Why should financial engineers be paid more than actual engineers?

[MrOmnos]

Hi! I this has been really bothering me. Someone working in an investment bank or any other financial services institution will easily make 50-100K$ more than a top level engineer. That's just unfair. I mean actual engineers create and sell actual products that has a physical worth to the costumers and users. All they do is make and sell certificates which is worth the trust customers have put in the given financial product. I am not saying financial service providers are overpaid. But I surely think engineers are underpaid. I think engineers deserve the same type of bonuses and incentives as given to bankers if they are doing well. Instead they take away patents and do not share billions that patent is worth. This make me angry. 

[Karel]

In practice, there's no such thing as a fair salary. It's decided by the market.
If enough actual engineers change job and start to do something else, they will be paid much more than a financial engineer.

A lot of people complain but don't act...

[CatalinaWOW]

At several times in my career I resented the fact that managers and other professions made more than I did.  But I finally realized that the salaries were justified by the unique skills and willingness to perform the tasks involved.  I had the skills to do as well as many (but not as well as the best) in several of these professions, but absolutely could not have gone to work each day to do those jobs.  Those who need the talents of engineers are fortunate that the supply is large enough that they do not have to pay truly exorbitant amounts to get people to do the job.

In the end I realized I was being paid a very nice salary to do something I loved doing.  Something many people cannot say.  In fact probably the majority of people on earth get neither part of this deal.  No nice pay and no enjoyment of the job.

[Avacee]

I wouldn't call them "Financial Engineers" as they are gamblers, pure and simple gamblers. Through clever marketing they've convinced people that "investing" isn't gambling but it is.
When you put your money in the bank you are gambling that they aren't going to gamble it all away and will be able to return your money to you at some point in the future. As a thank you for allowing them to gamble with your money they'll pay you interest.
"Financial engineers / Gamblers" are paid more money because their employers are willing to gamble that by paying them that much they'll get better a gambling return with that employee than with someone they can hire for less money.
If you want more money become more valuable - make your employer think that paying you more money is a better gamble than not paying you more - or work for someone willing to gamble on you for more money.

CatalineWOW has it right and I can't remember who said it but the quote is "Find something you enjoy doing and you need never work again".

[dferyance]

While prices are set by the market, it is important to realize that the market isn't a careful, rational system that ensures people are payed in relation to the value they bring. On the whole, a functioning market will tend in that direction but the limitation will always be people. I've seen engineers that were worse to have on a team than to not have at all, but they still bring in a salary. I've seen managers that destroy a project and get promoted. However, that is in a mix of a lot of good people who are underpaid as well.

The flaw I've seen in engineers, which for sure applies to myself, is that we aren't as good at selling ourselves compared to other fields. Every day we encounter our own failures. Solving problems involves a lot of trial and error. It is easy to see ourselves being short of getting things right and seeing our weaknesses and limitations. But this is a false standard, we succeed despite of problems but we don't always see it that way.

As for why the financial industry can bring in big money... well I think some of it is that people don't understand it. Normally that is fine but the people who do understand it happen to be the ones controlling the money. There is a great amount of control and power you get in that situation.

[mtdoc]

Because real engineers do not work for institutions that extract wealth from others by making risky financial bets that are backstopped by the government using taxpayer money.

Real engineers create wealth by building things. Financial engineers extract wealth from what others have built.

[metrologist]

I rationalized it this way. It comes down to responsibility and productivity. Those financial engineers actually do produce something very desirable. Profit!

It's like the guys standing out in the grass with their bat and ball. I mean, I played those games as a kid, for fun. It does not seem fair that some guy gets offered a multi million dollar contract to swing a stick at a ball, and run around. They produce nothing of value...

...except lots of revenue and profit, something that I myself cannot possibly generate.

[james_s]

The flaw I've seen in engineers, which for sure applies to myself, is that we aren't as good at selling ourselves compared to other fields. Every day we encounter our own failures. Solving problems involves a lot of trial and error. It is easy to see ourselves being short of getting things right and seeing our weaknesses and limitations. But this is a false standard, we succeed despite of problems but we don't always see it that way.

