Gervais / MacLeod 24: Fundamental Theorem of Employment

In analyzing the economics and sociology of office-style Work, an inefficient set of institutional patterns that affects hundreds of millions of people, I’ve often had to ask the question, “Why are so many jobs so bad?” Plenty of positions are inaccurately or dishonestly advertised, many shouldn’t exist at all, and job openings that should exist often don’t. What’s going on with all this? And how should an individual person choose jobs, in light of the inefficient market? I’ve come to a conclusion that, despite the complexity of these issues, is refreshingly simple and, while failing to capture all cases, surprisingly powerful and appropriate to the vast majority of jobs. I might call it the Fundamental Theorem of Employment (FTOE).

A person is hired to do work that the hiring person (a) cannot do for himself, or (b) does not want to do.

Corollary: It is extremely important to know which of the two is the case.

These are, in general, two different cases. A person hires a maid to do undesirable work of which most people are capable, while he hires a doctor to do work that he can’t do for himself. It’s essential for each person to know which of the two cases applies to his or her job. Most jobs can be clearly delineated as one or the other. We’ll call the first category of jobs– a person is hired to bring expertise, skill, or capacity that the hiring manager does not have– “Type 1″; and the “boss doesn’t want to do” jobs, “Type 2″.

In a Type 1 job, you have leverage and you get respect because you’re delivering labor that the manager (a) does not have the ability to render himself, and (b) much more importantly, cannot accurately evaluate. Your boss is forced to trust you. Often, he will trust you just to reduce his own cognitive dissonance. In a Type 2 job, you rarely get any respect; you’re just there to do the worst of the work. You’re not trusted very far, and your manager thinks he can do your job just as well and twice as fast. In the career game, getting stuck in the Type 2 world is a losing proposition.

That seems simple enough, and the advice derived from it is fairly traditional. Build skills. Develop expertise. Become a “unicorn” (a person whose combination of skills makes her unusually rare and confers leverage). Get Type 1 jobs. The real world, of course, isn’t quite so simple; and it might be hard for an individual to tell which of the two possibilities applies to her job. I’m here to tackle some of the more complex cases that pop up in reality, and analyze which dynamic of behavior is more accurate to each.

Below are some cases that don’t necessarily fall into a clear Type 1 vs. Type 2 delineation, and require further analysis.

Excess capacity. Most large companies don’t hire for a specific role, so much as they increase (or decrease) their total headcount based on business needs, cash flow, and economic projections. Companies”don’t hire specifically for Type 1 or Type 2 work; they’re concerned with the economics, not sociology. Most people, in truth, are hired into firms to serve as “excess capacity”; that is, hired into a general-purpose labor pool so there is some slack in the schedule and there are internal candidates for vacancies. Whether a person ends up in Type 1 or Type 2 work isn’t driven by some abstract “general will” of the firm but by the needs of specific managers where that person lands. Unfortunately, this often puts a person into Type 2 work by default.

Depending on the company, the manager of the new employee’s team might not have had any input into the hiring of that person. Sometimes, the company just says, “here are some guys”, and that tends to result in a lot of undesirable work being offloaded onto them. Or, that person may have been hired for a position that was shortly after filled internally, or made redundant, leading to a need to make work for the new hire. The point of all this is that if you can’t identify (and preferably quickly) some X for which (a) a manager needs X, (b) the managers knows he needs X, and (c) you’re very good at X; you just become a fresh hire looking for something to do.

Simply being “excess capacity” isn’t necessarily bad. If there’s honestly about the fact, then management can set an appropriate arrangement. “You can work on whatever you want most of the time, but when you’re needed, you’re expected to be available.” Then, a person has the time and allowance to seek Type 1 work where he or she will add more value. Some companies explicitly set aside time for self-directed work (e.g. 20% time) in acknowledgment of the need for slack in the schedule. Others do not, and fall into a Type-2-driven default pattern of rippling delegation.

In large companies, people are hired for macroeconomic reasons that don’t conform to the Type 1 vs. 2 delineation explicitly, leaving the question unanswered: does the employee become a respected advisor whose expertise confers a certain automatic credibility, or a grunt to which the worst work is delegated?

Automation

Especially relevant to technical work is the role of automation. If work is undesirable, someone will try to “kill” it by programming a computer to do it faster and more reliably than a human. For many business processes, this is easy. For some, it’s quite hard. For example, it took years of research into machine learning before computers could accurately read hand-written addresses. At any rate, computers turn out to be perfect repositories for the worst of the Type 2 work that no one wants to do. They do it without complaint, and much faster. They’re cheap, as well. This is winning for everyone.

Computer programming has its own weird interaction with the FTOE. Business problems were traditionally solved with lots of low-paid and ill-respected manpower, so corporate growth mostly came down to the delegation of Type-2 labor as the beast grew. However, the magic of software engineering is that a small bit of more challenging, more fun work (automating painful processes so that the task is complete forever before the novelty of the new job wears off) can replace a larger amount of bland, tedious work. Most of business growth is about Type-2 hiring: bringing in more people to do the work that the bosses don’t want to do. A competent software engineer can take on the Type-1 task of automating all that junk work– if management trusts her to do so.

Management doesn’t, in general, care how the mountain of traditionally undesirable work is done. If it’s done well by ten bored humans who occasionally quit or fail but are easy enough to replace, that’s the familiar “devil you know”. If someone else can come along and perform the much more enjoyable task of automating that work for good, that’s better because it saves a lot of money and pain. Sort-of. There’s a problem here, and it’s one that every software engineer and software manager must understand.

The relationship between software engineers and management is fraught with conflict. There are few industries where there is more tribal dislike between workers and management than in software, and the problem isn’t the people so much as the interaction of incentives and risks. Software itself (like any industry) generates a lot of undesirable (Type 2) work; but in software, there’s almost always a way of automating the bland work away– a hard, Type 1, sort of job. The danger of that is that the automation of undesirable work might take more time than simply completing it, while the engineer’s impulse (which is almost irresistible) is automate immediately and without regard to cost.

This provides two very different paths to completion: one that is low in variability but boring, the other being more fruitful but riskier. What goes wrong? Without diverging into another subtopic, management participates more fully in an employee’s downside than upside risks– if the engineer does great work, it reflects on that engineer; but if the engineer fails expensively, it reflects on the management– so managers tend to favor low-risk strategies for that reason alone. It’s not that software engineers or managers or bad people; the risks are just improperly aligned.

Solving this problem– aligning incentives and structuring companies to take advantage of opportunities for automation, which almost always improve the firm’s success in the long term– would require another essay.

Defensive rejection

Above, I’ve proposed that people hire others to do work in one of two cases: undesirable work, and work that the person doing the hiring can’t perform. There isn’t always such a clean-cut distinction. Most people don’t have the humility to recognize their limitations, and so they tend to overestimate their ability to perform work that they know little about. The extreme case of this is defensive rejection, in which a person denigrates a class of work as being menial, unimportant, or trivial to compensate for a lack of knowledge about it.

Many software engineers are going to recognize that the attitude of “the business” toward their work is often a case of defensive rejection, and that’s right. But we, as a group, are far from innocent on that front. We tend to take the same attitude toward marketing and business people. The truth is that the good ones are highly capable in ways that most of us are not; most of us just lack the basic competence to separate the good ones from the bad. When one lacks visibility into a field of work, one tends to associate all people who do it with the average competence of the group, which usually leads to an unflattering stereotype for any high position (because most people in it are, in fact, unqualified to hold it). That leads to the incorrect conclusion (also seen with politicians, of whom the average performance is poor) that “none of them are any good”. 

When defensive rejection is in play, the underlying truth is that the manager is hiring in type 1; the employee is brought on to do work that the manager can’t do for himself. Unfortunately, the manager’s insecurity and hubris generate a type-2 context of “I could do that stuff if I wanted to”. The subtext becomes that the work is bland, detail-oriented dreck that the manager is too important to learn. This is the most frustrating type of job to be in; one where the boss thinks he can do your job but actually can’t. It means you have to deal with unreasonable expectations despite low overall status and perceived value to him and to the company as a whole. That’s horrible, but it’s also freakishly common as far as scenarios go, and it leads to the engineer feeling set up to fail– asked to do impossible things, then treated poorly when inevitable failure occurs.

Apprentice systems

There’s one other scenario that doesn’t fit nicely into the Type 1 vs. 2 delineation: the apprentice (or protege) context. At first thought, apprenticeship might seem to be strictly Type 2, since most of the work that apprentices spend their time on is make-work that has ceased being interesting to superior craftsmen. However, apprentices bring a Type-1 function by being able to do one thing the master cannot: perpetuate the work (and, more importantly, the upkeep of a valued tradition or institution) through time. If you’re sixty years old, a twenty-year-old apprentice can continue the work forty years (on average) longer than you can.

