THIS is Why Software Engineers Make So Much Money

Key Takeaways

tech companies are well known to pay six-figure salaries to their employees but the way they pay the salary is very different from any other industry and the media loves to hide these high salary numbers because it gets them clicks here is a recent verge article on how google is paying up to a million dollars for its execs amazon increasing its base salary caps was also widely covered in the media in apple giving out 180 000 dollars in bonuses who's a media frenzy as clickbaity as these articles are they fail to give you a complete picture of how tech salaries really work [Music] you're offering you hundred fifty thousand dollars as base salary and four hundred thousand dollars in rsu's that will invest over four years give you forty thousand dollars as a signing bonus and your target bonus is fifteen percent i received a similar call from my recruiter when i got a job offer from microsoft frankly i did not know what to make of it all the terms used by the recruiter were alien to me and i had no clue how to interpret the offer so i asked my recruiter to give me a couple of days and went heads down on in all these terms in the end i managed to learn what an rsu and a target bonus is not only that i also uncovered a secret salary component that most people don't consider when comparing different job offers today i will share everything i learned with you about tech salaries i will also share three key points that no one tells about tech salaries before we discuss different components of the tech salary we need to understand that tech salaries are usually given out over a period of four years i'll explain how it all works in a moment but to make our life a little easier we'll look at an example offer over a timeline of four years let's start with the most incredible component of tech salary a sign-in bonus sign-in bonus is the money tech companies pay you for signing the drop-off they pay this money to entice you into accepting their offer one would expect that paying a 5k or 10k is good enough incentive to sign the offer not in the tech industry the signing bonus in tech can be as high as 100 000 most big tech companies pay a signing bonus somewhere between 20k to 100k facebook and amazon are famous for paying some of the highest signing bonuses the way the signing bonus is paid out varies from company to company for example google pays sign-in bonus as a one-time payment right after you join the company whereas amazon sometimes pays it monthly over the first two years of employment with the company making a one-time payment is the most common way of paying a signing bonus so for our example offer let's assume that the sign-in bonus is a one-time payment of 25 000 in the first year one thing to note is that most companies make you return this money if you leave before completing your first year at the company here i also want to mention the first key point that no one tells you about tech offers most people after receiving a tech offer don't know how to go about negotiating their offer you need to know that signing bonus is the most commonly negotiated component of the tech salary that's because it's a one-time payment and doesn't lead to any more money leaks down the line so even if you're in a weak position to negotiate salary try asking for more signing bonus more often than not it works now that we know what sign-in bonus is let's talk about the most stable component of tech salary which is the base salary the base salary is the constant sum of money you receive every year you can simply divide the base salary by 12 and that will be the monthly direct deposit you receive in your bank account in other words base salary is the equivalent of the total salary you receive in most jobs for entry-level jobs the base salary usually makes somewhere between to ninety percent of your salary let's call it eighty percent in the average case as you progress in your career the actual base salary keeps increasing but the percentage it makes of your total salary keeps decreasing to drive the point home let's look at a google software engineer salary change with career progression from levels at fyi in this histogram the green section of the bar represents the base salary for an entry level engineer the base salary makes the majority of the total salary whereas at the highest reported level the base salary makes roughly 30 percent of the total salary the base salary is usually paid bi-weekly or monthly depending on the company you work at for example amazon pays the salary monthly whereas google and microsoft pays its bi-weekly for our example offer let's say that the base salary is 120 thousand dollars so you'll receive this fixed salary of 120k for four years unlike the signing bonus the base salary is the least negotiable part of the tech offer that's because there's another component of the tech offer which is paid as a percentage of the base salary i will cover this component later in this video increasing the base salary means increasing this other component that's why tech companies don't want to negotiate the base salary a lot i know so many people who try to negotiate their offer by asking for more base salary but fail by doing this they hit a wall early in the negotiations and they are never able to recover from this in the end they leave a lot of money on the table if you're already feeling overwhelmed with these big numbers wait until i reveal the secret salary component that no one is talking about now let's discuss the most interesting component of tech salary rsu restricted stock units or rsus is a way an employer grants you stocks of the company in simple terms rsus are the stocks you receive sometime in the future that's why most people use the words rsus and stocks interchangeably to make it simple to understand we'll look at an example let's say that you receive rsu is worth four hundred thousand dollars