The Elves Leave Middle Earth – Sodas Are No Longer Free (2009)
As an accountant, I feel like employees are severely underpaid in highly-skilled markets (like tech, not accounting), and I think that companies don&#x27;t actually capture the true cost of a single full time employee.<p>Most see a salary, benefits, fringe costs (like hiring HR and finance teams), lunches, etc. Some of the better firms add in the cost of hiring employees with intangibles, like communication, poise, and professionalism, but the truly great see the largest potential cost - that they do better work at a competitor.<p>If you&#x27;re paying an engineer $100k to add 150k worth of value to your product, the true value of their work is $300k: $150k worth of value to you, and $150k worth of value that isn&#x27;t added to your next closest competitor.<p>It&#x27;s the same reason football teams say &quot;defense wins championships&quot; - because Defense is the only position where you can simultaneously score points and stop your opponent from scoring. Offenses can only score.<p>Now, that employee shouldn&#x27;t be paid $300k because that&#x27;s the true value for the organization, rather, they should be paid as close to the marginal benefit they directly apply to the organization - in this case, $150k. Doing so may be a breakeven point from a cash perspective, but a billion dollar company that breaks even is worth more than a lemonade stand making $10 profit.<p>From an accounting perspective, this can be observed as employee expenses (temporary equity accounts) providing value to products (permanent asset). When the employee is terminated, the assets still remain, so for anyone with any equity stake in the firm, it is beneficial to pay as much as possible up to the point that the company a) doesn&#x27;t run out of runway, b) retains talent to further grow the assets and c) doesn&#x27;t grow competitor assets.<p>The CFO that cut soda costs by $10k also boosted the equity of all the competitors that hired the disgruntled employees - and most likely by a value greater than $10k, and multiplied by each employee that left.<p>Just my $.02<p>Edit: Cut soda costs by $10k total, not per employee