Modern private-sector corporations don’t have much use for apprentice structures and guild cultures, because they no longer see that far into the future. No CEO gets job security by setting up a culture of mentorship that might yield excellence ten years down the road. In this next-quarter culture, apprentice systems have mostly been thrown overboard. Long-term vision is far out of style for most modern corporations.

That said, there’s a value in understanding this old-style system. Why? Because even managers are uncomfortable with the naked parasitism of Type-2 employment (e.g. “I’m just hiring you to do the crap I don’t want to do, while I fill my time with the career-building and fun work”) and often attempt to recast the role as an apprenticeship opportunity. That is, at least, how every subordinate job is presented; an opportunity to learn the skills necessary to get to the next step. There are varying degrees of earnestness in this– some managers truly see their reports as proteges, while others see them as mere subordinates.

In negotiation theory, this is sometimes called a standard: a promise that is understood not to be fully delivered (most people realize that most bosses just see their reports as repositories for undesirable work, and that the apprentice metaphor is mostly rhetorical) but that may still be cited in policy to get an arrangement more in accord with that standard than one might otherwise get (“appealing to the standard”). Even people in power are uncomfortable explicitly departing (“breaking the standard”) from something previously promised.

If you want to move from Type-2 to Type-1 employment (and, believe me, you should) then the first thing you have to do is get qualified for that kind of work; the best way to make sure your boss gives you appropriate work (to gain that qualification and validation) is to continually appeal to the standard of the master/apprentice relationship– and hope that your manager doesn’t have the audacity to break the standard.

Why is FTOE important?

It’s important to understand the Fundamental Theorem (and being trained as a mathematician, I know it’s not actually a theorem so much as an observation) of Employment, above, because people tend to discuss conceptions of “the job market” as if they were forces of nature. They’re not. A job exists because someone needs or wants another person to perform work, and the expensiveness of that generally means that one of two cases applies: the person doesn’t want to do that work, or the person cannot do that work. Regardless of the work itself, the social contexts that arise from those two subcategories could not be more different. It’s very important to know which one applies.

The advice that comes out of this is to find a way to qualify oneself for the Type 1 work. That’s harder than it looks. Becoming good at highly-skilled work is the first half of the battle, but there’s a social component that can’t be ignored. Software engineering is a prime example of that. The whole point of the bastardization of “object oriented programming” (which, by the way, has become the exact opposite of Alan Kay’s vision of it) that has grown up in the enterprise is to coerce software engineering into Type 2 commodity work. Having generating scads of low-quality, brittle code, it can be called a failure. Yet that mentality persists in the world of corporate software engineering, and it will be a while before the business starts to recognize software as Type 1 work.

While one is progressing through the validation process that is more drawn-out than building the skill set, I think there are two key strategic necessities. The first, again, is to appeal to the standard (as above) and re-cast any Type 2 social context in employment as a mentor/protege role. The second, and more importantly, is to always drive toward a Type 1 context. The question should be asked: “What am I here to deliver that no one else can?”

Fixing employment with consulting call options.

Here’s a radical thought that I’ve had. There are a lot of individual cases of people auctioning off percentages of their income in exchange for immediate payments, which they use to invest in education or career-improving but costly life changes like geographical moves. Someone might trade 10% of her lifetime income in exchange for $200,000 to attend college. This has a “gimmicky” feel to it as it’s set up now, and it’s something I’d be reluctant to do anything like that for the obvious reputation reasons (it seems desperate) but there’s a gem there. There’s a potential for true synergy, not only gambling or risk transfer. If a cash infusion leads a person to have better opportunities and a more successful career, then both sides win. There should be a way for individual people to engage in this sort of payment-out-of-future-prosperity that companies can easily use (it’s called finance). However, a percentage of income is too easy to scam. We need to index it to the value of that person’s time, and the best way to do that is to have the offered security represent a call option on that person’s time.

With the cash-for-percentage-of-income trade, the “Laffer curve” effect is a problem. There’s scam potential here. What if someone sells 10% of his lifetime work income for, say, $250,000, but actually finds ten buyers? Then he gets a $2.5 million infusion right away, which is enough money not to work. He also has zero incentive to work, so he won’t, and his counterparties get screwed because he has no work income. So this idea, on its own, isn’t going to go very far. The securities (shares in someone’s income) aren’t fungible, because the number of them that are outstanding has a major effect on their value.

Let’s take a different approach altogether. This one doesn’t involve a draw against someone’s income. It’s a call option on a person’s future work time. I intend it mainly for consultants and freelancers, but as the realities of the new economy push us all toward being more individualistic and entrepreneurial, it could be extended to something that applies to everyone. It’s not this gimmicky “X percent of future income” trade that doesn’t scale up to a real market (because once the trade stops novel, we can’t trust people not to sell incentive-affecting percentages of their income, and that problem naturally limits it). How does it work? Here’s a template for what such an agreement would look like.

  • Option entitles holder to T hours (typically 100; with blocks as small as 25 or as large as 2000) of seller’s time (on work that is legal) to be performed between dates S and E at a strike price of $K per hour. For a college student, typical values would be S = date of graduation and E = five years after graduation. For someone out of school, S might be set to the time of signing, and E to five years from that date. 
  • Seller must publish how many such options have been sold so buyers can properly evaluate the load (e.g. no one is allowed to sell 50,000 hours of time in the next 5 years, because that much work cannot be performed.) I would, in general, agree on a 2000-hour-per-year limit. Outstanding load is publicly available information and loads exceeding 1000 hours per year should be disclosed to future employers.
  • If the option is not exercised, then the no work is performed (but the writer still retains the value earned by selling it). If it is, seller receives an additional $K per hour. The option is exercised as a block (either all T hours or none) and buyer is responsible for travel and working costs.
  • These options are transferrable on the market. This is essential. Few people can assess their specific needs for consulting work, but it’s much easier to determine that a bright college students’ time will be worth $100/hour to someone in five years.

One thing I haven’t figured out yet is the specific scheduling policy beyond a “act in good faith” principle. If two option-holders exercise at the same time, who gets priority? How much commitment must the consultant deliver when exercise occurs (40 hours per week, making full-time employment impossible; or 10 as an upper limit, with the work then furnished over more calendar time)? Obviously, this needs to be something that the option-writer can control; buyers simply need to know what the terms are. The other issue is the ethics factor, which doesn’t apply to most of technology but would be an issue for a small class of companies. Most people would have no problem working for a meat distributor, but we’d want an escape hatch that prevents a vegan’s time from being sold to one, for example. There has to be some right to refuse work, but only based on a genuine ethical disagreement; not because a person has suddenly decided her time is worth 10x the strike price (which will almost always be lower than the predicted value of her time). The latter would defeat the point of the whole arrangement.

In spite of those problems, I think this idea can work. Why? Well, the truth is that this sort of call-option arrangement is already in place, although with an inefficient and unfair structure that leaves both sides unhappy. It’s employment.

How much is an employee’s time actually worth to the operation? Dirty secret: no one really knows. There are so many variables on each individual, each company, and each project that it’s really hard to tell. The market is opaque and extremely inefficient.  For example, I’d guess that a programmer at my level (1.7-1.9) is worth about $1000/hour as a short-term (< 20 hours) “take a look and share ideas” consultant, $250/hour as a freelance programmer, and perhaps $750,000 per year in the context of best-case full-time employment (wherein the package includes not only 2000 hours of work, but also responsibility and commitment) but well under the market salary ($100-250k, depending on location and industry) in a worst-case employment context. Almost no employer can predict where on the spectrum an employee will land between the “best-case” and “worse-case” levels of value delivery.

Employers know that for sociological reasons, a full-time employee’s observed value delivery is going to be closer to the worst-case than best-case employment potential. If you have interesting problems and a supportive environment, then a 1.5-level programmer is easily worth $300,000 per year, and a 1.8+ is worth almost a million. Most companies, though, can’t guarantee those conditions. Hostile managers and co-workers, or inappropriate projects, or just plain bad fit, all can easily shave an order of magnitude off of someone’s potential value. In fact, since doing that involves interacting with people and controlling how they treat each other, that’s seen as boundlessly expensive. If a manager has a long-standing reputation for “delivering” but is a hard-core asshole, is it worth it to unlock the $5 million per year released when he’s forced to treat his reports better, given that there is a chance of upsetting and losing him (and the “delivery” he brings, which he’s spent years making as opaque as possible)? The answer is probably yes, but the reason why he’s a manager is that he’s convinced high-level people not to take that risk. That’s how the guy got that job in the first place.