That definitely applies to me. It always feels like the more I know, the more I realize I don't know, and the more I think about it the dumber I feel. When it comes down to it, I can do a whole lot if I really put my mind to it but I'm always afraid of over-promising and being a generalist there is almost always somebody around who is better at any given thing than I am. For some reason it always seems like the more of an expert I am on a topic, the more esoteric the topic happens to be.

[Bicurico]

The Engineer builds a clever device, which costs 20 bucks to build. What is it worth if nobody buys it? It is worth nothing. This is the starting point.
The Salesman appears and finds the customers and sells for the highest possible price.
A good salesman will sell the product for more money than initially expected, let's say 100 bucks.
Finally, what if he sells 100.000 units?

Who deserves more money? The Engineer or the Salesman? What was the feat of the Engineer? Building a 20 bucks device? If you have customers to sell 100.000 units at 100 bucks of a device that costs 20 bucks to produce, it will be easy to find an Engineer to build it.

Same with "Financial Engineer". Look at their wages in percentage of the gross profit their work generates. That's all there is.

So the conclusion is: if I find a customer who want to buy 1.000.000 kitchen heat pads for 10 US$/piece, hell, I would be able to supply him! I would be the master expert in kitchen heat pads in days and find who could produce them for 1 US$/piece. The hard part is not to develop/produce a product, it is to find who will purchase it. You don't believe me? How can Apple sell their iPhones for such high prices, if you get higher spec phones for a fraction? It is because the marketing guys know how to sell!

If you really want to make money, skip any technical job. It is in sales and finance where you can make real money. Also, while we engineers tend to look down at sales and finance people, thinking we are much smarter, the truth is, that the successfull ones are brilliant in what they do.

And remember - Being rich is not all about money, but how well you spend your precious time!

Cheers,
Vitor

[691175002]

The average engineer is easy to substitute.  Someone with a network and a reputation has a lot more bargaining power.

Highly paid financial positions are directly closing millions of dollars in revenue and half of it would follow them if they chose to work somewhere else.

Note that financial services provide a real economic service.  Without finance there would be no mortgages, corporate financing, insurance, etc...  Prices are set and risk is distributed as a result of many parties trying to further their own interests.  An individual trader is creating nothing of value, but if you removed all the traders parts of the economy would no longer function.

[retrolefty]

In practice, there's no such thing as a fair salary. It's decided by the market.
If enough actual engineers change job and start to do something else, they will be paid much more than a financial engineer.

A lot of people complain but don't act...

 In many cases these 'financial engineers' derive much more income from their yearly bonus then from their 'base' salary, based on their and the firms financial targets and goals. In that sense their actual salary is a part of the financial risk/reward formula. They can be said to have 'skin in the game'.

 

[whalphen]

For about 8 years I managed compensation and benefits for a major global company.  A company pays salaries based on what they have to pay to get people with the necessary skills and knowledge to do the job they need done.  That's all there is to it.  The rest is up to you.  If you want to be paid like a financial engineer, then you need to gain the skills and knowledge to be a financial engineer and get hired for it.
You will tend to do best at the type of work you enjoy.  So if you prefer to do electrical engineering, you'll likely do better in the long run if that's what you do.  And if you try to do financial engineering, but don't like it, you probably won't do well in the long run.

[mtdoc]

I think this discussion is missing the big picture. Yes, there is a marketplace for finance jobs that dictates salaries as there is for engineering.  The important question is why the marketplace has developed in the way it has.

Honest, boring banking and finance is a necessary part of a capitalist economy.  We had that for many years and bankers and others in finance were paid well but no where near the amounts they are paid now.

The rise in the annual compensation paid to those in high finance has risen much more rapidly than most other professions including engineering over the past few decades. Why is that?

The percentage of USA GDP  devoted to financial services risen sharply over the past 30 years? Why is that?

