gather.
I think the guy got lucky and they were generous/kind with him. Good for them as human beings, but I am not sure you can justify things in strictly "homo-economicus" terms. Hard to say without knowing if or how much of a pay cut he took to join them, though.
> So if chefs take risks all the time it's not worth as much as if a developer would take the same risk?
If you compare salaries across jobs, no, it generally isn't, in economic terms, from what I know. That's not to knock chefs or say they aren't "worth" as much, because that's something of a loaded term with more than economic significance.
Of course, neither you nor I actually know the details of this guy, the market for his skills in that area at that time, or what his deal was with Google, so there's a lot of guessing.
I don't agree it's a distraction - it's a valid point. Say he was the Mail Boy ... would they quote the Google Mail Boy syndrome then? Is this another of those: if he/she is not a dev, he/she is not truly valuable to the company. In his own way he probably added value (keeping 50 people an extra 30 minutes at their desks for two nights is like employing another staff member).
That is how taking a new job works. You assess the risks of each option available to you (including the option of staying put if you are already employed, or including waiting for something better if not) against the potential benefits (salary and other conditions, future movement). It is a gamble and you use all the information and experience available to you in order to make sure the risk/reward balance is where you are comfortable. He could easily have made nothing if Google had gone down the pan, then he'd have had a low paid job for a few years and nothing to show for it aside from the experience.
How you assess the benefits/risks is a gamble every time, and some people play it safer (favouring stability) than others. How is the cook taking shares as part of his employment package (perhaps in lieu of a chunk of salary he might get elsewhere) any different to a national manager taking shares as part of his package?
Of course it could just have been the first half decent job that came along while he was out of work and he took it without much consideration, in that case he was just lucky rather than a lucky gambler. But there is nothing wrong with that either.
Sure, but the statement this article was written as a reply to was hinting that the chef did "unimportant" work and should not have his share of luck as everyone else. So explaining the impact makes sense.
Do you think the mean outcome for this /(gambling|investing)/ behavior over time for all people is a net positive or a net negative one? If we looked at all of the startup ecosystem employees in all of the startups over the years, would you say they have earned more or less, on average, than if they had stuck to enterprise industry?
Granted, that the outcomes have a much higher standard deviation in startups is probably a no-brainer. But if the mean is less, then it's by-definition gambling.
I guess the question centers on, do the winners outweigh the losers. In Las Vegas, they do not. That's why they advertise the winners so much, to make it look like winning happens all the time. They don't advertise the churn. Given how much SV "advertises" its big exits, to me it feels more like Las Vegas than a career.
You might be closer to my point that you imagine, I just wanted to say that his role was not only that of a risk taker, but also that of a valuable employee.
I'm actually fine with the guy making it big. If for no other reason, if that's the deal he negotiated, he deserved it.
But to play devil's advocate (since I don't see many people arguing to the contrary), companies should factor in how easy it is to replace someone when they offer these sorts of deals. I think it's a valid argument to say that it is easier to replace a chef than to replace someone who can fix that bug before the demo next week. Regardless of who works harder, the gear-up time for an engineer is typically longer and the built-up institutional and domain knowledge are very valuable.
In other words, what is the best alternative to the negotiated agreement for the startup when it comes time to make an offer or negotiate a raise?
You've never replaced the head chef at a restaurant, have you? ;)
Edit:
A rash decision when replacing this person leads to almost immediate drop in revenue. I'd argue that it's more difficult (and stressful) to replace a head chef than it is a SWE.
While replacing the head chef of the company cafeteria doesn't directly reflect revenue like it does at a tip-top restaurant (for which Charlie is obviously qualified), it can have numerous side effects, many difficult to ascertain ahead of time (will the new one remember that a majority of people on staff have an aversion to yellow squash, for a brash and hyperbolic example?)
Again, I have no problem with paying an employee $20M if he was worth it.
The actual occupation is a distraction, though. Replace chef with the guy that handing out fliers on the street. He's 100% replaceable. Does he deserve a million-dollar payout? Maybe. But I think it's fair to take that into consideration when evaluating compensation.
A company could be wrong that the chef is replaceable, but that's an empirical question. As a matter of evaluation, considering the value of the best alternative is 100% fair.
He wasn’t paid $20M. He was paid a salary plus options which had a good chance of being worth nothing at all, a good chance of being worth a nice european vacation, and a small chance of hitting the jackpot.
You don’t get to renegotiate the terms afterwards once you know where on the payout scale your company happened to fall (maybe you can legally, but then you’re an asshole).
“The guy who fixes the bug” isn’t worth $20M either. There are plenty of extremely competent engineers who you could hire for $300K that could also “fix the bug”. But you’re not paying him $20M; you’re paying him a smaller salary, plus a small percentage chance of the jackpot.
Again, the actual valuation of the compensation (whatever the form and whenever it is realized) is an empirical question.
I actually agree with all of your points here, including the one about retroactively altering compensation. I'm just saying it's fair to take value-over-replacement into consideration when negotiating compensation. And that I can see giving different compensation based on that measure of market rates for labor.
Maybe the compensation was fair. Maybe it wasn't. Maybe it's important to clarify what counts as being paid. All of those things are really beside my point.
Does it make sense to reward risk, for its own sake, so much? It's gotten to the point where picking a startup is like picking lottery numbers.
I pick the company that ends up taking off like a rocket and selling for gobs of money, and you pick the company that ends up running out of cash in 2 years. Our contributions to the businesses being equal, why do I deserve $5M in vested stock and you deserve to be unemployed?
Is this optimal? Is this the best way we've come up with to allocate wealth from entrepreneurship?
I don't know about optimal, but just like any other market, the job market is symmetrical. Why shouldn't employees who can pick successful companies out of a crowd make more money? Investors do.