So what is employment, then? When people join a company, they’re selling their own personal financial risk. That stuff is toxic; no one wants it, so typically people offload it to the first buyer (employer) that comes along, until they’re comfortable enough to be selective (which, for most, doesn’t happen until middle age). When it comes to personal financial risk, corporations have the magic power to dissolve dogshit. They know it, and they demand favorable terms from an expected-value perspective. The employee would rather have a reliable mediocre income than a more volatile payment structure closer (in the long run) to their actual market value. So the company offers a salary somewhere around the 10th-percentile level of that person’s long-term value delivery. If the person works out well, it’s mutually beneficial. She enjoys her work, and renders to the company several times her salary in value. Since she’s happy, and since good work environments are goddamn rare and she’s not going to roll the dice and move to another (probably bad, since most are) corporate culture; a small annual raise and a bonus are enough to keep her where she is. What if she doesn’t work out? Well, she’s fired. Ultimately, then, corporate employment is a call option on the employee’s long-term ability to render value. The problem? Employee can opt out at any time. The option is contingent not merely on personal happiness, but on fulfillment. I’ll get back to that.

Why is my call-option structure better? There are a couple reasons. Obviously, everyone should have the fundamental right to opt-out of work they find objectionable. What I do want to discourage (because it would ruin the option market) is the person who refuses to work at a $75 strike because she becomes “a rockstar” and she’s now worth $1000/hour. That’s not fair to the option-holder; it’s not ethical. However, I feel like these opt-outs will be a lot rarer than job-hopping is. Why? First, everyone knows that job-hopping is a necessity in the modern economy. Almost no one gets respect, fair pay, or interesting work without creating an implicit bidding war between employers and prospective future opportunities. Sure, some manageosaurs who mistake their companies for nursing homes still enforce the stigma against job applicants with “too many jobs”, but people who weren’t born before the Fillmore administration have generally agreed that job hopping for economic reasons is an ethically OK thing to do. Two thousand hours of work per year is a gigantic commitment and exclusive of other opportunities, and almost no one would call it a career-long ethical commitment. The ethical framework (no job hopping, ever!) that enforces the call-option value (to employer) of employment is decades out of mode. It never made sense, and now it’s laughably obsolete. I would, however, say that a person who writes a call option on 100 hours of future work has an ethical responsibility to attend to it in good faith.

An equally important thought is that consulting is a generally superior arrangement to office-holding employment, except for its inability to deliver reliable income (which a robust options market could fix). Why? Well, people quit these monolithic 2000-hour-per-year office jobs all the time (often not by actually changing jobs, but by underperforming or even acting out, until they’re fired, and that takes a long time) because they don’t feel fulfilled. That’s different from being happy. A person can be happy (in the moment) doing 100 hours of boring work if he’s getting $20,000 for it. It’s not the work of “grunt work” that makes it intolerable for most people, but the social message. That’s why true consultants (not full-time contractors called such) are less likely to underperform or silently sabotage an effort when “assigned” grunt work; employees expect their careers to be nurtured in exchange for their poor conditions, while consultants get better conditions but harbor no such expectation.

On that psychology of work, I know people who can’t clean their own houses, not because the work is intolerable (it’s just mundane) but because they can’t stand the way they feel about themselves when doing such chores. However, a sufficient hourly rate will override that social message for almost anyone. How many people wouldn’t clean someone’s house, 100 hours per year, for 10 times their hourly wage? He won’t be fulfilled at such work at any price, but that’s different. It’s not hard to find someone who will be happy to perform work that most people find unpleasant. Consulting arrangements allow a price to be found. But with full-time position-holding employment, the zero/one fulfillment distinction is much harder to bring into being. People will clean, if paid to do it, but no one wants to be a cleaner forever.

The nice thing about consulting is that the middle ground between fulfillment and misery exists. You can go and do work for someone but you don’t have to be that person’s subordinate, which means that work that is neither miserable nor fulfilling (i.e. almost all of it) can be performed without severe hedonic penalty (i.e. you don’t hate that you do it). Because of modularity and the potential for multiple employment, you can refuse an undesirable project without threatening your reputation or unrelated income streams– something that doesn’t apply in regular employment, where refusing the paint that bike-shed that hideous green-brown color will have you judged as a uniform failure by your manager, even if you’re stellar on every other project. A consultant is a mercenary who does for pay, and only identifies with work if he chooses to. He sells some of his time, but not his identity. An employee, on the other hand, is forced into a monolithic, immodular 2000-hour-per-week commitment and forces identification with the work, if only because the obligation is such a massive block (yes, the image of intestinal exertion is intentional) that it dominates the person’s life, forcing identification either in submission (Stockholm Syndrome, corporate paternalism, and the long-term seething anger of dashed expectations in those for whom management doesn’t take the promised long-term interest in their careers) or in rebellion (yours truly).

So let me tie this all together rather than continuing what threatens to become a divergent rant on employment and alienation. An employee‘s main selling point is a call option written to her employer. If she matches well with the employer’s needs and its people, and if the employer continues to fulfill her desires for industrial fulfillment (which change more radically than the matter of what someone will be merely happy to do at a fair rate; the “good enough to be happy” set of work becoming broader with age, while fulfillment requirements go the other way and get steeper), and if the salary paid to her is kept within an acceptable margin (usually 20 to 40%) of her market value, she’ll deliver labor worth several times the strike price (her agreed-upon salary, plus marginal annual wage increases). Since there are a lot of ifs involved, the salary at which a company can justify employing her is several times less than her potential to render value: a mediocre salary that forces her into long-term wage-earning employment, when the value of her work at maximum potential would justify retirement after five to six years. That’s not unfair. In fact, it’s extremely fair, but an artifact of opacity and low information quality. 

Why is it like this? The truth is that the employer doesn’t participate in her long-tail upside, as it would with a genuine call option. In the worst cases, they do not exercise the option and stop employing her, but they pay transactional fees (warning time, severance, lawsuit risk, morale issues) associated with ending an employment relationship. In the mediocre cases (middling 80%) they collect some multiplier on her salary: the call option is exercised, and the company wins enough to generate a modest but uninspiring profit. In the very-good cases, she performs so well that it’s impossible to keep this from translating into macroscopic visibility and popping her market value. Since it’s not a real call option (she has no obligation at all to continue furnishing work) there is no way for the company to collect. An actual call option on some slice of her time would be superior, from the corporate perspective, because it insures them against the risk that her overperformance leads to total departure (i.e. finding another job).

How would we value such a call option? Let’s work with three model cases. One is Zach, an 18-year-old recently admitted to Stanford intending to major in computer science, with the obvious ability to complete such a course. He needs $200,000 to go to school. Let’s say that he puts the start date of the option at his rising-sophomore summer (internship) and the end date at 5 years past graduation. What’s a fair strike price? I would say that the strike price should be, in general, somewhere around 1/1500 of the person’s expected annual salary (under normal corporate employment) at the end of the exercise window. For Zach, that might be $80 per hour. The actual productive value of this time, at that point? (We can’t use a “stock price” for a Black-Scholes model, because the value of the underlying is affected by conditions including the cash infusion attendant to the sale; that’s why it’s synergistic.) I’d guess that it’s around $120, with a (multiplicative) standard deviation of 50%, which over 9 years equates to an annualized volatility of 16.7%. Using a risk-free rate of 2%, that gives the call option a Black-Scholes value of about $56. This means Zach needs to sell about 3570 hours worth of options to finance going to college. Assuming he can commit no more than 0.3 of a year for his four years of college, that’s 576 hours per year– not of free work, but of commitment to work at a potentially below-market “strike” price of $80 per hour. I think that’s a damn good deal for Zach, especially in comparison to student debt.

 

Alice is a 30-year-old programmer. She lives in Iowa City and has maxed out at an annual salary of $90,000 per year doing very senior-level work. The only way to move up is into management, which doesn’t appeal to her. She suspects that she could do a lot better in New York or San Francisco, but she can’t get jobs there because she doesn’t know anyone and resume-walls are broken– besides, how many VC-funded startups will hire a 30-year-old female making $90,000?–  and consulting (until this options market is built) is even more word-of-mouth/broken than regular employment. She knows that she’s good. She’d like to sell 7500 hours of work to the market over the next five years. Assume the option sale is enough to kick-start her career; then, her market value after five years is $250 per hour, but she sets her strike at $90. Since she’s older and her “volatility” (uncertainty in market value) is lower, let’s put her at 13% rather than Zach’s 16.7%. The fair value of her call options is $168 per hour, so she’s able to raise $1.26 million immediately: more than enough to finance her move to a new city.

