CEO behind Japan’s best-performing stock says his secret is raising salaries

https://www.bloomberg.com/news/articles/2021-05-16/ceo-behind-5-500-stock-gain-says-his-secret-is-raising-salaries

by dgudkov • 5 years ago

548 253 5 years ago

Forge36• 5 years ago

But will it scale? Sounds great as an employee. What explanation exists to convince an employer?

If they can continue to eliminate middlemen who do nothing but skim their rates off of the layer below them then sure, it will keep scaling.

Spooky23• 5 years ago

Pay peanuts, get monkeys.

ZephyrBlu4• 5 years ago

You can pay 3-4x more for an employee that is 10x more productive (This is what I think about Netflix). It's a great deal for everyone.

I don't think you can really convince most employers of this though.

sombremesa3• 5 years ago

I don’t know - the wfh revolution is changing this equation. The more productive employees (10x etc) can just scale down their output commensurate to compensation and expectations based on the median employee and enjoy a better work life balance now.

rfrey• 5 years ago

"Will it scale" is an odd question to ask about a $2.3 billion company.

Rzor2• 5 years ago

Outline didn't work for me: https://i.imgur.com/ydYsy4q.jpg

magneticnorth• 5 years ago

I've generally always had good luck with archive.is https://archive.is/T28ui

shp0ngle• 5 years ago

what works for me is just disabling JS.

That actually fools a lot of websites - like NYTimes and I think WaPost.

Rzor2• 5 years ago

Usually I just interrupt a reload, but sometimes it keeps loading the popup after a while. uBlock's disable JS button helps, but I never remind myself to use it. I found out that I could only recently.

Mengkudulangsat• 5 years ago

Bypassing Bloomberg paywall is the sole reason I keep Microsoft Edge.

Just clear everything upon exit. Works like a charm so far.

SMAAART• 5 years ago

It's not the whistle that pulls the train!

Chances are that Tange hired well qualified employees tht fit the corporate culture (and fired the ones who didn't fit in), and continued to reward as objectives were met.

Remind me of Netflix and GE 20 years ago.

lupire3• 5 years ago

GE was financial engineering and cooking the books, though.

ksherlock• 5 years ago

Nobody said the culture and objectives were good!

DennisP• 5 years ago

Seems like it's not just that he hires better people, since he "buys smaller firms and boosts their workers’ pay."

MattGaiser• 5 years ago

What is turnover like in Japan? Do people turnover? It seems like a place where people stay at one company for a career.

iratewizard• 5 years ago

Historically that was extremely true. A salaryman would not be hired by a company that would let him retain his social status if he were fired or left. Poaching was uncommon practice. It's becoming much less true today, but it's not over yet.

unishark2• 5 years ago

Historically it was true in the US too. When I first graduated, some big companies still had pension plans they'd try to entice you with.

I'm sure there's a direct link between increasing salaries and the prevalence of job-hopping.

towardsclarity• 5 years ago

I don't think raising engineers' salaries is particularly controversial. Google, Microsoft, etc have been paying more for top talent for ages.

The main controversy in the political discussion is around paying low wage workers more.

xwdv• 5 years ago

Surely the raging bull market of the past decade played no part in these gains.

bluedevil2k• 5 years ago

There was no bull market in Japan.

quantum_state• 5 years ago

It is the way to go if one were to build software that can last ... 3 to 4x pay to get 10-100x output and quality ...

krishvs• 5 years ago

Sounds good but does this scale in the long term? Looks like a resource placing firm.

Not sure about japan, but in India it is expected that on average as an employee you get a 10 to 15% hike year on year primarily due to inflation pressures.

How would this company be able to afford this if they are both reducing prices for customers while simultaneously increasing base salaries. Wouldn't the employees leave after 2 or 3 years as the hikes would not be possible after sometime?

noisy_boy• 5 years ago

Leave and go where else in software testing in Japan? Based on the article they are paying a lot more than other software testing companies. Also, if they are paying people well and treating them well, a sizable chunk would like to continue even if the salary increases dwindle as long as they are not underpaid compared to the market. I also think that Japanese culture would inspire more loyalty to well paying, well treating companies compared to SV.

lupire3• 5 years ago

Surely it's a good thing to have employees leave who think $X is less than (X/2)*1.15

celticninja• 5 years ago

I think the point would be you are already earning above average for the industry. No guarantee the next job will match that salary for the same type of work. Sure you can go the promotion route but the. You don't need to leave the company to pursue that.

jacobr1• 5 years ago

Japan has had much lower inflation rates than India over the past few decades. Famously Japan has had close to 0 inflation.

It seems like the real reason for this firm's success though, is removing multiple layers of contractors. Just hiring skilled engineers and paying them fair rates seems sufficient to shake up the industry. That seems sustainable to me - provided they keep salaries competitive - presuming some of their competitors try a similar approach.

novok6• 5 years ago

He could scale beyond just software testing, maybe make a product or two leveraging his investment in a better-than-normal engineering base by copying more best practices from silicon valley while leveraging the language barrier that prevents these engineers from moving onto FANG in the first place.

savant_penguin• 5 years ago

I'd like to question the premise. How confidently can you associate cause and effect here?