They're not being rewarded for picking a company out of a crowd, they're being rewarded for taking less cash.
When a startup gives equity, they are doing it so they don't have to pay as much cash, since the cash is more valuable at the time. (Otherwise they would just issue more equity to pay the employees in cash)
As such, the chef is being given a lottery ticket in return for accepting a pay cut.
We're talking about huge, outsized rewards, orders of magnitude greater than salaries. Taking less cash may or may not be part of their employment agreement, but as long as they have equity, the amount of salary they take is irrelevant. The people with equity who picked the right company are rewarded, and the ones who did not pick the right company are not rewarded.
But it's also worth considering that there is softer forms of equity, especially in knowledge work, that likely accrues faster working at a successful company. In other words, when "investing in your career", picking good investments is important, regardless of how many shares you may walk away with.
In that way, even given two job offers with no equity, there are probably benefits to taking the job at the company most likely to succeed.
Imagine 2 scenarios for a corporate chef in San Francisco, who expects his next job to last 10 years:
1) He goes work at Safeway, and earns $60K.
2) He goes to work at Google, and earns $50K with a very high risk lottery ticket that has an NPV of $200K, or $20K/year. (Say 1 in 100 shot of getting $20 million, or use Black-Sholes on an option)
Who are we to begrudge him if #2 pays out? The company does it because it's better for them than getting more VC money to pay the extra $10K.
For the chef, it's a better deal than Vegas, Lotto, or the options market.
I don't think I'm begrudging anyone, and I'm not going to dispute the math behind expected value. Without passing judgment, objectively, he deserves his payout as much as a lotto winner deserves theirs, as much as any net-positive-EV speculator deserves theirs, since the act of picking a startup is similar to that of picking lotto numbers.
Once we agree on that, we can debate whether lotteries are a great way for our economic system to allocate wealth.
I think we're on the same page. It may or may not be, but shouldn't people be free to choose to enter a lottery? (Assuming there isn't fraud on the chances)
You still gain all of the experience of having helped start a company. you gained SOME monetary compensation. In the end, one person made the better decision (whether or not they knew it), and is being rewarded as such.
You've obviously never worked in a support position of a failed startup. Those are the people that don't get paid - the developers having been able to see the writing on the wall weeks before the paychecks stop coming.
The support staff (tech support, office managers) keep coming to works as the CEO promises paychecks "by the end of this week". Its not like its trivial to find another similar job on a weeks notice, and living paycheck to paycheck has a paralyzing effect. An established company has far less risk for support staff.
That's a little unfair. I work at an 30-year-old engineering company with the most market share in our field. If my company goes down, that's probably because someone did something illegal, or entire economies of multiple countries have just bellied-up. I take very minimum risks in that regard. A new start-up, though? Much higher risk of failure.
Running a restaurant is like running a startup only you don't get to a point where it just runs itself. And with low margins it's most often not even a good business either. In fact the better quality the lower margin.
Talk about taking a risk.
I have no problem with the chef getting 20mio, what I have a problem with is the claim of risk as if he is risking anything anyone else isn't.
Your risk isn't that the company goes belly up, it's that internal politics churns in such a way that you find yourself the next victim of a witch hunt, that your unit's contribution is identified as having become obsolete or lacking to the point where it's time to cut, etc.
He took no risk any other person going to work everyday didn't.
He obviously took enough risk that Google was willing to give him stock options. Google didn't make that offer to be nice. It was a business decision.
I'm siding with Google (and the chef) here. Because it didn't have the money at the time to pay him enough to fully offset the negatives (which may have been opportunity cost or long hours, not necessarily company-wide risk) it offered him stock. It wasn't being nice. That paid off handsomely for him.
You'd be right to argue that most working people are undercompensated for the suffering and the risk that they take on in their jobs. That, however, goes far beyond the Google chef. It's a systemic problem. As a society, we've failed to find anything within even a factor of 5 of a fair balance between capital and labor.
You mean he took a paycut so they compensated by giving him stocks.
Again I have nothing against him making 20. Just don't claim that he somehow made a risk. He didn't and if that is the reason why someone should get stock then most people going to work every day should get stock.
How so? He definitely took a risk. He is taking an elevated risk because the company might not be there in 6 months. Especially with a young startup. It's one thing if the guy is becoming a chef at lets say Mastercard or Bank of America or some major company that there's a reasonable expectation that the company isn't going to go out of business tomorrow.
With that said I actually think stock options are a good incentive for all employees. It provides some reasonable guarantees on both parties. On the one hand the employee is given incentive to work hard because the more productive they are the better the company does and the better the stock does. Also it gives them something nice in case they get laid off and the stock goes up. Also the company sees those same benefits. The employee will probably work harder and more productive because they have more incentive to.
He put capital (his time, not fully compensated) at risk.
then most people going to work every day should get stock.
Personally, I'd rather have it in salary. 0.05% of a 40-person company isn't going to motivate me worth shit. It has the opposite effect (uncanny valley). I'd much rather work for a hedge fund and be reasonably paid for my skills.
Unless it's substantial, equity is a bad sign for me. Why? Because 0.05% of a 40-person company ("checkbox equity") won't motivate me in the least, but it will motivate other people, which means I'm going to be competing (on hours, indignity, and suffering) against people who haven't done the math on their pathetic shares and are delusional and clueless. That's like wrestling a guy on PCP; it's better not to.
Exactly where's the incentive for early employees to take a risk on your startup if once the company makes it their just going to "renegotiate" their deal.
Early employees deserve their extra stock regardless of what they do.
Precisely--and the article should have ended there. It's all about the risk. Arguing for the raw amount of contribution a chef can have is a distraction from the core point and detracts from it.