Barbara is a 43-year-old stay-at-home mother whose youngest child (of five) reached six years of age. She’s no longer needed around the house, but has enough complexity in her life that full-time employment isn’t very tenable. However, she’s been intellectually active, designing websites for various local charities and organizations for a cut rate. She’s learned Python, taken a few courses on Coursera, and excelled. She wants to work on some hard programming problems, but no one will hire her because of her age and lack of “professional” experience. She decides to look for consulting work. She’s still green as a programmer, but could justify $100 per hour with access to the full market. She’s committing 1000 hours over one year, and she decides that $30/hour is the minimum hourly rate to motivate her, so she offers that as the strike. With volatility at 15% (although that’s almost irrelevant, given the low strike) she raises $71 on each option, and gets $71,000 immediately, with 1000 hours of work practically “locked in” due to the low strike price (at which anyone would retain her).

Cedar City High is a top suburban public high school in eastern Massachusetts. They’d like to have an elective course on technology entrepreneurship, and student demand is sufficient to justify two periods per day. Teaching time, including grading and preparation, will be 16 hours per week, times 40 weeks per year, for 640 hours. That’s not enough to justify a full-time teaching position, and it’d preferably be taught by someone with experience in the field. Dave is coming off yet-another startup, and has had some successes and failures but, right now, he’s decide that he wants to do something useful. He’s sick of this VC-funded, social-media nonsense. He’s not looking to get rich, but he needs to deliver some value to the community, and get paid enough for it to survive. He sets a minimum strike at $70 per hour, and he’s looking for about that 640 hours of work. Based on their assessments, Cedar City agrees to pay $15 for the options and exercise them, meaning they pay $85 per hour (or $54,400 per year, less than the cost of a full-time teacher) for the work.

Emily’s a 27-year-old investment banker who has decided that she hates the hours demanded by the industry and wants out. Her last performance review was mediocre, because the monotony of the work and the hours are starting to drain her. With her knowledge of finance and technology, she knows that she’ll be killing it in the future– if she can get out of her current career trap. However, five years of 80-hour work weeks have left her stressed-out and without a network. She’ll need a six-month break to travel, but FiDi rent (she can’t live elsewhere, given her demanding work schedule) has bled her dry and she has no savings. She realizes that the long-term five-years-out hourly value of her work– if she can get out of where she is now– is $300 per hour at median, with an annualized volatility of about 30% (she is stressed out). Unsure about her long-term career path, she offers a mere 500 hours (100 per year) with a five-year window. She sells the options at a $200/hour strike. The Black-Scholes value of them is $146 per hour, or $73,000 for the block. That gives her more than enough to finance her six months of travel, regain her normal emotional state, and find her next job.

So this is a good idea. That’s clear. What, pray tell, are we waiting for? As a generation, we need to build this damn thing.

What is “at-will employment”?

Since I write a lot about the sociology and HR game theory of software engineering, I get a lot of hits to my blog for queries related to employment and, in particular, its endgame, such “should you sign a PIP” (answer: no) and “can they fire you for <X>”. I’m going to answer the second category of question. Can a company fire employees for any reason? Isn’t that what at-will employment means?

Well, no. Companies like to claim that at-will employment means that an employee can be terminated for any reason and has no recourse. They like to argue that people never win termination lawsuits except when discrimination is obviously provable. They say this because they don’t want to deal with the lawsuits, and they believe they can get away with low or nonexistent severance payments if the employee actually believes this. However, that’s not true. If it were, companies would not write severance packages at all.

Before I go any further, I am not an attorney and this material is provided for informational purposes only. This is no substitute for legal advice, and if you are at risk of, or in the process of, a messy termination, you should be consulting a lawyer. Preferably, find an attorney in your state, because these laws differ depending on where you are. What I’m providing here is for the purpose of explaining the HR game theory involved, with the goal of shining some light on how companies work.

What is “at-will employment”?

Legally, it means that the employment contract is of indefinite duration and can be ended by either party on a same-day basis. An employee is not in breach if he quits at any time, nor is the firm required to provide notice or a severance package. It exists to protect 3 classes of termination:

  1. Layoffs for business reasons. Companies that choose to end employment for a business reason, such as the closing of a factory or a need to reduce payroll, have the right to end jobs. In some cases, they are required to provide notice or severance (see: WARN Act) but not in all.
  2. Objective, published performance or conduct standards. Companies have the right to set performance standards as they wish, as long as they are uniformly enforced, and to fire people who fail to meet them. (Uneven enforcement is another matter. If it can be proven, the employee might have recourse.) It is not for the law to decide that a standard is “unreasonably high”. If a business decides that it needs to set productivity standards at a level that only 5 percent of the population can meet, that’s their prerogative.
  3. No-fault “breakups” in small companies. In small firms where the failure of a single working relationship can make employment completely untenable (because there’s no possibility for “transfer” in a 8-person company) the employer maintains the right to say, “We’re just not that into you”. This does not apply to large companies, where an employee who fails to get along with one manager could be transferred to another.

I don’t think any of these provisions are unreasonable. Companies should be allowed to lay people off for valid business reasons, set uniformly-enforced performance standards as high or low as the business demands, and terminate people whose failed relationships make employment untenable.

What doesn’t it cover?

A surprisingly large set of terminations are not covered under the above. I’m going to pick on one, resume lies. Clearly, this is fireable under any circumstances, right? Well, no.

Job fraud, defined as procuring a job that would not normally be available using misleading information that claims competencies the individual does not have, is a breach of professional ethics in any line of work, and in life-critical professions or law, it’s illegal. (If you say you’re a doctor and don’t have a medical degree, you’re likely to end up in prison.) People can be terminated for that, no question. So what is job fraud? If someone claims to have a PhD and didn’t even finish college, that would be considered job fraud, if the job requires a higher education. If someone is hired as an Enterprise Salesman based on his claimed 5 years of Goldman Sachs (and the contacts that would imply) but did not work there at all, that’s job fraud. What about someone who covers up an embarrassing, 4-month-long, gap in employment? That’s a much grayer topic. Let’s say that the applicant actually had 37 months of experience in that field, and with the inflation, 41 months. Well, that’s like rounding up a 3.651 GPA to 3.7: not exactly fraudulent. To establish just cause for termination, the company must prove that it would not have hired that same person with only 37 months of experience: that a pre-existing cutoff for that position was between 37 and 41 months of employment. (It could set a policy of not hiring people with 4-month gaps in their history, but juries will not look kindly on a company with such a policy.)

Broadly speaking, resume lies fall into two categories: job fraud, and status inflation. If job fraud occurred– the person would have been ineligible for the role were truthful information provided– the company will have no problem firing that person. Severance or notice are not required. The company is not required to prove that the standard is reasonable, but only that one exists and is uniformly applied. On the other hand, most resume lies are inflations of social status and political success: upgraded titles, tweaked dates, improved performance-based compensation, and peers representing themselves as managers to fix reference problems. It’s much harder for a company to prove that the person would not have been hired were truthful information provided. There’s a spectrum:

  • Overt job fraud, at one extreme, is deception claiming competencies a person does not have, such as a person who never attended medical school claiming to be a doctor. This person can be fired immediately, and often prosecuted.
  • Cosmetic falsification is generally not grounds for termination. Let’s say that a person claims to have ancestors who came over on the Mayflower. In “white-shoe” law or management consulting, this could easily sway an interviewer. It’s a signal that the person is more likely than average to have the pedigree that clients prefer. However, since it’s not an explicit requirement for the job, and the company would have a hard time proving that it swayed their decision, few companies would be able to justify terminating an employee on that alone.

This is also why it’s much more dangerous (and far less useful) to fake a college degree than to upgrade a job title, self-assigning a promotion when one was actually passed over. The first is considered fireable job fraud almost always, and it lacks plausible deniability (you cannot claim to have forgot how you spent 4 years of your life). The second has two advantages. First, unless that title were an explicit job requirement (“we only hire SVPs, not VPs”) it doesn’t consist of grounds for termination on its own. Second, there’s plausible deniability: “I was promoted during my last week there, and they must have forgot to put it in the system. Since I was no longer working there, I wasn’t aware of this discrepancy.”

Why does HR exist?

The purpose of the above discussion was to show that companies don’t have as much freedom to “fire at will” as they might want. They can’t just can people who annoy them. However, most company executives would like to be able to fire as they wish, and preferably cheaply. That’s where HR comes in.

