How to save money by outsourcing

I can only think of one reason that the CEOs of companies don’t outsource their most expensive people.  They is them.

I’m going to make some sweeping generalizations and estimations here, so bear with me.  I’m going to stick with larger software companies because they are more likely to open overseas offices or outsource jobs.  Larger software companies tend to have higher paid CEOs and also higher pay for their software engineers.  Let’s do the math.  Average CEO pay: $10million in money and stock options.  Average software engineer pay: $70,000 to $100,000 in money and stock options.  Ratio: at least 100 to 1.

If you believe my estimates are out of whack, that’s ok.  Let’s assume that the ratio is closer to 25:1 or 50:1.  When one accounts for the entire executive staff – you know all the VPs of this, that and the other – you can add another 10 people or so whose ratios are 5:1 or 10:1 versus the average worker.  You can also add the board members, who tend to be CEOs of other companies.  They can make $100,000 for attending a dozen meetings a year.  Sometimes they get stock options, too.

It seems clear to me that a large company could very effectively save 80% of their executive compensation by moving those jobs to qualified people in India or China.  Clearly if the engineers there are capable of writing our software, they should be smart enough to run the company as well.

I’m obviously not a fan of massive outsourcing or excessive executive compensation.  I don’t believe that either of them accomplish what they’re cracked up to achieve.  I’ve seen outsourcing fail miserably due to communication problems, over-promising results, and even cultural hesitation to say, “No, we can’t do that.”  I also don’t understand how executives justify outrageous pay, bonuses, and golden parachutes, even when they don’t perform.

There’s a happy medium somewhere, but it seems to be getting lost.  The next time your CEO suggests that outsourcing will save your company tons of money, maybe you can find an anonymous way of suggesting that the CEO could outsource their own job to save even more.