Based on what can he guarantee that raises in salary caused the company to grow?

If the formula is so simple couldn't other companies copy that and grow 5500%?

economusty• 5 years ago

I guess it would depend on how underpaid the groups where profits are created are. Absent any other catalyst a random event of paying people more followed by a marked increase in productivity would be enough correlation to say "hey, I think this is probably the cause"

andrewljohnson• 5 years ago

He didn’t just raise salaries... he cut out management too. It makes sense to me the bottom feeder testing companies might not be running very profitably and this strategy could work... pay better people marginally more and have fewer managers.

lotsofpulp6• 5 years ago

How confidently can you associate cause and effect here?

You cannot. It depends if you’re buying commodified labor and selling commodity products. Walmart and McDonalds franchisees are not going to see much difference other than higher labor expenses and reduced sales due to higher prices at competitors.

rileymat22• 5 years ago

Is this true?

When I worked as an assistant manager at Burger King, you could see employees that were more productive by a large factor. If paying them more led them to stay longer it would have been a big win.

The best could do the work of 2-3 people, if paying them 1.5x more means they stay, you more profits on lower labor costs.

What is hard to do is create a repeatable process for this. And trusting local management.

simfree2• 5 years ago

Walmart and McDonalds think they are buying commoditized labor, but as In-N-Out, Costco, Dick's, Burgerville and many others have shown, paying above average wages and focusing on worker retention produces a better quality product as those employees gain experience and are emotionally invested in performing their job well.

Boeing is a great example where management has spent the past couple decades getting rid of their competent employees to move production to cheaper areas that produce planes which have all kinds of quality control issues (metal shavings left throught the plane, copious wiring faults, numerous structural issues, etc). The new Boeing workforce has minimal experience in aerospace and is not paid enough to stick around long term.

II2II• 5 years ago

The article left me with the impression that he was acquiring companies in order to acquire qualified engineers (and, likely, clients) while finding efficiencies by reducing the number of managers. Presumably there will be room for growth as long as there are companies to acquire, but it will suffer from diminishing returns.

Replicating his approach would be difficult since it is based upon the premise that engineers are actually creating value for the company and acknowledges that management is a cost centre. That seems to be diametrically opposed to the culture of many businesses. (That's not to dismiss the value of managers since they are necessary for the operation of a business. It's simply a recognition that clients pay for the engineer's product, rather than the management's labour.)

mancerayder• 5 years ago

What an annoying headline. It's plausibly deniable, and yet implied, that the secret to stock gains is high salaries. It's not what's meant, of course.

NalNezumi• 5 years ago

While establishing a "cause & effect" here seems very hard, from my personal experience working in software field in Japan, I think the winning concept here is actually the combination of removing middleman and paying good salaries.

Japan is very very behind in IT/digitalization compared to most western countries. This doesn't just mean it's behind in product portfolio and quality, but that perception of software engineer & managers and still quite behind. The respect that a lot of software engineers enjoys in US/EU is not quite there yet in Japan(and salary often reflect this).

The C-suite usually doesn't have a firm understanding of software/IT world, and instead ends-up hiring a lot of "Scrum-experts/Agile coaches" and hires software engineers from consultancy or recruitment companies for cheap. There's ofc companies that doesn't fall in this category, but for middle-sized companies in Japan (which is the bulk of the economy), this is the true state of things. Middle-men in Japan have therefore been way more encroaching on this, and they have the incentive to not improve the respect/social standing the software engineers have.

"Removing managers" in this article does not mean the same thing as it would in US/EU, conditions are different.

rurounijones6• 5 years ago

As a further example:

In my last full-on japanese company it was basically impossible to find any developer with more than 3 years experience by accidental design because:

1: No applicants studied computer science in university so they started learning when they joined the company and were assigned a development role.

2: After 3 years they they got promoted to a "manager" level role and stopped doing development. There was no concept of junior developer -> developer -> senior developer progression. If you wanted promotion you went from developer -> manager; it was the same for sysadmins. Their IT and development suffered heavily for it.

A team of 10 "western" style trained senior developers and sysadmins would have been able to do the work of 50 current employees at least for a large overall cost saving even with higher salaries.

Just the way things worked. Japan is indeed very different when it comes to how the workplace works in relation to tech in traditional companies.

devoutsalsa• 5 years ago

As a 195cm tall, 120kg, non-Japanese, senior developer who has never been to Japan, I kind of want to get a job at a Japanese company and just see what happens.

anovikov• 5 years ago

So the real job is being done by Indian outsourcers then? I can't believe that someone who never coded before can get to build anything decent in only 3 years.

nicoburns2• 5 years ago

2: After 3 years they they got promoted to a "manager" level role and stopped doing development. There was no concept of junior developer -> developer -> senior developer progression. If you wanted promotion you went from developer -> manager; it was the same for sysadmins. Their IT and development suffered heavily for it.