For blue-collar, commodity work, companies have the unambiguous right to set performance standards and fire people who don’t meet them. However, the standard must be uniformly enforced. If a company decides that 150 widgets per hour is the productivity standard and fires Mark for achieving 149, it’s within its rights to do so. However, if Mark can establish that Tom, the boss’s son, was regularly pulling 145 and retained, then Mark can justify that his termination was wrongful.

In most states, uneven enforcement of policies is not enough to justify a lawsuit. Rather, wrongful termination requires a specific protected context (discrimination, retaliation, harassment, union-busting) before a case will even be heard, and “he just didn’t like me and was unfair” does not qualify. It is, however, not that hard to create such a context. Here’s one way to do it: in response to managerial adversity, put in for a transfer. Now, a negative performance review (if that review reduces transfer opportunities, or would be visible to the manager of one’s target team at all) constitutes tortious interference with an attempt to establish a mutually beneficial working relationship elsewhere in the company. Since part of the worker’s job is to remain aware of internal mobility opportunities, this is direct interference with work performance, and that is, of course, a form of harassment. It’s retaliation against legitimate use of internal processes.

This approach doesn’t work if the company can establish a uniformly enforced, objective performance standard. No employee at 149 widgets per hour was ever retained or afforded transfer. However, the nature of white-collar “knowledge work” is that it’s almost impossible to define standards for it, much less enforce fairness policies that can apply uniformly across a job description. Consider software. A first scratch at a standard might be “20 lines of code, per day”. For engineers on new development, this is easy to meet. For maintainers whose time is spent mostly reading code, it’s very hard. Also, it provides dangerous incentives, because it’s relatively easy (and in the long term, costly) for an engineer to add 20 lines of useless code.

This, of course, is what’s behind the “calibration score” nonsense and global stack-ranking in which companies regularly engage. The original intention behind these systems was to enable quick layoffs without discussion. Actually cutting projects that made no sense (which is what the company needed to do, possibly in addition to reducing personnel) required a discovery process, and that involved a lot of discussions and input, and word would get out that something was going on. The purpose of the global stack-ranking is to provide a ready-made layoff for any cutoff percentage. It’s a simple database query. What percentage are we cutting? 7.5? Here’s your list. This is actually a terrible way to do layoffs, however, because it means people are cut without eliminating projects. So (a) fewer people are left to do the same amount of work, and (b) the excessive complexity– what likely caused the company to underperform in the first place– never goes away. That said, it remains a popular way of doing layoffs because it’s quick and relatively easy. It also generates a slew of bad data.

One of the dangers of bad data is the temptation to use it as if it were valid. “Calibration scores” are subjective, politically motivated, and often bear virtually no correlation to an individual’s ability to add value to the firm. However, in the context of at-will employment, they have an additional use. The books can be cooked in order to justify “performance-based” firing of any employee for any reason. Instead of “150 widgets per hour”, the standard becomes “3 points out of 5″. Of course, the numbers are bullshit made up to justify personnel decisions that were already made, but they create the appearance of a uniform policy: no employee below 3.0 was retained.

This also explains the phenomenon of transfer blocks. Employees who meet too much documented political adversity find themselves immobile in the company. Either that person’s personnel file is damaged (often by falsehoods the employee will never be allowed to see, because she would have a serious harassment claim if she knew what was in it) so severely that no manager will want her, or she is prohibited from moving at all as per HR policy, even if there’s another manager who’d gladly hire her. At first glance, this makes no sense. Why would HR care enough to interfere with internal mobility? The answer is that it can break the uniformity that’s needed to justify termination. Let’s say that this employee was particularly politically unsuccessful and received a damning 2.6 (where 3.0 is passing) on her performance review. If she’s allowed to transfer to another team, then another employee who received a 2.7 and was not allowed to transfer has recourse. Of course, the likelihood that an ex-employee will compile this sort of information in enough volume to build a case is very low, because the data are hard to get without initiating a lawsuit, but this should explain why companies are insistent on keeping those “calibration scores” secret.

The HR transfer block is a nasty thing to encounter. It doesn’t occur unless a manager is so hell-bent on firing an employee that he must be kept in place. It also means that, even if the new manager desperately wants to hire a person, she often can’t. There are only two ways to beat an HR transfer block. One is to escalate, but that rarely works, because managers at a high enough level to do this are generally too busy to hear petitions from peasants they don’t know. The second is to offer a bribe to someone in HR who can change the review. This practice is a lot more common than people think, but that’s not a good position to be in, and I’d say it’s not the recommended course of action in most cases. (Just get another job.) HR bribes don’t always work, and they typically cost 3 to 10 percent of a year’s salary. When you’re at the point of having to pay for your own job, you’re better off just finding another one. Keep in mind, also, that if you’re in this position you’ll often be paying two to three times the bribe you offer, because what you’re doing is immediately fireable. (The first rule of extortion: when offered an illegal bribe, triple it.)

There’s one more thing to talk about. What is it that companies really fear? When they write these “performance improvement plans” (PIPs) and create elaborate machinery to justify terminations that are actually political, what are they trying to defend themselves against? First, they don’t want to be sued– that much is clearly true. However, they also know that the vast majority of employees won’t sue them. It’s extremely time-consuming, it can be dangerous to one’s professional reputation, and employers win most of the time. The economic cost of losing a lawsuit, multiplied by the low probability that one occurs, is not something a large firm fears. Secondly, they’re afraid of public disparagement, which is what severance packages are really about. People who can move on to another job without financial worry or loss of career status are unlikely to spend months to years of their lives suing an ex-employer. They move on. However, there’s a third fear that is often not discussed, but it’s important to understand it when negotiating severance (in which, by the way, you must involve a lawyer because you do not want an extortion rap). Companies aren’t afraid of the financial costs of a lawsuit, and they can’t do much about disparagement, but there’s something else that terrifies them. Discovery. Even if the employer wins a termination lawsuit– and, fair warning, they win about 80 percent of the time– they’re going to have to prove that the termination occurred in the context of a uniformly enforced, fair performance standard. Everyone knows that white-collar work is subjective and often impossible to measure, so there are a lot of angles that can be exploited. All sorts of personnel data, HR intrigue, and possibly even historical compensation tables, can be brought into the open. That’s a terrifying thought from an employer’s perspective: much scarier than losing a termination lawsuit. So even winning a termination lawsuit is a pyrrhic victory for the employer. However, that’s unfortunately also true for the employee: winning is pyrrhic, and losing can be disastrous. There’s a delicate “mutually assured destruction” (M.A.D.) at play. Companies will often pay severance just to make the dance not happen.

This also leads to the one bit of advice that I’m going to give. This is not legal advice, but I’ve seen enough good people (and a few bad ones) get fired that I think it’s valid. Unless you are in financial need, you probably don’t want to push for more cash severance than is offered. If they offer 3 months, and you’re likely to have a job in two, then take it. Don’t try to push your go-away fee up. However, never walk away for free, and always make sure your reputation is protected. You can take a zero for cash, but if you do, mandate a positive reference (written, agreed-upon, contractually obligated) and the right to represent yourself as employed until you find your next job. One major advantage of pushing for a non-financial package is that you’re less likely to inadvertently do something illegal. Companies know that disparagement is a more credible threat, in the age of the Internet, than a termination lawsuit, but you can’t legally say it. If you say, “Give me $50,000 in severance or I’ll write a blog post about this”, you’re breaking the law and, while you probably won’t go to jail, you’ve lost all leverage with the employer. With only a reference being asked-for, you can frame it as, “Hey, we need to come up with a straight story so we don’t hurt each other in the public. I intend to represent my time at your company well, but here’s what I need from you.” Still, work with an attorney to present the deal because this is a very weird territory. (I know too much about extortion law for one lifetime, having been illegally extorted by a (now ex-) employer in the spring of 2012.)

That, in a nutshell, is an incomplete summary– but a scratch at the topic– of at-will employment. I hope that none of my readers ever need this information, and certainly that I will never have to use it, but statistically, many will. Good luck to those who must fight.

“Fail fast” is not an excuse for being a moron, a flake, or a scumbag.

