Hourly perversion; Hillbilly redux; Ingram hypocrisy: Newsletter 31 July 2024

Newsletter 55: Why paying people by the hour is the most pervasive and perverse trend in business. Plus the Hugos reject automated entries, JD Vance gets rich off his VP nod, Ingram bans a book about AI in publishing, three people to follow and three books to read.

Nobody smart or skilled should work by the hour

Hourly work is the default; most freelancers bill that way, and many workers get paid that way. But after 45 years in the working world, I’ve become convinced that hourly pay for skilled work leads to massive levels of waste and corruption. We should replace it wherever we can.

I had recently a conversation with a potential client who makes her living as a public speaker. I proposed my standard starting point for book projects, which is an intense 90-minute idea development session followed by my writing up and nailing down the title, subtitle, and a clear description of the idea. Multiple authors have told me that these sessions were just what they needed to get their book on track and pointed in the right direction. My cost for this is $4,500, and it’s not considered done until the client is happy. Not cheap, but worth it.

“You want me to pay $4,500 for a 90-minute session?” she asked.

“Yes, because the result is going to be exactly what you need to get your book going,” I replied.

“I think that’s excessive,” she responded.

“How much do you get paid for a 45-minute speech?” I asked. But that didn’t seem to make the desired impression.

I didn’t get the job. But I did wonder why we are so focused on how long things take, instead of how valuable they are. Most of my clients are delighted to get started on something so powerful in such a short time. Would they be happier if it took longer?

I don’t blame this author, because I think she had been influenced by the pervasive pay-for-hours fallacy, an attitude that is completely baked into the way we think. And I’m here to tear that fallacy down.

Here’s a way to think about it. Start with this situation: a client retains a contractor (an individual or a firm) to do some work. They might need the contractor to ghostwrite a book, build an app, conduct a survey, or remodel a kitchen. The specifics don’t matter; let’s just call it “building a widget.”

There can be plenty of back of forth here, with RFPs (requests for proposal) from the client and proposals from the contractor, but in the end, if the client and contractor work together, there are two possible processes.

1. The contractor provides an estimate, and then bills by the hour.
2. The contractor provides a quote for the full job as described, and bills on completed milestones.

In situation one, the contractor has perverse incentives:

• They don’t mind if the description is sloppy or the communication is spotty, because they can bill for all that slop. It’s just fine if they’re working inefficiently, because more hours means more pay.
• They have an incentive to keep careful records of hours spent, even though in reality, people switch tasks frequently, making it hard to nail down exactly what time is spent on the project. Such records are fictions, and everybody in contracting companies knows this.
• The contractor has an incentive to work slowly, because more hours generate more pay.

What happens next, and I’ve seen it all the time, is that the contractor submits a big bill, significantly more than the estimate, and the client balks. Now both are arguing about what work needed to be done and whose fault it was and who wasted time. This discussion is hugely wasteful, since the client doesn’t actually give a crap about how the work was done and shouldn’t spend any time on that. Together they eventually settle on a number that’s higher than the estimate but lower than the amount billed, and everyone is unhappy.

If the contractor provides a quote, the client is much happier, since now they have a clear idea of what they expect to pay. The contractor has healthy incentives:

• They work hard to get an extremely clear description of the work required, since any ambiguity and extra work is going to come out of their time.
• They also work hard to get clear and regular communication going with the client, to make sure the project stays on track and doesn’t stray.
• They are as efficient as possible, since that means they’ll get the same pay for less work.
• They must clearly make note of work outside the original scope, because they’ll have to bill extra for that. But in experience, clients appreciate hearing about that before it gets out of hand, so they can decide if it is worth paying for.

All contractors have horror stories about projects that took way more time than they expected. But they learn from these mistakes. The experienced contractor loves a fixed-price project, because it allows them to get paid what they’re worth for their expertise and experience (like my $4,500 idea development session).

But let’s think beyond contracting for a moment. The professional workers I spend time with typically get paid a salary. That means they get paid for doing a job, not for sitting around. They get bonuses that are tied to doing the job well, and contributing to the organization’s success.

It shouldn’t make a scintilla of difference where they do that job, because they’re not paid for having their butt in a seat. They’re paid for building a widget, or testing a widget, or improving the widget-production process, or marketing the widget, or hiring people to help build the widget, or managing the accounting that the widget-production process needs, or making decisions that make sure it’s the right widget to help the company succeed. It shouldn’t matter whether they’re in the office or at home or in Tahiti, or if they use AI tools to be more productive, or when they took a few days off for vacation, or whether they attend the company pizza party.

Yes, there are exceptions. Yes, paying people by the hour makes sure they’re not nickel-and-dimed for piece work. Yes, we need to make sure that factory workers and shift workers and retail workers get paid appropriately, even if part of their job is just waiting for work to be ready or customers to appear.

But so long as pay-for-hours-worked is the default in our brains, we’re subject to the same perverse incentives as the corrupt hourly contractor. It’s a delusion. It needs to stop.

Stop thinking about pay for hours worked. Start thinking about pay for value created.

That rewards smart people and people who learn from experience. And that’s better for everybody.

News for writers and people who think

After crippling the global IT infrastructure and most of the travel industry, security vendor Crowdstrike sent $10 UberEats vouchers to some affected parties. Nothing like telling the people who spend millions with you what you really think they’re worth — about half a large pizza.

JD Vance’s 2016 book Hillbilly Elegy has sold 650,000 copies since he was picked as Trump’s Vice Presidential candidate. I estimate that is likely to generate at least $2 million in royalties for Vance (since I’m sure he’s long ago earned out his original book advance). Nice work if you can get it.

The Hugo Awards, science fiction’s version of the Oscars, disqualified about 10% of voters as fraudulent. This follows scandals last year when books were disqualified because, afrom all appearances, the host country, China, found them offensive.

Distributor Ingram banned Thad McIlroy‘s book The AI Revolution in Book Publishing. (It’s still on Amazon.) I’m sure this will boost sales. It’s the Streisand Effect all over again.

Former NFL quarterback Colin Kaepernick announced the launch of Lumi, a self-publishing platform.

Three people to follow

Jeremiah Owyang , proprietor of the largest regular AI event in Silicon Valley.

John R Rymer , wizard analyzing the development of no-code and low-code tools sweeping through the IT industry.

Victoria Bough , McKinsey partner and CX expert.

Three books to read

The Fall of Roe: The Rise of a New America by Elizabeth Dias and Lisa Lerer (Flatiron, 2024). The political story, told over decades, that lead to the end of the right to abortion in America.

Buyer Personas, Revised and Expanded: Gain Deep Insight Into Your Customers’ Buying Decisions and Win More Business by Jim Kraus and Adele Revella (Wiley, 2024). Newly revised edition of a detailed text on how to understand who your buyers really are.

Automating Inequality: How High-Tech Tools Profile, Police, and Punish the Poor by Virginia Eubanks (Picador, 2019). Are profiling tools biased, and if so, what can be done about it?