IMHO those are the relevant questions.

[Bicurico]

Only a few in the financial world make much money.

They do so because they get bonuses and because the companies they work for make big profits from them.

When you know how to make your company profit 1 billion,  it is only fair to receive a few million as a bonus.

But to make such profit,  people have to trust you and you need to have connections and knowledge. I for sure wouldn't know how to make 20% profit if someone gave me 1 million to play with...

Sure,  they make money from money without producing any goods, but still there are more people capable of producing goods than there are people knowing how to multiply money...

[Brumby]

As others have indicated, engineers are remunerated according to the value - ie revenue - they can bring to the organisation.

At the extreme end perhaps, but someone working in Forex could generate some serious dollars every day.  They could also lose some serious dollars if they get it wrong.

Keep getting it right and there's gold in them thar halls!!  But when you throw everything together and get it really wrong, you have the infamous GFC.

Regular engineers just don't have that much of an impact in comparison.

[Karel]

No one cares how much money you think you make for the company. They care about how unique you are, and how much money you actually make for the company that others can't.
Put it in other words, they pay you based on how irreplaceable you are. Bosses will always screw you up, how much they do this depends on how much they will lose if you fight back or just leave.

+1. And that's why dumb or naive engineers writes lot's of comments in their sourcecode while writing software,
write good documentation about their projects, so that they can be easily replaced by another, cheaper engineer.

[CJay]

No one cares how much money you think you make for the company. They care about how unique you are, and how much money you actually make for the company that others can't.
Put it in other words, they pay you based on how irreplaceable you are. Bosses will always screw you up, how much they do this depends on how much they will lose if you fight back or just leave.

+1. And that's why dumb or naive engineers writes lot's of comments in their sourcecode while writing software,
write good documentation about their projects, so that they can be easily replaced by another, cheaper engineer.

Ha, you cynic. But yes, it's easy to be replaced if you've not got unique skills and assiduously document everything.

There's been at least one case of a coder 'outsourcing' his own job to India or China (I forget which) where coders who earned far less than him wrote the code for his daily job, leaving him free to enjoy a nice profit and plenty of relaxation time.

[MrOmnos]

An individual trader is creating nothing of value, but if you removed all the traders parts of the economy would no longer function.

That is a great idea. We can remove all the traders and replace with computers. Several times faster, 1000 times smarter, doesn't take breaks, no vacations, no bonuses. I believe they already have some thing like that. They call that High frequency trading.  We don't need traders. I think engineers should keep developing systems that replaces 90% of the work force from financial services industry.

I think we have the technology to replace entire functional management systems. As the consumer base shifts towards online platforms the entire sells staff of a company can be replaced with bots which negotiate better prices based on the variables like market trends, competitive prices of similar products, best possible profit at that instance etc.

Why don't we replace bankers with computers? Most of their job is decision making. A nicely written software can do better job at that. No trust issues, better performance, no trillion dollar bail outs, no recessions.  What do you say?

[Avacee]

1000 times smarter, doesn't take breaks

Computer's are stupid they can only deal in 1's and 0's, albeit very fast, and are only as good as the software running on them. To claim computer programmers are 1000 times smarter is, imho, a bit excessive. Maybe 100 times  .  A badly written program will simply make mistakes faster https://en.wikipedia.org/wiki/2010_Flash_Crash
As for not taking breaks? Blue Screen of Death anyone?

As for replacing traders with computers it has already happened on a vast scale in London. A friend of mine was made redundant along with his entire UK Equities Team to be replaced by one computer.
His base salary was £95,000, a lot more than many engineers, but it was what the market was willing to pay at the time.
Lucky bleep bought his flat for 400k and sold it after redundancy for 2.3m - moved out of London and works as a Dog-Walker and couldn't be happier.
And now Software Engineers get paid £95,000 in London   
I remember about 10 years back a software guy got a £300m bonus as the software he wrote made the bank just over £2bn profit in its first year.

[Brumby]

Something I put together more than 30 years ago.....