I wrote before on technology’s ethical crisis, a behavioral devolution that’s left me rather disgusted with the society and culture of venture-funded technology startups, also known as “VC-istan”. There are a lot of problems with the venture-funded technology industry, and I only covered a few of them in that post. Barely addressed was that so much of what we do is socially worthless bubble bullshit, like Zynga– which, in my mind, only proves that a company can be taken seriously even when its name sounds like 4th-grade anatomical slang. Most of us in venture-funded technology are merely bankers, except for the distinction that we buy and sell internet ads instead of securities. This world of crappy imitations and bad ideas exists because there’s a class of entrepreneurs (who are well-liked by venture capitalists) who’ve become convinced that “the idea doesn’t matter”. That’s ridiculous! It’s good to pivot, and sometimes one has to change or abandon an idea to survive, but ideas and purposes do matter. When this fast-and-loose attitude is taken toward ideas, the result is that stupid ideas get lots of funding. That’s unpleasant to look at, but it doesn’t have the moral weight of some of VC-istan’s deeper problems, which I’ve already addressed. To pore into those, I think we have to look at a two-word good idea taken too far, and in horribly wrong directions: fail fast.

As a systems engineering term, “fail-fast” is the principle that a failing component should report failure, and stop operation, immediately, rather than attempting to continue in spite of its malfunction. The diametric opposite of this is “silent failure”, which is almost always undesirable. In software engineering, it’s generally understood that an average runtime bug is 10 times as costly as one found in the compilation process, and that a “do-the-wrong-thing” silent bug can be 10 to 1000 times more costly than one that throws a visible error at runtime. In software engineering, redundant systems are usually preferable because components can fail (and they will, for causes ranging from programming errors to hardware defects to data corruption caused by cosmic rays) without bringing the whole system down and, in these, for dysfunctional components to halt fast is usually a desirable behavior.

In the systems case, it’s important to look at what “fail” and “fast” mean. Fail means to stop operation once there is a detected possibility of erroneous behavior. Fast means to report the failure as soon as possible. Whether it’s a bug in software or a defect in a manufacturing process, it’s always astronomically cheaper to fix it earlier rather than later. The idea isn’t to glorify failure. It’s an acknowledgment that failure happens, and it’s a strategy for addressing it. Fail fast doesn’t mean “make things unreliable”. It means “be prepared for unexpected wrongness, and ready to fix it immediately”.

In VC-istan, “fail fast” is an attitude taken toward business, in which failure becomes almost a badge of honor. I believe this is intended as an antidote for the far more typical and pernicious attitude toward business failure, which is to personalize and stigmatize it, as seen in “middle America” and most of Europe. I’ll agree that I prefer the fail-fast attitude over the paralyzing risk aversion of most of the world. The reason Silicon Valley is able to generate technological innovation at a rate faster than any other place is this lack of stigma against good-faith failure. On the other hand, I find the cavalier attitude toward failure to often veer into frank irresponsibility, and that’s what I want to address.

The typical VC startup founder is rich. Without inherited connections, it takes about twelve months worth of work without a salary to produce something that VCs will even look at. (With such connections, VC mentoring comes immediately and a fundable product can be built within about half that time.) Even for the rich and well-connected, it’s dicey. VC acceptance rates are typically below 1 percent, so a lot of good ideas are being rejected, even coming from well-positioned people. Raising money is always hard, but for people who aren’t wealthy, the risk is generally intolerable: twelve months without salary and a high likelihood that it will amount to zilch. Why’s this relevant? Because rich people can afford a cavalier attitude toward failure. Losing a job just means moving vacations around. If one company dies, another can be built.

In an ideal world, everyone would be rich, by which I mean that material limits wouldn’t dominate peoples’ lives and their work in the way they do now. This would be a world of such abundance as to implicitly provide the safety associated with socialism, without the drawbacks, and in which poverty would be eliminated as thoroughly as smallpox. I believe humanity will reach a state like this, but probably not until the end of my lifetime, if not some time after I’m dead. In this “post-scarcity” world, libertarian capitalism would actually be a great system (and so it’s easy to see why out-of-touch rich people like it so much). Business failure would just be the impersonal death of bad ideas, resources would quickly be allocated to the good ones, and people would rise into and fall out of leadership positions as appropriate but could gracefully decline when not needed, rather than having to fire their help, pull their kids out of college, or move halfway across the country when this happens. If everyone were rich, libertarian capitalism would be a wonderful economic system. However, we don’t live in an ideal world. We have to make do with what we have.

In the real world, failure hurts people, and most of those people aren’t 23-year-olds with $5-million trust funds. Investors (not all of whom are rich) lose large amounts of money, and employees get fired, often without notice or severance. Careers of innocent people can be damaged. This doesn’t mean that failure is morally unacceptable. Good-faith failure must be accepted, because if failure leads to broad-based social rejection, you end up with a society where no one takes real risk and no advancement occurs. This isn’t an abstract danger. It’s something that most people see every single fucking day in the typical corporate workplace: a bland, risk-intolerant environment where people are so afraid of social rejection that people torture themselves in order to seem busy and important, but no one is taking creative risks, and real work isn’t getting done. So my attitude toward those who take risk and fail in good faith is one of empathy and, sometimes, admiration. I’ve been there. It happens to almost everyone who wants to accomplish something in this world.

My issue with “fail fast”, and the more general cavalier attitude toward business failure observed in VC-istan, is that people who espouse this mantra generally step outside the bounds of good-faith failure, responsible risk-taking, and ethical behavior. When you take millions of dollars of someone else’s money, you should try really fucking hard not to fail. It’s a basic ethical responsibility not to let others depend on you unless you will do your best not to let them down. You should put your all into the fight. If you give it your best and don’t make it, you’ve learned a lot on someone else’s dime. That’s fine. The problem with “fail fast” is that it sounds to me a lot like “give up early, when shit gets hard”. People with that attitude will never achieve anything.

Usually, the worst “fail fast” ethical transgressions are against employees rather than investors. Investors have rights. Dilute their equity in an unfair way, and a lawsuit ensues. Throw the business away recklessly, and end up in court– possibly in jail. One can’t easily fire an investor either; at the least, one has to give the money back. On the other hand, a remnant of the flat-out elitist, aristocratic mindset that we have to kill the shit out of every couple hundred years (cf. French Revolution) is the concept that investors, socially speaking, deserve to outrank employees. This is absurd and disgusting because employees are the most important actual investors, by far, in a technology company. Money investors are just putting in funds (and, in the case of VC, money that belongs to other people). They deserve basic respect of their interests for this, but it shouldn’t qualify them (as it does) to make most of the important decisions. Employees, for contrast, are investing their time, careers, creative energy, and raw effort, often for pay that is a small fraction of the value they add. Morally speaking, it means they’re putting a lot more into the venture.

I’ve seen too many sociopaths using “fail fast” rhetoric to justify their irresponsible risk-taking. One example of a fail-fast acolyte is someone in his mid-20s whom I once saw manage the technical organization of an important company. I won’t get into too many details, but it’s an ongoing and catastrophic failure, and although it’s evident to me at least (because I’ve seen this shit before) that he is personally headed toward disaster, it’s not clear whether the company will follow him down the drain. (That company is in serious danger of failing an important deliverable because of decisions he made.) I hope it doesn’t. First, he took a scorched earth policy toward the existing code, which was written under tight deadline pressure. (Despite this twerp’s claims to the contrary about the “old team”, the engineers who wrote it were excellent, and the code quality problems were a direct result of the deadline pressure.) I don’t consider that decision an unusual moral failure on his part. Give a 25-year-old programmer the authority to burn a bunch of difficult legacy code and he usually will. At that age, I probably would have done so as well. That’s one very good reason not to give snot-nosed kids the reins to important companies without close supervision. I remember being 18 and thinking I knew everything. A decade later… turns out I really didn’t. Taken too far, the “fail fast” mentality appeals to impulsive young males who enjoy waving a gun around and shooting at things they can’t see and don’t understand.

My second encounter with this person’s “fail fast” sociopathy was in a discussion of hiring strategy, in which he discussed building “30/60/90 plans” for new hires, which would entail milestones that new employees would be expected to meet. As a way of setting guidelines, this is not a bad idea. Technology workplaces are a bit too dynamic for people to actually know what a person’s priorities should be three months in advance, but it’s always good to have a default plan and baseline expectations. New hires typically come on board, in a chaotic environment, not knowing what’s expected or how to “on-board”, and a bit of structure is a useful. This little sociopath wanted to take things a bit further. He thought it would be a good idea to fire people immediately if they missed the targets. New hire takes 35 days to meet the 30-day goal? Gone, after one month. No chance to move to another part of the organization, no opportunity to improve, no notice, no severance, and it’s all made “fair” by putting all new hires on a PIP from the outset. I’m pretty sure, I’ll note, that this young twerp has never been fired himself– and my money’s on him being three to 12 months away from his first experience with it, depending on how fast he can learn that primary executive skill of shifting blame, and how long he can run it. These sorts of terrible ideas emerge when people are permitted to take irresponsible risks with others’ careers. Most of the damaging HR “innovations” companies invent (which become tomorrow’s morale-damaging bureaucratic cruft) occur not because they’re good ideas for the company, but because people within these companies want to propose wacky ideas that affect other people, in the hope that some “greater fool” in upper-management will see the half-baked concept as “visionary” and promote the person who invented it, regardless of the idea’s lack of merit. That’s how Google’s douche-tsunami (douchenami?) system of stack-ranking and “calibration scores”, for just one example, was born.