Do you have any insight into how this works in Japanese companies that do more traditional engineering? I find it hard to believe that companies like Toyota have no senior engineers.

mathattack• 5 years ago

My experience was similar. And if it’s not promotion, it’s rotation.

The system isn’t all bad. It’s just that it produces general managers at the expense of functional expertise. (The other extreme where 100% of the org’s entire skill set and network is limited to their own silo rarely works outside of Apple) Balance is needed.

philliphaydon• 5 years ago

No applicants studied computer science in university so they started learning when they joined the company and were assigned a development role.

Couple of years ago I had to integrate with a newly built api in japan. 2017, and they basically wrote their own web server in Java. Their own xml parsing. It looks like they read the spec for HTML and SOAP and implemented their own variation of it.

It’s the worst integration I’ve ever had to deal with.

If we got a 500 error from their system we had to write an incident report about why our system failed to call theirs. If they tried to call ours and it failed they would call up and we would ask them to “retry the call” and they would ask us to patch the data in our system because they can’t retry.

theshrike793• 5 years ago

This is the exact same problem we have with Indian outsourcing.

You get that one who's really damn good at what they do. Just as they are up to speed on your project and working style, they get promoted to manage a group of 10+ engineers.

And then you start again with the next one, hoping that they're as good as the previous one.

andi9992• 5 years ago

About 1. Are you sure? I think 80% of Japanese go to university. Or you mean they studied a different subject?

kh1• 5 years ago

Very true, especially hiring "Scrum-experts/Agile coaches" and cheap engineers from outside. Based on my experience, they don't have good understanding of the business, so business people need to write up word-for-word documentation (e.g. Take this column from spreadsheet and multiply by 100 to show the numbers in percentage). At this point, business people who have programming skills wonder why they have to work with corporate IT.

On the other hand, don't many western companies outsource IT work as well? Having never worked in US/EU tech industry, I don't see much difference when it comes to outsourcing. (hiring temp engineers is obviously different from outsourcing, but the concept must be the same)

taurath3• 5 years ago

Shhh, buddy, he’s saying raising salaries here we don’t need to give alternate ideas ;)

sokoloff• 5 years ago

Removing useless middlemen allows for raising salaries of the producers.

taurath3• 5 years ago

Japan is very very behind in IT/digitalization compared to most western countries. This doesn't just mean it's behind in product portfolio and quality, but that perception of software engineer & managers and still quite behind.

Have you used anything digital in Japan? I find the interfaces to be fast, user friendly, and energy dense. Far better quality than what most of the western software people put out. You might need to clarify what you mean by behind - just business culture?

throayobviousl• 5 years ago

Is it a coincidence that sony and nintendo have horrendous online offerings?

asutekku• 5 years ago

What? The digital interfaces in Japan looked and felt like they were at least 10 years behind the curve. And if "energy dense" you mean that every single possible option was crammed to a small screen estate then sure.

kevin_thibedeau• 5 years ago

I have a personal lifetime ban on buying Panasonic/Matsushita products because of the cruddy alpha quality firmware they built into a dvd player. It crashed 100% of the time when playing CDs among many other unforgivable flaws. Their fix in the revised model was to put a reset button on the front panel. Japan cannot manage complex software without a lot of time and manpower.

chrisjharris• 5 years ago

I can see that you mean well but I really cannot agree with this statement.

eecc2• 5 years ago

he respect that a lot of software engineers enjoys in US/EU

And then you go on describing the average attitude towards software developers I perceived in the Netherlands… :)

f6v2• 5 years ago

Could you elaborate?

hrktb3• 5 years ago

In my experience, in EU it’s just the average perception and you’ll find a good section of big companies having better views. In Japan it’s more like finding exceptions to the rule.

playing_colours• 5 years ago

I think it varies a lot between the countries. You can the difference even within German-speaking area. Recognition and the salaries (not sure about respect) are growing in Berlin and other large cities across Germany, but I heard that in Austria, software engineering is mostly seen as IT support cost centre.

yulaow• 5 years ago

Do we get respect as SWE in EU? In every eu state I have been, except maybe uk in some sector, there was the meme that we are "the new blue collar workers" and indeed in a lot of places salaries were pretty much aligned

wsc981• 5 years ago

I think it you want to feel respected as developer in Western Europe, you should be consulting. The best way to get a respectable compensation for your efforts.

ehnto• 5 years ago

I am a software developer, and I feel software developers expect a lot more than is reasonable if they consider themselves part of the same society as everyone else. It's just a job like any other, and it's only in certain bubbles that developers are treated like rockstar prodigies.

For the rest of the world, or even just the rest of the US, to expect exceptionally high compensation in order to feel respected is unreasonable in my opinion. Software is an incredible tool and I'm glad to still find ways to love it, but as a profession, it's just like any other.

