Why Compensating Output Beats Hourly Pay

Alex Lieberman and Arman Hezarkani, co-founders of Tenex, reveal how they're revolutionizing software consulting by compensating AI engineers for output rather than hours—enabling some engineers to earn over $1 million annually while delivering 10x productivity gains. Their company represents a fundamental rethinking of knowledge work compensation in the age of AI agents, where traditional hourly billing models perversely incentivize slower work even as AI tools enable unprecedented speed.

The Genesis: From 90% Downsizing to 10x Output The story behind 10X begins with Arman's previous company, Parthian, where he was forced to downsize his engineering team by 90%. Rather than collapse, Arman re-architected the entire product and engineering process to be AI-first—and discovered that production-ready software output increased 10x despite the massive headcount reduction. This counterintuitive result exposed a fundamental misalignment: engineers compensated by the hour are disincentivized from leveraging AI to work faster, even when the technology enables dramatic productivity gains. Alex, who had invested in Parthian, initially didn't believe the numbers until Arman walked him through why LLMs have made such a profound impact specifically on engineering as knowledge work.

The Economic Model: Story Points Over Hours 10X's core innovation is compensating engineers based on story points—units of completed, quality output—rather than hours worked. This creates direct economic incentives for engineers to adopt every new AI tool, optimize their workflows, and maximize throughput. The company expects multiple engineers to earn over $1 million in cash compensation next year purely from story point earnings. To prevent gaming the system, they hire for two profiles: engineers who are "long-term selfish" (understanding that inflating story points will destroy client relationships) and those who genuinely love writing code and working with smart people. They also employ technical strategists incentivized on client retention (NRR) who serve as the final quality gate before any engineering plan reaches a client.

Impressive Builds: From Retail AI to App Store Hits The results speak for themselves. In one project, 10X built a computer vision system for retail cameras that provides heat maps, queue detection, shelf stocking analysis, and theft detection—creating early prototypes in just two weeks for work that previously took quarters. They built Snapback Sports' mobile trivia app in one month, which hit 20th globally on the App Store. In a sales context, an engineer spent four hours building a working prototype of a fitness influencer's AI health coach app after the prospect initially said no—immediately moving 10X to the top of their vendor list. These examples demonstrate how AI-enabled speed fundamentally changes sales motions and product development timelines.

The Interview Process: Unreasonably Difficult Take-Homes Despite concerns that AI would make take-home assessments obsolete, 10X still uses them—but makes them "unreasonably difficult." About 50% of candidates don't even respond, but those who complete the challenge demonstrate the caliber needed. The interview process is remarkably short: two calls before the take-home, review, then one or two final meetings—completable in as little as a week. A signature question: "If you had infinite resources to build an AI that could replace either of us on this call, what would be the first major bottleneck?" The sophisticated answer isn't just "model intelligence" or "context length"—it's controlling entropy, the accumulating error rate that derails autonomous agents over time.

The Limiting Factor: Human Capital, Not Technology Despite being an AI-first company, 10X's primary constraint is human capital—finding and hiring enough exceptional engineers fast enough, then matching them with the right processes to maintain delivery quality as they scale. The company has ambitions beyond consulting to build their own technology, but for the foreseeable future, recruiting remains the bottleneck. This reveals an important insight about the AI era: even as technology enables unprecedented leverage, the constraint shifts to finding people who can harness that leverage effectively.

Chapters

• 00:00:00 Introduction and Meeting the 10X Co-founders
• 00:01:29 The 10X Moment: From Hourly Billing to Output-Based Compensation
• 00:04:44 The Economic Model Behind 10X
• 00:05:42 Story Points and Measuring Engineering Output
• 00:08:41 Impressive Client Projects and Rapid Prototyping
• 00:12:22 The 10X Tech Stack: TypeScript and High Structure
• 00:13:21 AI Coding Tools: The Daily Evolution
• 00:15:05 Human Capital as the Limiting Factor
• 00:16:02 The Unreasonably Difficult Interview Process
• 00:17:14 Entropy and Context Engineering: The Future of AI Agents
• 00:23:28 The MCP Debate and AI Industry Sociology
• 00:26:01 Consulting, Digital Transformation, and Conference Insights