Followup to: What’s Your Hourly Rate?
Buying time usually makes sense
As I discussed in the above post, a person’s value of their personal time (e.g., how they decide to spend money to buy time or vice versa) might be quite a bit lower or higher than their hourly wage. In other words, you can’t immediately look at your hourly wage and know whether it is worth it to buy time or not – you also have to consider your current life circumstances.
However, when we are talking about company employees and the company is deciding whether a certain time savings is worth buying, the company should basically always (as far as I can tell) be willing to pay for any time savings that is cheaper than the person’s hourly wage. Why? Because they could save more money than the cost of the savings, by having you work fewer hours and/or hiring a tiny bit slower.
(There are a few edge cases to the above, but they’re rare. For example, perhaps the company is so strapped for cash that it can afford exactly the employee’s salary, but no more, and it doesn’t make sense to have the employee work fewer hours for less pay. But these edge cases seem to be “rounding issues” – they only apply when the company is so small that the marginal employee’s salary is material. I think most companies have enough scale, employees and/or cash to make this not come up in practice.)
In fact, usually employee time savings are very easy buys for a company, even when their costs are close to or higher than the cost of the employee salary:
- In knowledge industries like software, employees tend to produce quite a bit more than their salary.
- Hiring an additional person has increasing marginal costs. It’s much easier to manage a 3-person team than a 10-person one. If you can make your employees more individually productive you can hire a lot slower.
- Attention switching costs are huge, especially for software engineers. If a person is switching rapidly between multiple tasks, they usually produce a lot less than if they were single-tasking on one thing. Often time savings comes in the shape of “you never have to worry about this problem again” – if so, that’s one fewer task you ever have to switch to. That means you get non-linear, increasing marginal value from removing attentional costs.
- People are also happier when they feel like they have one job and can focus on it.
So most companies would like to be taking lots of opportunities to spend money to save time/attention.
Execution is hard
There are a lot of issues actually executing on this idea. Cultural and attentional issues tend to be more important than financial (as you’ll see below), but it’s hard to manage those correctly.
Sometimes things are easy: there are a few easy to evaluate questions, like taking rideshares instead of public transport, or getting a bigger monitor if you are app switching a lot. You can just plug in reasonable estimates and do the math to decide. And I would recommend that every company institute the policy that people should be doing this on their own.
But time-saving opportunities this simple are kind of rare, because people usually see them like $20 bills on the street and pick them up. Most decisions will involve cultural issues one way or another.
Company Food Policy
Lunches are an interesting one: If you save 15 minutes a day for $60/hr workers (who would otherwise be going out to eat), it’s worth bringing in $15 meals for everyone. But maybe instead of working for those extra 15m, they just sit around and chat. But maybe they are more likely to be chatting about work. How do you even estimate the sign of the communication and cultural knock-on effects of this? Maybe people don’t like going outside so it is nice to stay in. Or maybe they feel trapped. Maybe they are more likely to be chatting about work if they get some space away from work, or maybe the opposite. Hard to guess.
A similar budget item could be coffee-shop visits for remote workers. In theory remote workers could be working from home, so why pay $4 per day for them to get expensive lattes and sit in crowded public spaces? Answer: some people get vastly more done in coffee shops than they do at home, because the change of environment is super helpful for their attention span. It is not even worth discussing the cost of the lattes at this point because the difference in that person’s productivity can be an order of magnitude higher.
The lunch decision financially is uninteresting compared to the cultural issue, which is a high order bit. The coffee shop decision financially is uninteresting compared to the higher order attention issue. But both of those principles applied companywide can be expensive enough to cause finance people to look hard at those expenses. If the finance people don’t understand the precise cultural/attentional reasons why these things are worth paying for, then they get cut, and the company ends up worse off. That seems bad.
Another example: Realistically a lot of people are going to be doing personal tasks during work hours, like booking travel home for holidays. If work provided them assistants who can take care of those things, it would indeed save work-minutes, even though officially that sort of thing is not work.
But this personal assistant is spending close to their full time doing non-work tasks. Again, a cost-cutter asking the assistant “what are you doing?” results in the assistant getting laid off. But the (idealized) assistant is actually paying for maybe twice their own salary by saving the rest of the people tons of time and attention.
Further, there is a potential cultural implication here: there’s someone whose job it is to do your bidding, essentially a personal servant. Is that okay? What are the rules for use of that resource? These things are culture questions that you have to answer on a company-by-company basis. Some more examples:
- Are you allowed to check personal email at work?
- Does the company have a flexible or rigid budget?
- Are employees “pampered”? What uncommon luxuries are provided?
I can’t think of anything worth spending company money on that feels as luxurious as taking a business class flight. (Free champagne!)
It is in theory easy to compute the value of taking business class instead of coach (if it will let you sleep), based on counting the marginal hours of sleep and comparing that to one’s hourly wage. Trickiness here is around fairness: business class makes a difference to some but not everyone, but because you can’t measure it fairly, you have to decide whether or not to offer it using a blanket policy. And each policy has obvious trade-offs:
- “no business class ever”: highly valuable employees’ time is being left on the table because they aren’t getting sleep on planes. Sends a cultural message that the company is scrappy and no-frills.
- “all overnight flights are booked business”: lots of money wasted. Sends a cultural message that employees are pampered, which may have knock-on cultural effects in other areas.
- “executives/highly paid employees only”: financially the right decision, but culturally risky, because people (rightly or not) may perceive elitism or cronyism.
I think it comes down to the cultural messages you want to send.
Summary and Strategies
We are looking for a policy that allows individuals to know what they are allowed to spend money on. I think defaults around “cost savings” make most companies too conservative on this axis, resulting in over-hiring. Simply saying “do the math and pay for time savings” doesn’t answer most questions because those questions often have deep, hard to evaluate cultural implications.
I think the ideal company would follow the following overall strategy:
- Decide what culture you want to express through expense policy (scrappy? practical? importance of attention vs. time saved?) and write down a lot of examples of “ok” and “not ok” cases.
- Generalize the policy as best you can into a set of rules and publish both the rules, and the examples.
- Give leads broad power to override rules to implement the cultural principles, and promise that you won’t retaliate against people for misunderstanding the principles (you should be firing people for willfully misapplying the rules, but not for misunderstanding them. Culture is hard.)
- Make sure the finance/accounting people treat questionable expenses as “innocent until proven guilty”. It is good to ask questions, but in a friendly rather than accusatory way – I don’t know how best to implement this though. Maybe going through leads?