Jach's personal blog

(Largely containing a mind-dump to myselves: past, present, and future)
Current favorite quote: "Supposedly smart people are weirdly ignorant of Bayes' Rule." William B Vogt, 2010

Intangible costs matter in compensation packages

If you commute to work by car, what would you rather have: free parking or a $4k increase in annual salary?

Note that if you pay $15/day for parking, and take no days off, that comes out to $3900. So the raise is strictly more than the cost, even.

I would pick parking. That's because even though raise > parking_cost, the actual comparison is raise vs. parking_cost + intangible_costs.

With care we can pick apart the intangible and extract relevant factors that make up the bulk (perhaps all) of the amount, rendering it tangible, at least partially. Speaking for myself, the intangible costs associated with parking are time-dependent.

If I take a new job, there's an initial setup I have to do if I intend to drive in every day. I have to find a parking garage that's both nearby and reputable (not a crime magnet for theft -- do they hire security? do they have closed access?), sign up with them, set up some sort of autopay system, probably get yet another RFID thing for my wallet, and possibly negotiate for things like in/out privileges, overnight privileges (or can I even leave at 3am?), or monthly/yearly discounted rates.

However once the setup is done, then the cost quickly drops towards $0. It has a chance to rise again if a crime happens, if the garage doesn't guarantee spots and fills up, if I get a new job, if the office moves...

All that administrative overhead is rather annoying to me, it has a high intangible cost that I feel is above $1000 but perhaps less than $10,000.

In other words, if you're making me a salary offer that doesn't include free parking but is a salary boost of $5k-$10k vs what I might have expected with free parking, I'm probably not going to complain (at least until I get used to the salary bump after a year and haven't received an annual raise to keep up with rising inflation and housing costs..). Without that though, I'll be grumbling about free parking even if I take the job. Especially if it's common practice for other companies in the area to give free parking.

Similar analyses can be made for other things. Development hardware? Sure putting 256 GB of ECC RAM in my desktop (it has 64) would cost a few thousand dollars, but it would enable me to be more productive, it would be one less thing I'm grumpy about, and raises the cost to poach me. There's many reasons why "best hardware" is one of the classic Joel Test items, and yet so many companies don't pass that one.

Healthcare plans? I'm fortunate to not have any chronic issues or a high risk of major illness or disability. So I could probably get a plan that covered my dental needs and catastrophic emergencies (broken limbs, cancer, etc.) for a fairly low price. Yet there's a ton of administrative overhead that I'm unable to measure reliably, I'm glad my company just gives me a plan even if I have to pay a bit for it. And this administrative overhead is probably never $0. With the company plan it's also not always $0 because of the complexities of healthcare but more frequently it is.

Free snacks and drinks? Alleviates the need to make a purchasing decision, get distracted by going out, etc. If there's a good enough variety can also make keeping to a diet much easier.

Some of these can be "happiness" factors and fall under the bucket of whether happy employees make more productive employees (ignoring whether there's any moral obligations here). If you average the factors out over a workforce perhaps it makes no difference to bottom line productivity over many years whether they are present or absent, but for individuals, it may matter a lot, and they might take their individual talents elsewhere to get those things. Will the original company suffer, or will it eventually average out? There's another fairly intangible cost, and depends a lot on many contextual details.

It's also hard to argue when it's all upside all the time. Sure you've made $15bn/yr for the last three years, but you also lost a few top-tier people three years ago because (they claim) of trivial to address issues like free snacks or required business attire or whatever. With them and their continuous efforts, you might have instead made $15bn, $16bn, $18bn. The extra $4bn is surely worth more than the cost of addressing those complaints, but on the other hand $15bn is pretty sweet too, so meh.

Posted on 2018-08-15 by Jach

Tags: business, hiring


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