The Golden Handcuffs Were Inside of You The Whole Time

I consider the phenomenon of “Golden Handcuffs”, first as corporate perks, then as pay, then as Silicon Valley’s cost of living. I reject every explanation.

Golden Handcuffs as Corporate Perks

You get kombucha on tap, organic granola, a masseuse on staff. Soon enough, you forget your passions, get comfortable, and never leave.

I hear this all the time, but it doesn’t actually add up.

After a few years, an engineer at Google is making around $350,000. In contrast, organic kombucha is $0.14 an ounce. So even if you’re drinking 12 ounces a day 240 days a year [1], that’s just $400, or 0.1% of total compensation. To frame that otherwise, one year’s salary could buy you a 1000 year supply of kombucha.

What about the other perks? Google’s granola supplier sells to the public for $7.20 a pound. I don’t think it’s reasonable to eat a pound of granola day, but if you really wanted to, it would still only cost $1,700 for 240 work days. A nice massage is maybe $100, so if you go once a month, that’s another $1,200. Lunch is a pretty big cost, say $20 per day, or $4,800 per year.

What about your home office? The Wirecutter office chair is $1000, their 4k monitor is $500, and a top-line 16-inch MacBook Pro is $4,500.

So that’s an annual cost of $8,100, or just 2.3% of total compensation. Plus an upfront cost of $6000, amortized over several years.

I have a really hard time believing this is why people fail to quit large companies.

Golden Handcuffs as Corporate Pay

If perks represent only a tiny fraction of total compensation, then surely it’s the compensation itself that’s keeping employees in check?

This also ends up being tough to swallow.

Let’s say you quit your job, apply to Y Combinator, get in, pitch at demo day, and raise a Series A. Great news! You now have millions of dollars in the bank and can pay yourself a market rate salary again.

The odds that things do not go this smoothly are maybe 99-to-1 if you’re a randomly sampled founder. [2]

So let’s say you’re screwed and earn nothing as a founder. What’s the opportunity cost? Well in that year, it’s the full $350,000, or 100% of total compensation. But over your lifetime, the opportunity cost of taking a year off to pursue your dream is just 1 year out of a 40 year career. Around 2.5% of lifetime earnings. [3]

Is it not worth paying 2.5% of lifetime earnings to give your passion an earnest attempt? If you truly believed in something, would you really be unwilling to sacrifice even a miniscule fraction of all future income?

I’m sure this is part of the explanation, but it can’t be more than a small piece.

Golden Handcuffs as Bay Area Cost of Living

Ajay Royan of Mithril Capital writes:

How are you supposed to have a startup in a garage if the garage costs millions of dollars?

That’s a great one-liner, but it’s also garbage logic. Sure, home sale prices are in the millions, but if you just want to rent a garage, he’s off by a factor of 100.

Here’s a CraigsList search for homes in mountain view with attached garages. They seem to go for around $1,200 / bedroom. If you rent this 4br for $4,500 (perma) rent is $13,500 / year, or around $16,000 in a typical pre-covid market [4].

That seems expensive, but again, not compared to total compensation.

Let’s say you work at Google for 5 years, making $190k the first two, $260k the second two, and $350 the 5th. Post tax, that’s $793,000 in earnings. In those same 5 years, you spent $80,000 on rent, so you’re down to $713,000 in savings.

As discussed in the corporate perks section, Google takes care of every need you might have, so there are no other costs. [5]

Let’s be really conservative and say you didn’t invest any of your earnings during those 5 years. [6] And let’s continue to be conservative and say you’re using a 5% safe withdrawal rate [7] instead of living off the principal.

With those parameters, you are still pulling in $35,650 in passive income. More than enough to afford the $16,000 for rent, $8,000 for kombucha, granola and massages, and still have over $11,000 left over. [8]

Even one year at Google would net you $126k post-tax, which is $110k after rent. So at 23, you could quit your job and still have 4.5 years of runway to pursue your dreams. And you can do this while continuing to eat superfoods and living in the most expensive rental market in the world.

To summarize: Rising rent costs are nothing compared to corporate tech salaries. Royan’s argument that garages have gotten too expensive for startups is totally unconvincing.

Conclusion

If it’s not perks, pay or cost of living, what’s going on here?

I’ll provide my own theory in the next post, but here are some possibilities:

If none of those excuses apply, what are you doing instead?

Presumably, you have some values, and those values are not maxed out. They might be hedonic (your life is not as pleasurable as it could be), altruistic (the world is not as good as it could be), or narcissistic (your status is not as high as it could be).

Whatever the case, day jobs seem to be the proximate cause holding you back. I realize that quitting your job won’t magically turn you into a dream-fulfilling machine, but it is probably a good first step.

Everyone knows this. Everyone knows that it is best to directly pursue instrinsic value instead of getting distracted by instrumental goods and side quests.

So again, what are you doing?

I’m not asking rhetorically and this isn’t a motivational essay. I genuinely want to know.

Seriously, email me.

[1] I’m assuming 20 days of vacation, holiday, sick leave, etc.

[2] If you already work at FAANG, odds are probably much better. This reduces opportunity cost, and strengthens my point.

[3] Of course, the early earnings compound, but your salary also goes up later in life. Maybe that’s not exactly a wash, but this is all back-of-the-napkin anyway.

[4] https://www.sfchronicle.com/bayarea/article/Rent-prices-drop-again-in-S-F-and-other-Bay-Area-15692584.php

[5] I’m sort of kidding, but seriously, what else are you spending money on?

[6] For the record, the S&P is up 70% in the last 5 years, or around 11% annualized.

[7] I know you’ve heard 4%, but 5% seems reasonable. MarketWatch, Reddit.

[8] To be clear, this is not a financial independence blog. It seems great in theory, but given how many people seem to struggle with fulfillment afterwards, I can’t strongly recommend it. I’m not against it either, but I’d like to figure out what’s going before I start giving life advice.