I don’t like people who are cavalier about failure when they haven’t been on the other side of it, either as an investor who lost a large sum of money, or as a laid-off or unjustly-fired employee. To put it plainly and simply: “failing fast” with other peoples’ risk is not courage. I say this as someone who has taken a lot of risks and failed a few times, who has always accepted the consequences of what he has started, and who has always done everything possible to make sure that anyone taking a risk with me knows what he or she is getting into.

I’m going to advise something altogether different from “fail fast”, because the term “fast” has chronological implications that I don’t find useful. Protracted failures driven by denial are bad, sure. I agree with that aspect of “fast”, but people should try to avoid failure if they can, rather than jumping immediately to declare defeat and move on to a sexier prospect. Fail safely or, at least, smartly. Know what the risks are, disclose them to those who are taking them, and be prepared to address failures that occur. There are cases where chronologically fast failure are appropriate, and there are times when it is not. Largely, the ethics of this come down to what risks the involved parties have agreed to take. People who invest in a startup accept the risk of losing the entire investment in a good-faith business failure, but they don’t accept the risk that the founder will just give up or do something overtly unethical with the money (bad-faith failure). Employees in startups accept the risk of losing their jobs immediately, without severance, if the company goes out of business; but if they’re misled about how much runway the company has, they’ve been wronged.

The ethics of “fail fast” depend largely on the explicit and implicit contracts surrounding failure: how failure is defined, and how it is to be handled. These are conversations people don’t like having, but they’re extremely important. Failures happen. Often these contracts are left implicit. For example, a person who joins a five-person company accepts that if he doesn’t fit well with the project (because a startup of that size only has one project) his employment must end. More on that, being a founder means that one will be (and should be) fired immediately if one doesn’t work well with the rest of the team, just as being a elected official means one accepts the risk of being fired for being unpopular. On the other hand, a person who joins a more stable, large company, does so with the expectation of risk mitigation. Specifically, people join large companies with the understanding that being a poor fit for one’s initial project doesn’t mean leaving the company. The additional robustness of career is a primary incentive for people to join huge companies. Therefore, large companies that impede internal mobility, usually under pretenses of false objectivity in the performance review process, are deeply unethical and their reputations should be tarnished gleefully and often, in order to prevent others in the future from being blown up by undisclosed risks.

The “fail fast” mantra implies that failure is hard, and that it takes a certain fortitude to look failure in the eye and accept the risk. Alone, that’s not hard. Lying down is easy. Quitting on someone else’s risk and dime is not hard. Letting people down is not hard. The hard part is communicating risks as they actually are to people before they get involved, finding people willing to take those risks, working as hard as possible not to let people down, and working even harder to help everyone recover from the loss should failure occur.

Talent has no manager

For a store clerk, his “manager” is a boss: someone who can fire the clerk. For a contrast, an actor’s “manager” works for the actor and can be fired by him. In one context, the manager holds power; in the other, he’s a subordinate. This isn’t a misused word, so much as the overloading comes from the shifting application of terms. In both cases the person is accurately described as a “manager”, but the relationships are utterly different– opposite, in fact. Why is this? It requires analysis of what it means to be a manager.

A manager is a person entrusted with decisions related to a resource that its owner cannot as easily handle. A hotel’s manager operates the hotel day-to-day; if the owner is a different person, he passively reaps the benefits. For an entertainment personality’s manager, the asset being managed is the person’s reputation and career. In both cases, if the owner of the asset decides that the manager is doing a poor job, the manager is replaced. Managers work for owners. That much is clear. In the context of a low-level employee like a store-clerk, the clerk doesn’t really own anything of value. His labor is replaceable. Although his supervisor is introduced as “his manager”, the reality is that this person is a manager for the store. This person is the store’s manager, and his boss.

The word “boss” (from the Dutch) replaced “master” in the early stages of the Industrial Revolution, because of the latter’s association with chattel slavery. In accord with the euphemism treadmill, “boss” eventually went out of favor as well, replaced by “supervisor”, which was replaced in turn by “manager”. Having a personal manager sounds a lot better than having a boss, but the latter is a more accurate and better term. It may be a blunt word, but it works well for the purpose.

The job of the boss is to represent the interests of the company, not employee. He or she cannot be expected to serve two masters, just as it would be inappropriate for an attorney to represent both sides of a lawsuit. The result of this is that employees often feel shafted when their “managers” fail to act as their advocates, instead preferring the company’s interests (or, at least, what the manager represents as the corporate interest) over the employee’s own. They shouldn’t feel this way. The boss is doing his job: the one he gets paid for. What’s unfair to the employee is not that his boss prefers the company’s interests over his, but that the employee has no advocate (except himself) with any power. Full responsibility for managing his talent falls on the employee.

Who is talent’s advocate? Generally, there’s none. Talent alone, one might argue, is not very valuable: experience, reputation, and relationships are usually required to unlock it. Because of this disadvantaged initial position, the person with the talent is expected to advocate for himself. Just as it’s dangerous to represent oneself in a court of law, it can be hard to negotiate on one’s own behalf when it comes to career matters. It helps to have an advocate who isn’t risking his personal relationships and reputation in the career process. So a lot of people don’t bother. Most people are underpaid by 10 to 50 percent because they are uncomfortable negotiating better compensation. Their bosses aren’t being evil; these people simply have no advocate and fail to represent themselves. For that, I think compensation is an arena in which employees are actually more fairly treated than in intangibles. Companies can’t legally renege on promised compensation, and basic negotiating skills are often all it takes for to get a fair shake there, but they can (and frequently do) use bait-and-switch tactics to lure the best people with promises of more interesting projects than what those people actually end up working on. This is a common way for companies to mislead employees into working for them, protected by the fact that no one wants a 5-month job on his CV.

In the workplace, talent is of high long-term importance. A company that can’t retain talent will face a creeping devaluation of its prestige, mission, and ultimately, its ability to succeed as a business. For this reason, there are a few progressive managers who advocate on the behalf of talent, at least in the abstract, because they know it to be important to the general interest of the company as much as it is for talented subordinates. This is admirable, but it should be considered an “extracurricular” effort, as it’s one that these managers take on at their own risk. When these efforts fail to show short-term (one quarter) results, the jobs of those who pushed for them end up on the line.

The reality is that this progressive attitude is quite rare. Most managers (who themselves lack advocates, except themselves) are just as worried about keeping their jobs as the people they manage, and aren’t comfortable advocating for interests other than those that they’re required to represent. Companies give lip service to “mentorship” and career development, but often these are just ad copy, not real commitments. What looks like a progressive company is usually an adept marketing department. Moreover, most workplace perks are pure vanity. “Catered lunches” are a nice benefit worth a few thousand dollars per year, largely provided to reduce lunch times and portions (people who eat out are served large portions and become measurably less productive for two hours). That’s not a bad thing, but it’s not given out of altruism. Moreover, perks like an in-office XBox or foosball table are just clumsily-applied band-aids. Real professionals go to work for the work, not the diversions.

As I said, the boss cannot (even if he’d so desire) advocate for subordinate talent because this would cause a conflict of interest between his professional duty to the company’s owners (or their proxies, who are his managers) and this ancillary role. It is also difficult, in an “lean” (euphemism for “we overwork managers”) environment where it’s typical for a manager to have 15 to 20 reports, for the manager to represent the interests of all the people under him. In practice, these “flat” organizations lead to necessary favoritism imposed by the clogged communication channels, while bosses who take “proteges” usually find that their disfavored subordinates decline in productivity and loyalty, which reduces the team’s performance on the whole. The result is that the manager must be disinterested and impersonal with all reports , so career advancement through typical channels is difficult if not impossible. “Extra-hierarchical” work (collaboration with people outside of one’s reporting structure) can be far more effective, because people tend to favor those who help them out but aren’t required to do so, but this effort also makes many managers feel threatened (it seems disloyal, and creates the appearance of someone attempting to engineer a transfer, and managers whose best reports are transferring lose face with their bosses).