I have felt this way for a while, because I feel we can do a lot more meaningful work within our communities with software than we currently do. But all the developers are instead busy building Nudity in Kettle Reflection algorithms for market place image uploaders while getting rained on by VC money.

908B64B1972• 5 years ago

EU devs get a lot of respect... here in the Valley!

lupire3• 5 years ago

Headline is contradictes by the article. The company replaces layers of contractors with direct employees.

ecpottinger3• 5 years ago

But he also gets good direct employees by raising the wages he is willing to pay for the same work.

The higher pay means he has the pick of the good employees.

p_l2• 5 years ago

Layers of middlemen

The company itself is contracting, they just cut out a huge value-skimping set of middlemen, and the savings involved mean they can simultaneously undercut their competitors while pocketing more money, which is fed into employees' salaries.

cutemonster7• 5 years ago

Does middlemen here mean middle managers, or layers of contractor agencies?

benatkin• 5 years ago

Have they thought of lowering their competitors' salaries?

https://www.theregister.com/2015/09/03/apple_wagefixing_clos...

aphextron• 5 years ago

Everyone's a genius in a bull market.

tanjtanjtanj• 5 years ago

The bull market of Japan that hasn't seen significant gains for 30 years?

hardwaresofton17• 5 years ago

Some context on the japanese job market from what I've seen:

- The entire japanese job market's wages are depressed[0]

- In 2019, pressure had to come from the PM (not the local unions) to raise the minimum wage to 1000 yen/hour (~$9/hour)[1]

- Engineers are underpaid here, possibly more so than the EU in relation to the US. This is amplified for japanese companies (whether "black"[1] or not)

- With nationalized healthcare and generally low cost of living (even in Tokyo, a "world city"), most workers do not feel the pain of being underpaid sharply. Cultural differences and a propensity to save (more ant than grasshopper, let's say) generally feels like the backstop behind the economy (other than the BOJ's enormous purse and very active involvement).

- There is a sort of inbuilt trust in the society that expresses itself in economic transactions (loan companies can be very trusting, risk is considered low with Japanese applicants, etc) and greases the wheels of commerce most of the time, if all participants are local. There are other factors (sometimes the same ones) that make it difficult/slow down japan but those are well discussed generally.

- "Super Salaryman" is a colloquial term here (I can't find it on wiki or elsewhere) for a salaryman[3] that makes 10 million yen (~$90k) per year

- Japanese companies often provide "free" company housing to new grads to enable them to save while being paid relatively little. Many live with for a bit after graduating (women more so than men) as well without much stigma.

- Company standing/appearances mean alot -- $60k at [large conglomerate] is far and away more prestigious than $80k at [unknown startup] in the eyes of many.

[EDIT] Added some more from a different comment that might be useful.

[EDIT2] - fix the super salaryman yen estimation, confused with 10 million

[0] https://www.japantimes.co.jp/news/2021/03/17/business/lowest...

[1] https://www.japantimes.co.jp/news/2019/06/07/national/japan-...

[2] https://en.wikipedia.org/wiki/Black_company_(Japanese_term)

[3] https://en.wikipedia.org/wiki/Salaryman

wait_a_minute• 5 years ago

This is very interesting. So a person can raise a larger family on an engineer’s salary and be happy in Japan? An American expat.

hardwaresofton17• 5 years ago

At many Japanese colleges, graduating with ~$40k/year at an office job is considered success after undergoing "seishoku katsudou" which the junior year college hunting process, as long as the company is of good repute. As japan is very homogenous culture wise relative to other countries, it's very common for people to generally start families before ~25/by the end of their 30s. $40k is a salary under which doing this is tight, but not impossible.

Japanese companies also give pay bumps eventually of course, and are very loathe to fire (worker rights are strong in japan), with an engineer's salary of "only" 100k (which honestly was being paid to interns at FAANG 10 years ago) you could raise multiple families here.

There is something called a "super salaryman" which is for salarymen who make ~$100k (1 million yen IIRC). Achieving this status is recognizable and makes a lot of things (getting loans, etc) easier -- that should say something about the mindset.

It's still unclear if engineers in American are ridiculously overpaid, or if engineers in Japan and the EU are ridiculously underpaid. I lean towards the latter.

[EDIT] - forgot something, it used to be common practice in Japan to pay people according to life circumstances (getting married, children, etc) or other things (lots of info here[0] though it doesn't directly cover this was something I learned studying in Japan in some undergrad Japanese management course). It would be naive to think people aren't paid slightly differently because of their life situation here though -- it's very easy to rationalize paying someone more because they have more "responsibility" at home/in society, and maybe arguably even morally correct.

[0] https://www.ilo.org/ifpdial/information-resources/national-l...

yocheckitdawg• 5 years ago

One thing I have been wondering about from the outside is if part of what keeps Japanese lifestyle's relatively cheap is that the population is so homogenous (& seemingly law-abiding) that there doesn't appear to be the same emphasis on living in a "good area" as in other countries for personal security reasons.

