Manager Over-Hiring Incentives

The discussion centers around how tech companies tend to over-hire and how management incentives contribute to bloated organizational structures. The speakers share insights about how company size often doesn't correlate with productivity and can actually harm it.

Key Points:

• Management Incentive Problem:

  • People get paid more based on the size of teams they manage
  • Managers are incentivized to hire more people and promote them to managers
  • Creating layers of management becomes a power consolidation technique
  • The number of people under you determines your perceived importance

• Growth and Coordination Issues:

  • Communication needs grow exponentially with team size
  • For every double in employee base, communication requirements square
  • Keeping everyone aligned becomes increasingly difficult
  • Culture becomes harder to maintain as hiring pace increases

• Real World Examples:

  • FTX built their $30B company with only ~200 employees
  • First year product was built by just 2 engineers
  • Even now they operate with only 25-30 engineers
  • StreamYard scaled to $30M ARR with just 7 people

• Sam Bankman-Fried's View:

  • Tech companies employ "an order of magnitude more people than they need"
  • Growing from 200 to 2000 employees doesn't 10x productivity
  • Sometimes more hiring leads to less getting done
  • Companies lower hiring standards as they grow larger

• Root Causes:

  • Diffusion of responsibility with larger teams
  • Coordination becomes increasingly difficult
  • People have less sense of what others are doing
  • Incentives become harder to align at scale

• Alternative Approach:

  • Hire fewer, higher quality people
  • Pay them significantly more
  • Focus on maintaining high standards
  • Keep teams lean and coordinated