If talent has no advocate, does this mean that the interests of talent are ignored? No, but they’re addressed in an often ineffective, far-too-late, way. A talented person’s best move, in 90 percent of organizations, is to find another job in another company. Of course, people are free to do this, and often should, but constant churn is bad for the organization, and leads to a long-term arrangement in which the needs and desires of talent are ignored: if employees are going to leave after 6 months, why invest in them? Alternatively, a talent revolt is often manifest in reduced productivity, which reduces talent’s leverage in negotiation and leads an organization to conclude that talented people are “troublemakers” and that hiring the best people isn’t worth it in the first place.

The position of talent is especially tenuous because it’s a dangerous asset to hold. If every thousand dollars in cash caused increased a person’s risk of mental illness and interpersonal failure by 0.01 percent just by virtue of existing, those who might be billionaires would either give the shit away or burn it. Of course, this isn’t the case. Tangible financial assets– real estate, wealth, ownership in productive enterprises– are largely inert in terms of “mana burn” (the tendency to inflict harm if unused). They are at constant risk of being diminished on the market, and this may be a source of anxiety for some people, but the only thing they can lose is their own value. Talent, on the other hand, becomes extremely detrimental if unused. A millionaire “trust fund kid” working jobs below his means (as an underpaid arts worker in Williamsburg, when his father could easily get him a “boring” but cushy and lucrative position as a junior executive) is not going to be especially unhappy working jobs that are “below him”, especially because the situation can be improved at any time. On the other hand, a person of high talent trapped in a mediocre career will only fall farther. Perversely, although it’s easier to find an advocate or manager for a building or a business, talent needs it more.

The role of “talent advocate”, I believe, is unfulfilled. A boss cannot fulfill this role without entering into a conflict of interest that endangers his career. Companies’ HR departments, I believe, are useless toward this purpose as well. HR has an “eros” (hiring and advancement) and a “thanatos” (firing and risk mitigation) component. The first of these sub-departments works for the company’s management: often they mislead people into joining teams or companies with undeliverable promises of career advancement and work quality, not because they are malicious, but because they do not have the resources (or the duty) to investigate promises made by the managers for whom they work. An in-house recruiter can’t be expected to know that a position being advertised as “a Clojure job” is 90% Java. The second half of HR works for the firm’s attorneys, finance department, and public relations office, and its purpose is (a) to encourage failing employees to leave the company before formal termination, (b) to prevent disgruntled or terminated employees from suing or disparaging the company in the future. As for the advancement of talented people already in the company, managers are trusted (not always wisely) to handle this on their own. This leaves nothing in a company’s HR department that can advocate for talent. It would, arguably, go against their professional duty for them to do so.

Talent needs an advocate independent of any specific company, since its best move is often to leave a disloyal or detrimental company outright. I believe that requirement of independence is quite clear, since companies’ obligations are to shareholders only and managers’ obligations are solely to their companies. (That most middle managers, in practice, place their career interests above both those of their subordinates and of their companies is an issue I will not address for now.) Independent recruiters, one thinks, might fulfill this role. Do they? My experience has been that I do better as my own advocate than when using a recruiter. As recruiters collect a percentage of a first-year salary, they aren’t incented to act in the employee’s or even the employer’s long term interests. They are paid for putting people in roles that last at least 12 months, but not for looking out for the employee’s career interests (which may involve a 10-year career at one company, or it might involve jumping ship almost immediately). Of course, there are good recruiters out there who truly value the long-term interests of the people they place; it’s just that my memory (and, to be fair, I haven’t used one since I was a 23-year-old nobody) is that there are far more ineffective or just plain bad ones, focused on quantity in job placement rather than quality. It’s not surprising for it to be this way, since job quality (holding a person’s level of skill constant) is only loosely correlated to compensation, based on which recruiters are paid. Since it’s companies that write recruiters’ checks, it shouldn’t be surprising where their alliances lie.

Talent may be more valuable than financial resources, but it’s harder to discover and it’s far more illiquid. A company can write a $25,000 check to a recruiter, while a talented person can’t easily pay the recruiter with “$25,000 worth” of talent. Financial assets can be sliced into pieces of any desired size that are useful to anyone, so recruiters can be paid with those. Talent can’t. A recruiter cannot feed his family with 100 hours’ worth of server software. (“Tonight, we’re having fried Scala with NoSQL for dessert.”)

A possible improvement would be for recruiters to be compensated based on the “delta”, or the amount by which they improve their clients’ salaries. This would be like the pay-for-performance model by which hedge fund managers are compensated: a small percentage of assets (usually 2%) and a larger percentage of profits (often 20%). In other words, instead of collecting a flat percentage of the first year salary (15%) the recruiter could be compensated based on the hire’s long-term performance. This might give recruiters a long-term incentive to place people in positions where they are likely to succeed for the long term. Would it encourage recruiters to fill the badly-needed role of talent advocate? I’m not sure. It might just incent recruiters to find high-paying but awful jobs for their clients.

One of the difficulties associated with the talent-advocate role is that it requires the ability to assess talent. Having a talent is generally a necessary, but not sufficient, condition for being able to detect it in others. What this means is that the best talent advocates are going to be people who, themselves, have those skills and abilities. Since currency of technical skills is highly relevant, it’s best that they keep their skills up-to-date as well. Talent advocates, in other words, need to have the talent they intend to represent in order to understand what people with that kind of creativity (a) are and are not capable of, and (b) need from an employer to be motivated and successful. This requirement that the talent advocate be involved in the work for which he advocates makes a full-time recruiting effort unlikely, but without a full-time effort, it’s unlikely that the talent advocate can acquire the connections (to employers) that are necessary to place people in the best positions. In short, this is a very hard role to fill. I can’t see an easy solution.

For the time being, talent must be its own advocate and its own “manager”. This leaves us with what we already know.

Non-solicitation clause considered immoral

I hope I am not unusual in that, whenever I join a company, I actually read the Employee Agreement. One term that is becoming increasingly popular is the (generally overbroad) non-solicitation agreement, designed to prevent employees from “solicitation” of colleagues after they depart from the company. Their purpose is to prevent “talent raids” whereby well-liked people encourage their colleagues to move along with them to their next company. By doing so, they create a culture in which to present an employee with a better opportunity is treated as comparable to stealing corporate property.

First, let me state that the fear of “talent raids” is vastly overstated. Recruiting’s hard, yo. No one is “raided” from a company. A person does not get “stolen” from a $140,000-per-year software job and forced to throw 75 hours per week into a risky startup. People move from one job to another when they perceive a better opportunity at the new job. That’s it. As long as the latter opportunity is represented honestly and properly, nothing wrong is happening.

I’m a veteran talent raider. I’ve helped startups hire brilliant people I met in middle school through national math contests. I’m also extremely ethical about it. If I don’t respect someone, I don’t want him or her in an organization that I respect. If I do respect someone, I’m going to do everything I can do to provide all information (positive and negative) about an opportunity. This isn’t a bullshit “I’m not selling” defense. I consider it a success when I sit down with a friend, tell him about an opportunity that I think is great, give him all the information he’ll need to make his decision, and he appreciates the information but rejects it. It means that I’ve done my job well. When I’m talent raiding, I’m usually trying to convince someone to make a risky move, and most people don’t like risk. So a conversion rate of 60 percent (which would be very high) would suggest that I’m doing something seriously wrong. Overpromising to a person whose talents and character I respect is the last thing I want to do. Careers last a lot longer than jobs, and companies can decay so rapidly (management changes) that sacrificing a relationship to improve a job is just a terrible idea.

Unethical solicitation I despise. It’s unethical when the company’s prospects, the role into which the person will be hired, or the type of work the person will be allocated, are overstated. This is, of course, not a behavior limited to small companies or intentional talent raids. It’s very common for companies of all kinds and sizes (as well as managers within generally ethical large companies, as I found out recently) to pull these bait-and-switch antics. There’s no legal recourse against companies that do this– and there shouldn’t be, as companies have the right to end projects and change priorities. If contract law doesn’t cover bait-and-switch, then what is the socially useful purpose of non-solicitation clauses? Absolutely none.

Of course, companies don’t have non-solicitation clauses to prevent unethical talent raids, and those clauses aren’t in place to protect employees (ha!). In fact, these companies would rather see their people lured away on false pretenses: they can hire them back. They’re much more afraid of ethical talent raids in which the employee is presented with a genuinely better opportunity. This represents an attitude in which employees are considered to be property, and it constitutes restriction of trade.

Worse yet, non-solicitation contracts discourage startup formation. If the “talent raider” moves to a large company like Google, he can reconstruct his team behind the scenes, but if he moves to a startup, he faces the risk that the non-solicit will actually be enforced. History does not know how many great startups have never formed because people were scared off by non-solicitation clauses.

These need to be ended. Now.