I wonder if this acts as a somewhat hidden subsidy to life whereas for people in many Western countries it is normal to think "there is no way I am living in area X/Y/Z" due to security concerns for them or their families, in Japan you basically don't need to take that into consideration at all. Everywhere is pretty safe (relatively speaking).

This is all speculation and I don't live in Japan, don't speak Japanese, and have never even been to Japan. So it is all based on reading other's views/articles etc.

Even if I am completely wrong here, it is interesting to consider the economic costs of lack of personal security for men and especially women. All the extra costs paid, opportunities missed etc.

darren_• 5 years ago

Nitpick but you've repeated it in another comment so maybe worth correcting - 1 million yen is about $9k. 'Super salaryman' would probably be 10 million yen, I'd guess (haven't heard the term, but that doesn't mean much).

hardwaresofton17• 5 years ago

Thanks for pointing this out -- yup, 10 million yen is what I meant there, I corrected it in the original comment

pezezin4• 5 years ago

You are off by an order of magnitude, 1 million yen is ~9k USD. That's a ridiculously low salary here, fine for a college kid with a part time job ("arubaito") at your local konbini, but not much else.

Maybe you got confused because China, Japan and Korea group numbers by powers of 10 000 ("man")? Now a 1000-man (10 million yen, around 90k USD or 75k EUR) salary would be amazing, the average Japanese salary is 3 million yen.

hardwaresofton17• 5 years ago

Thanks for pointing this out --

That's a ridiculously low salary here, fine for a college kid with a part time job ("arubaito") at your local konbini, but not much else.

True -- min wage is 1000 yen, not hard to work out the lowest theoretical yearly salary would be with a 5 day work week. The usual exception of waiters that are below the min wage isn't here since the service sector generally doesn't do tipping.

Maybe you got confused because China, Japan and Korea group numbers by powers of 10 000 ("man")?

Yup this is exactly it. Can't get used to dealing with that extra order of magnitude.

dunefox• 5 years ago

a college kid with a part time job ("arubaito") at your local konbini

Is the japanese word for a part-time job really the german word 'Arbeit'? Amusing.

imtringued4• 5 years ago

BOJ's enormous purse and very active involvement

The BOJ is very inactive. Yes, the numbers are big but that money hasn't entered the economy.

hardwaresofton17• 5 years ago

Claiming that the BOJ is inactive is either an indicator that you're an insider and I have no idea what I'm talking about (as an outsider am bamboozled by the magic trick/strong jawbones of the BOJ), or that you have no idea what you're talking about (with no disrespect).

I don't mean to sound combative but this is such an extreme statement (in my view) that I'm eager to find which scenario is true. The BOJ is so active that we talk about the progression of the US in terms of "japanification" -- as in the US is going somewhere (in monetary policy) japan has already been. ZIRP, extended forever-QE, messing with whatever rates they needed to, buying JGBs, buying stocks. BOJ is not an inactive central banking institution. This doesn't even take into account the borderline conspiracy theories floating around on the way the BOJ exerts control(summed up by Princes of the Yen[0]).

Could you explain a little more about why you think the BOJ's actions in the last like... 3 decades have somehow not "entered" the economy (which I don't think is synonymous with not affecting the economy)?

[0] https://www.youtube.com/watch?v=p5Ac7ap_MAY

unscaled4• 5 years ago

Is Super Salaryman really a thing?

I've only ever heard of this TV series[1], about a regular salaryman who becomes a superhero.

Crossing the 1000 man (10 million) yen barrier is a thing though, I just don't know if it has a special name.

[1] https://asianwiki.com/Super_Salaryman_Mr._Saenai

hardwaresofton17• 5 years ago

Yeah I really struggled to find anything about it, but it's a term I've used with people here... reaching out to ask some friends if maybe I got the term wrong.

koilke• 5 years ago

Having had experience in a company that acts as middleperson/outsourcing company, many of the employees where working for company A and then outsource to work for company B. They would be hired as full time employees at company A and let us say in my example start with a salary at around 30k USD per year and the company A would receive around 120k USD per year by letting that employee work for company B.

I thought it felt strange to know(although they tried to keep it secret) that one received about 25% of the work one did in terms of salary. This was a hugely profitable business model for a company and in a more competitive economy, such models would be difficult. Apparently, this gentleman realised that if you can cut off these middlepersons there are great opportunities for business, you could double and triple the salaries of the employees and probably still make a profit.

onion2k2• 5 years ago

Paying someone X and charging 3X for their time is not "hugely profitable". Employing someone is pretty expensive. You have to account for all the costs of employing them (payroll, admin, HR, project management, etc), the fact you still need to pay them for the time they're not being charged to a client, the cost of an office for them to work from and equipment for them to do the work, and so on. It's common in business admin to account for at least 2X of someone's salary as the cost of employing them. If you charge less you'd be making a loss.