[MrOmnos]

1000 times smarter, doesn't take breaks

Computer's are stupid they can only deal in 1's and 0's, albeit very fast, and are only as good as the software running on them. To claim computer programmers are 1000 times smarter is, imho, a bit excessive. Maybe 100 times  .  A badly written program will simply make mistakes faster https://en.wikipedia.org/wiki/2010_Flash_Crash
As for not taking breaks? Blue Screen of Death anyone?

Do you mean programs or programmers? I meant programs.

You are right. I think engineers and computer scientists can make a lot more money if they take their skills to new fields. There are several examples of engineers, mathematicians and computer scientists making billions in financial services industry. I mean they started several new trends and it would be fair to say they were a major driving force in making the markets what it is today. Not some top level economist from Princeton. I think more people should delve in to new fields to the point we no longer need to have economists and MBA degrees from Harvard. These people write bullshit papers just to push certain financial products where they praise how these products are going to make investors millions. They write papers for money. It's like a exclusive club where they are one who make rules. I think we have a chance at making these markets fair for everyone buy cutting out the middle man who thrive of off commissions. They don't care about the product. They just want to sell it to you so can they can get their commissions and bonuses.  How do they even call themselves academics. It's just shameful.     

[MrOmnos]

Computer have changed a lot since 30 years ago. We have computer that can land a rocket on a floating platform. Sure, it started with several mistakes and crashes and to be fair so does a new employee. But employee will keep making mistakes even after 20 years in job, same is not true for the computers.

I think we are in a time where we need to invest more trust in computers if we are to dream of a Utopian society.

[Heyden]

I hear sob stories every day at work about how little engineers get paid (by engineers).

My opinion is that if you aren't satisfied with the pay don't do the job. Find something else to do. Leave the engineering to some other guy and don't be the fool to do it.

[VK3DRB]

There is an old saying: People are very good with other people's money.

A few Australian politicians have recently lost their jobs due to their dipping into the public purse for personal extravagances and outright rorting of the system. In fact, our federal politicians shape policy to benefit themselves even if it is to the detriment of the Australian people. It is a form of legal corruption. As they amass wealth, they have displaced a whole generation of young Australians wanting to get a roof over their head. The political fat cats ignore the homeless who cannot afford to buy or rent a home in Melbourne. About half of the politicians are involved in tax avoidance in the form of family trusts and other scams they mastermind. Their policies will always make sure they do not lose out, no matter what.

Pay is like a pyramid. Those at the top can easily get a king's ransom and not affect the bottom line much, in contrast to if the numerous plebs at the bottom get even a small pay rise. If you are just another engineer among many, don't expect to be well paid if you are very good. You will be comfortable and that is where it ends.

In contrast, some public servants are rewarded to the extreme whilst they slash and burn an organisation, lower its service quality and put customers last... http://www.abc.net.au/news/2017-02-23/australia-post-ceo-resigns/8296566

In Australia, talented electronic and embedded engineers are paid crap money compared to civil engineers , "train" engineers, "building" engineers and "finance" engineers. We only do it for the love of electronics or coding. Else we'd be doing something else that pays a lot better for something requiring less brains and stress.

The CEO who involved with the United Airlines fiasco will still get his $14.5 million salary after he loses his $660K bonus for doing irreparable damage to United Airlines. He is still laughing all the way to the bank, and probably secretly laughing at his customers and his employees.

Yes, people are very good with other people's money.

[MrOmnos]

I hear sob stories every day at work about how little engineers get paid (by engineers).

My opinion is that if you aren't satisfied with the pay don't do the job. Find something else to do. Leave the engineering to some other guy and don't be the fool to do it.

I think this is also the part of the problem. I think there is nothing wrong with wanting to do what you love and earning good amount of money at the same time. I don't think that is sob story. I think that is natural of a human beings. Monetary incentives are a huge part of job satisfaction even when you are doing what you love. Besides, I am not saying engineers should be paid millions. I am saying they are not compensated well enough for the jobs they do.