in your offer these rsu's don't carry any value until they vested investing of rsu simply means when the rsus become actual stocks there's usually a vesting schedule that's outlined in your offer for most companies you get your rsus in four installments over four years and each installment is paid out on your work anniversary in the example offer when you complete one year at the company you receive your first installment of one hundred thousand dollars and you keep receiving this 100k installment for four years which is when the vesting is complete if you leave before the vesting period is complete you lose all the unvisted rsus here i want to touch on the second point that most people miss and that is stocks are better than receiving money in cash and stocks are the reason why you keep hearing about these crazy salaries in the tech industry to fully understand this there's one more thing you need to know about stock compensation remember when i mentioned that in our example offer you receive stocks worth hundred thousand dollars for four years that's actually not true you see when you start your new job the dollar value of your stocks is actually converted into the number of stocks so if you got four hundred thousand dollars worth of stocks in your offer and the stock price at the time you joined the company is a hundred dollars you actually receive four thousand stocks and not four hundred thousand dollars worth of stocks so each year in the next four years you receive a thousand stocks of the company for most big tech companies in recent years the stock price has been going up so by the time you receive your last installment the stock price might have doubled those thousand stocks are now worth two hundred thousand dollars which is significantly higher than the hundred thousand dollars they were given to you at the time of the offer but what if the stock price goes down in that case getting money would have been better than stocks that is actually not true because most people in the second industry can change jobs quite easily so if your company's stock loses value there's always another company that is ready to hire you so heads i win sales i don't lose much another thing to know about stock compensation is that you don't get stocks when you work for a tech startup that's because startups are usually not publicly traded and can't issue stocks so tech startups give you stock options in place of stocks most people confuse stock options with stocks so let's understand stock options real quick stock options give the option to buy stocks of the company in the future at a certain price this price is called strike price if and when the startup goes public if the strike price of the stock option is lower than the actual price of the stock in the market you end up making money and if the price of the stock is lower than the strike price of the stock option the stock options you received are completely worthless that's why working as a startup is riskier than working as a publicly traded company having said that higher risk also means high rewards a good example of this is snowflake that went public in 2020 and created many millionaires in the process now that we know the difference between stocks and stock options let's talk about annual bonus most tech companies give you a target annual bonus in your offer letter the target annual bonus is usually 10 to 15 of your base salary what this means in practice is that at the end of the year you receive 10 to 15 percent of your base salary as bonus if you meet all the expectations of your role for our example offer if you assume a target bonus of ten percent you'll receive an annual bonus of twelve thousand dollars if you meet expectations in reality this bonus can be much higher if you perform really well that's because to calculate actual bonus tech companies apply multipliers to the target bonus there is a company performance multiplier which is based on how well the company is performing since most big tech companies are doing well these days this multiplier is usually one and has no impact on bonus the other multiplier which is actually more important is the individual performance multiplier if you perform beyond what is expected at your level from your role the individual performance multiplier can be as high as two and your annual bonus becomes double of the target bonus in that case now that we know the different components of the tech salary i want to talk about the third key point this is regarding the secret salary component that many people don't know about that is stock refreshers in the top tech companies along with the annual bonus you'll also be rewarded with more stocks every year these new stocks that you get are called stock refreshers these refreshers also have a target value and multipliers like annual bonus just like the initial stocks you get with your offer these stocks usually invest over a period of four years in top tech companies the target refreshers can be as high as a hundred thousand dollars for someone with three four years of experience this instantly increases your salary by 100k divided by four which is 25 000 for the next four years and these refreshers accumulate over time so if you get a 100k refresher in your first year your compensation for year two three and four increases by 25k and if you get another 100k refresher in year 2 your compensation for year 3 and 4 increases by another 25k and so on and this is just if you get target refreshers from meeting the expectations with the multiplier it can be even double of that and that's how your salary which is already in six figures keeps growing over time if you want to learn about tech jobs that pay six figure salaries without knowing any coding you can watch this video at the top if you want to learn about how to land a job at top tech companies as a self-taught programmer you can watch the video at the bottom i will see you on the next one [Music]