Jare2• 5 years ago

I've seen the "paying 4x" phenomenon at a former company (a long time ago tho). The external "expert" consultants worked with us for 3+ years, used our equipment and offices, and at least one of them didn't understand why C sizeof() was not giving him the length of the string.

norin• 5 years ago

I used to work for a company that did this. After two years of asking for a pay raise, I left to be a freelancer. I found out how much they were charging the client and I made the decision to leave.

spfzero• 5 years ago

I’m thinking it would be a rare CEO who both knew what they did to cause the stock price to go up, and not be involved in gaming the financials to make the stock go up.

sitkack• 5 years ago

Sssshhhhhhhh.

threatripper2• 5 years ago

If you pay slightly above average and treat your employees well you will get the best talent, they will be motivated and they will stay longer. Caveat is that only a fraction of the companies can run this strategy or the average pay rate will start to rise continuously.

jiofih• 5 years ago

That’s not a problem as it’s not a zero-sum game. Everyone could get their pay raised at the same time and the overall productivity would go up accordingly, until some point of equilibrium.

threatripper2• 5 years ago

If you increase all wages at the same rate then inflation rises (as you don't increase productivity and resource availability accordingly) and you devalue savings. This is not a bad thing overall. It certainly is better than losing a war.

hrktb3• 5 years ago

Not disagreeing, but the devil’s advocate: sometimes you don’t want to be keeping the contractors longer, and will use them as fuses to shelter your business when bad times come. This is at least part of the reasoning behind having layers and layers of sub-contracting companies paying their employees low wages.

snovv_crash2• 5 years ago

As it rises it starts to pull in talented people from other fields who wouldn't take the job otherwise (coming from everything from finance to biology). There is a lot more supply-side variability than people realise based on salary differences, and money can paper over a lot of work satisfaction issues, at least temporarily.

cutemonster7• 5 years ago

Maybe also some clients will be happy to pay more, if they notice the quality is better

jussij• 5 years ago

Tange, 46, says his business model is an attempt to remove inefficiencies in Japan’s software industry, where layers of subcontractors take cuts on orders before passing the work to another company below.

This reminds me of a role I once had back in the late nighties.

I was hired on contract by a multi-national consultancy firm to help out on one of their projects. The need someone to come in with good C programming skills.

When I started I was amazed to find a 70 developers and testers workforce working on the project, most of whom were straight out of university.

A nice earner for the consultancy firm; they were charging their development team out at $150.00 per hour, yet only paying graduate salaries.

It must have been $100+ profit per hour per developer.

hardwaresofton17• 5 years ago

Want to say that this model is still alive and well in Japan (like anywhere else obviously), and these days it looks like charging $10k/month (a lot to companies here for a single developer) for $2-5k/month developers in APAC or eastern Europe, with the guarantee that the project will be looked after based on the sensibilities of someone local/from the US (this person is usually the face of the business or extremely high up, etc).

At it's worst this pattern is parasitic but at it's best it's mutually beneficial symbiosis -- if we look at the reality of whether the developers could clear the trust barrier (whether it should be there or not is another question) to getting the roles, it becomes a question of what that barrier skip is worth.

BTW, Japan is rife with middlemen taking cuts. If you want to have a chuckle, look into property purchasing in japan/proptech. There are usually 3+ middlemen in the apartment purchase flow here, and fees that you do not see in most other places, ex. "reikin" (AKA "Key Money")[0].

[0] https://en.wikipedia.org/wiki/Key_money

franciscop• 5 years ago

Parasitic implies one party (implied the employee?) is left worse off than otherwise. If these jobs are being accepted normally it's because the local offers are worse and the developer is not good/doesn't want to deal with the international business side (inc. finding clients, negotiating, etc). So it seems that in a free-ish market, this relationship would be strongly symbiotic, right?

Interestingly in Japan they have "Key Money" and "Lock Change fee", which are two different non-refundable BS fees and they confused me initially. The key money also depends by region, with Kansai having it almost everywhere and in other areas "it depends".

greggman3• 5 years ago

I have never had a problem with "key money". I just see it as asking for 2/26ths of your rent up front (the average key money being 2 months rent and paid again every 2 years). I know it's labeled as "礼金" but functionally there is no different from them asking for 2/26ths of my rent up front and then asking for 1/26th each month for the next 24 months. That the system has evolved to have this strange system is curious but looking at it as just an upfront portion of the rent removes most negative feelings about it, at least for me.

The thing that still bugs me a little though is the fact that move in costs to the average apartment is 6 months rent. first month + 2 months deposit + 2 months key money + 1 month to realtor. So, a $2.5k a month apartment costs $15k to get started. You can often get 100% of your deposit back when you leave but still, I know lots of people, especially younger people, that saving up 6 months rent to move is hard which suggests it's a barrier to mobility.

