Now let's assume it was a $10 million a year business. That means it's now making $11.5 million dollars a year because a software engineer optimized the loading time. That engineer probably makes $100k or so, and he might get a 10% raise since he did such a good job. The remaining $1.49 million gets distributed amongst execs and investors.
Hardly seems fair, when most executives have no idea what's going on, and provide zero value add for that case.
If you think most executives have no idea what is going on and add zero value then I am guessing you haven't spent much time around executives. The whole reason your typical developer got their job and is able to keep it in the first place is because executives figured out how to run the business well enough to grow and continue to hire developers and then allocate them to projects where they can increase revenue. If you think it's easy I recommend you give it a try sometimes.
However, from my empirical observation of many executives, there are two broad groups.
The ones you described, those that are worth their salt and have carved out their position through helping the business.
Then there is a large group of executives who exist mainly because similar companies have similar structures and they have expectations of roles for say CFO , COO. Then there are roles required by the industry or market: Head of Compliance, Head of Risk, Head of Auditing.
Those executives have not earned their place, they are appointments by pattern matching corporate structures
The issue in this example is ownership. Executives add value and they are granted large ownership stakes in the business. Workers are not. You use the example of the executive who figures out how to grow the business to prove that he is entitled to appropriate some of the other employees' added value -- since otherwise that value wouldn't exist in the first place. But our developer can't take his yearly salary out of the 15% increased revenue he enabled back in 2012, on top of compensation for whatever value he creates this year.
In any event, the example is very contrived. $10M in sales is as arbitrary as 20% profit margins. Margins could be any amount less or a great deal more. Revenues could be sky high or non-existent. You might expect to find a developer making $100k regardless.
Compensation is set by the market: what is the next person who can do this same job willing to be paid?
If we go out into the market to find all the people that can decrease page loading time by 50% and have them bid against each other, we will probably end up paying the lowest bidder who is capable of the job about the median salary of the profession.
And another point on >the remaining $1.49 million gets distributed amongst execs and investors. People who own equity in the company have legal claim on the cash flows of the business. They balance free cash flows with reinvested capital (assets,, SGA) to sustain free cash flows into the future.
Of course, our market is far from rational, etc, etc.
FWIW, I don't think that software developers are overpaid, at all. It's a difficult career, requiring years of intense study to do well. Sure, maybe not as much as Doctors, at least not formally, but a lot of that has to do with the structure of medical education in the United States (in particular, the requirement to complete an undergrad degree prior to admission to medical school). The job of a surgeon is certainly more difficult than the average software developer, but compared to a SRE at Google, say, who is working with real, "living" distributed systems that interact in complex ways, I would say they are comparable. If anything, I'd expect, in a rational market, for the SRE to be paid more, because their services are providing for millions or billions of customers, while the surgeon is only providing for one at a time (and maybe a few thousand over their carrer).
If I introduce a bug it will hurt revenue in some way, possibly affecting the company's operations. If most doctors mishandle a patient it could have significant, immediate effect on that person's life.
I deal with the responsibility weighing on me, but they've had to get used to dealing with a much heavier responsibility.
Think of Amazon, Walmart, or any firm with significant COGS [cost of goods sold]. It's clear that they can't hire employees inline with marginal revenue.
And what if the companies were to bid on the employee? That would likely drive wages higher and compensate for the natural information asymmetry in the tech labor market.
Additionally, I don't really agree with this underlying notion that you're entitled to 100% of the extra revenue generated by the speed increase. Imagine how bizarre it would be if you actually applied this thinking consistently over the lifetime of the company to every employee. This approach spectacularly and disproportionately over-rewards people who join the company later, as it becomes increasingly easy to create large increases in revenue because on absolute terms a 1% increase keeps getting bigger and bigger. This would lead to a complete inversion of risk, where it would be more profitable to never take risk and only take stable jobs at long-running companies that have already developed a large market share. I'm not convinced this is a sensible distribution of income to employees.
A lot of it also goes to essential business expenses: HR, legal, the AWS bill, the new feature that's currently losing money but will pay off in the long term.
And the person who made the $1.5mm code fix didn't do it on their own. They wouldn't have been able to improve the code if somebody else hadn't already written the first version. And neither of them would have been able to get their code into production if somebody hadn't set up the build and release process for the company. And they never would have been in the position to make the $1.5mm fix if their manager hadn't identified the need for an additional engineer on the team and recruited them. And the company wouldn't exist if the founder hadn't had the idea in the first place. And the company would have blown up last year if the lawyers hadn't made sure the company was protected from a frivolous lawsuit. Et cetera, et cetera.
Also, why shouldn't the investors get their cut? They were forking over their money to pay you before a line of your code ever hit production; going by your math, developers should be paid on contigency of the code they write getting into production, and penalised if there's a regression.
You're overvaluing the engineer in your argument; they were only one piece that enabled that extra value.
That money covered the bonuses of just 2 executives, I think I might have got a 2 or 3% raise myself that year...