Note: I'm comparing to Los Angeles where for large apartment complexes it was often just first months rent + $500 deposit to move in.

unscaled4• 5 years ago

While Japan is rife with middlemen taking the cut, 礼金 (key money) is not a good example. It goes directly to your landlord, just like your rent.

Hiring in IT does have a lot of room for taking cuts. Most Japanese companies (even large ones - or rather, especially large ones) are very bad in doing their own recruiting, so they have to pay a lot of upfront fees to headhunters for every direct employee hired. This is another reason why hiring consulting staff can seem cheap on the short term.

max_hammer2• 5 years ago

Its same in Indian IT. When I joined Infosys straight out of university, my salary was approx `$350` per month.

They told client, I have 2 years of experience as Informatica developer and charged $50 per hour.

Before joining the project, I had never seen the Informatica tool.

Aeolun2• 5 years ago

This explains a lot of my experience with our offshore engineers.

Glad to see I’m not crazy.

cutemonster7• 5 years ago

How did you get to know what they told the client? Your bosses wanted you to know, so you didn't say the wrong things, if the client asked something? (eg so you knew to day yes if the client asked if you had two years experience)

Tade03• 5 years ago

This is still alive and well in eastern Europe - I worked for such companies.

They would go a step further and lie that:

-They can quickly expand that team of three mid-level developers to eleven, adding mostly seniors.

-A team of junior to mid developers is comprised of seniors.

-The team is working at FTE on this project and has no other responsibilities.

Currently stakeholders often have to resort to requesting the CVs of all the people involved, but that doesn't shield them from that last trick.

Of course the client is billed $100+/h, while developers can count on around 25-30% of that.

A lot of people got rich like that around here.

cutemonster7• 5 years ago

requesting the CVs of all the people involved

Can't the agency provide made up nice looking CV:s?

client is billed $100+/h

That's interesting, then seems it's not much different from hiring a local person (in western Europe).

A team of junior to mid developers is comprised of seniors

I suppose the clients usually won't notice? They're often non technical (or at least the managers there?) and don't know what to expect? (If the clients had enough technical in house people, they could do their own recruiting instead, didn't need agencies? Or how does it work)

theshrike793• 5 years ago

Yup, this was a well-known (in the IT circles) working model for a prominent Finnish IT firm.

They brought out all of the most highly educated people front and center when bidding a project. People with masters and doctorates in the field. Dozens of them.

Of course they won every project bid.

Then the experienced people leave to front the next big project and the actual work is being done by people fresh out of school combined with outsourced teams.

The result was utter shit every single time, but their sales people had the magic touch and managed to get the clients to sign the weirdest contracts. All missing features and bugs were usually fixed at a hourly rate in a leisurely pace. Pure profit every second.

I worked for a small firm that managed to snag a few of those projects, mostly because of our legend of a salesman. The customers were astonished more than once when we delivered features in weeks, not in months or years. We consulted them during development instead of at end of a quarterly cycle. One time our caffeine-for-blood 10x coder actually coded a full proof-of-concept implementation during the sales meeting discussing the project =)

marvin• 5 years ago

This is basically the bread and butter of large parts of the consulting industry in Norway as well, although not quite as dysfunctional. Always be recruiting promising young engineers from university, pay them graduate salaries and bill them out at senior rates. Keep enough experienced engineers around to mentor them and ensure that the delivered product is good. Profit margin for each of these developers is excellent.

When they get enough confidence and experience to realize they're underpaid, they'll jump ship to a company that pays senior-level salary (but still bills at very similar rates!), or to a consulting firm that mostly pays commission.

Don't quite agree with myself whether this is an example of a gross inefficiency or just the logical way to train people.

fatnoah• 5 years ago

In 2003 or so, I was 4 years out of grad school and making a solid $85k or so doing software integrations. My company billed me out at $250/hour and my typical week was about 40-60 hours of billable time (yes, that's real, and that's why I quit!)

coretx• 5 years ago

"pay peanuts get monkeys"

bumbada• 5 years ago

As always you need to understand the context. It is typical for HN to bring an article, take some specific point devoid of context and raise conclusions on a different place and context.

Japan is not the US, Japan is a very small country that is basically overpopulated. Not just because it is a small country, but because most of Japan is highly mountainous and building space is just in the valleys.

That makes life extremely artificial there. Engineers are overworked and it is normal for them to live in the city isolated from their wife and children, in an apartment that your employer puts for you and that you just can't get on your own, something similar to health insurance in the US.

The pressure is so high on just one person to sustain the family in a life that is just work and work, and social relationship with work colleagues usually imply drinking a lot, that is extremely easy to burnout.

Burnout means when they try to work harder to sustain their families, they get less productivity, no more. And they risk the total collapse into anxiety crisis, depression or suicide.

It looks what this man is doing is releasing pressure, and productivity increases. Japanese teams are incredible. In Japan they raise you always thinking on the team, not the individual, like in the US, and when it works, it works really well.

The US, or even Europe has nothing to do with Japan environment. The freedom you have in the US is orders of magnitude higher. You don't like an employer, you just change jobs, without social stigma. Engineers could become millionaires. You can work not only in the US, but anywhere in the world speaking English for an American company, the Education system supports you instead of punishing you like in Japan. Taxes are small and population and economy grows instead of population shrinking and getting older and economy stagnating like in Japan.

Aeolun2• 5 years ago

I like how you talk about taking things out of context, but then construct a caricature of Japan as an explanation instead.

Yes, those things happen in Japan, but they’re not the norm. At least not in my experience.

ayushchat2• 5 years ago

It would be interesting to see how the company would have performed had he raised employees equity instead of salary?

I think having equity incentivizes employees to focus more on the welfare of the company than a fixed salary. I may be wrong though

muskox2• 5 years ago

I think this is true, but all things being equal employees will value $1 in salary much more than $1 in equity. So to get the same impact of higher salary, you have to give a large amount of equity. There are pros and cons.

ayushchat2• 5 years ago

yes, agreed. But increasing salary = increasing worker satisfaction at current position, not necessarily a push for future growth and subsequent stock growth

Increased equity = Push employees to work for company stock growth.

But yes, $1 equity is not same as $1 salary to the employees

hattori31• 5 years ago

Hello everyone, this is my company and in the newly created dev department we are looking for Japanese speaking full-stack engineers, designers, Project managers etc based in Japan. Japanese is almost definitely needed, but may make an exception for rockstar level engineers. Remote work (inside Japan), visa support, good salary, even 1 million yen present for joining are in the package.

You can find more and contact us if interested https://topics.shiftinc.jp/recruit-daae/

tyrex2017• 5 years ago

Congrats on your work!

robotvert• 5 years ago

A couple of times I spotted a Mercedes G class around Naka Meguro with a Shift sticker. Your ride?

unscaled4• 5 years ago

Looking around the internet, it seems Shift Inc. is paying around 4.5-5.0 (full range: 3.8-7.8) million JPY / year total comp. This is about 40k-45k USD/year. It's somewhat better than what engineers would get on a black companies and local consulting companies and perhaps on par with some of the traditional blue chip companies.

But this doesn't come anywhere close to what a software engineer can earn on the highest paying companies here, like Google or Indeed (levels.fyi pegs Google L4 as earning 14-23 million JPY per year, though the dataset is a little bit small).

Even the large local IT-focused companies are competing for talent: Yahoo, Line, Rakuten, Works Applications, Mercari etc. will all pay up to 11m-13m for non-manager software engineers (even though they won't necessarily pay much higher for entry-level engineers). Many well-funded startups are also paying 7m-10m salaries to their engineers.

The pay gaps between different companies in the very same city (Tokyo) for the same position can be quite high. You can read more about it here: https://japan-dev.com/blog/software-developer-salaries-in-ja...

In short, if Shift Inc. is paying around 5m for their engineers, it might help them fight high turnover, but it won't be enough to bring the best engineers. There are companies which are both more well-known and stable and are still paying higher salaries.

unscaled4• 5 years ago

Checking again, their official recruitment page[1] is actually listing "example salaries":

These are higher, although probably not representative: Security Engineer (in their 40s): 13 million yen Automation Architect (in their 40s): 10 million yen Q.A. Engineer (in their 30s): 9 million yen.

These salaries are on par with the top paying local companies, but it's quite suspect none of them are registered on a third party site. They might be rather new.

[1] https://recruit.shiftinc.jp/entry/mid_career/job/

etdev• 5 years ago

Not sure about this specific company but it's true that salaries in Japan have been increasing for tech positions.

I gathered up a ton of data points to try and prove this here:

https://japan-dev.com/blog/software-developer-salaries-in-ja...

I'm also attempting to keep track of modern companies that operate in Japan and pay globally competitive salaries here:

https://japan-dev.com

It's an exciting time for Japan (especially Tokyo).

prometheus76• 5 years ago

Competitors: "Why is the stock in that company going up?" CEO hiding real reason: "I raised all the salaries in my company!" Other CEOs: "Even if that's the real reason, we aren't going to try that."

ironmagma• 5 years ago

Why would that be a good cover story? It would make all the companies have to pay more.

peter_d_sherman• 5 years ago

"Masaru Tange

says the strategy that turned his company into one of Japan’s best-performing stocks may be surprising: He buys smaller firms and boosts their workers’ pay.

Tange’s

Shift Inc., a software tester

, acquires other businesses

near the bottom of the industry supply chain

and

raises their engineers’ salaries.

He says he’s able to do this and still charge competitive prices by

cutting out layers of companies that serve as middlemen in the outsourcing process.

And having more workers leads to higher sales."

maverickmax90• 5 years ago

Please play some AAA games from Japanese studios.

CEO behind Japan’s best-performing stock says his secret is raising salaries

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