The Insider Guide to Careers
Insider information, secrets and tips about getting hired and building careers. For employees and job candidates.
I had written an article on the skills required to be a Product Manager. Do check that out. In this post, I want to look at compensation and provide insights into different types of product managers, the compensation strategy of companies, and locational differences.
Here are some statistics to mull over.
The critical point is that the compensation discussed here is base compensation. There are also components like year-end bonuses (around 10-20% of Base Comp) and stock (which could range from 10k-50k a year). Let us keep those components aside for the time being and focus on base compensation.
Google, Facebook compensation, and the Bay area:
Google and Facebook are paymasters, as they typically pay at the 90th percentile of the market. Google even admitted as much in a recent all-employee meeting where employees quizzed the CEO on why they were getting paid at the 90th percentile while selectivity was at the 99th percentile. Sundar Pichai had no answers as this is a classic Compensation and HR problem, which only some people can understand. Typically, few companies pay above the 90th percentile as the Comp data points are minimal. It is better not to pay employees too high and instead promote them to the next level, where the pay could fall within range. Check up on my post on compensation benchmarking here.
Compensation in the bay area is 10-20% higher than even Seattle or New York because the war for talent is worse, and the cost of living is crazier than in any other place worldwide. So I am not surprised that Google or Meta in SF pays the highest compensation.
Microsoft Compensation and Seattle:
Microsoft is among the FAMG companies which pay the lowest. People traditionally work at Microsoft not for super high compensation but because the work-life balance is much more manageable. The Cost of Living in Redmond/ Bellevue is not too high. Owning a house in the Seattle suburbs is possible, unlike options in the suburbs of San Francisco or San Jose. Microsoft stock has done exceptionally well under Satya Nadella, jumping almost threefold in the last three years. If there is one company to bet on
Amazon chose Seattle because it wanted to avoid competing with Silicon Valley for super-expensive talent. They also knew they could tap into the talent pool that Microsoft and Boeing had created. In the 1990s and 2000s, being based out of Seattle lowered employee costs and made a lot of business sense. If you are from India, whether it be San Jose or Redmond, the place swirls with Indian engineers wherever you look. Indian food options also abound in both of these locations.
I have met people in Seattle working for Boeing and driving Uber to make extra money. The aerospace industry is no paymaster, and employees need to do non-standard work to make extra money. This two-job phenomenon would never happen with big tech employees in Silicon Valley.
Amazon compensation:
I am surprised by the numbers for Amazon. I would peg it more than Microsoft. Again, this analysis is for an average employee. Regularly, modest-paying companies can go over the top and pay high compensation for the best employees in the market. Google, Amazon, and Facebook employees get poached all the time by traditional employees paying crazy compensation.
Amazon has a lot of front loading of employee stock; it follows a 5-15-40-40 distribution model. It means that at the end of the first year, they pay only 5% of the total stock spread over four years. One should work in Amazon long enough to get a big chunk of the stock. Sadly, many employees used to leave Amazon in two years and never access a big part of their stock. In most companies, the stock distribution is 25% every year. You would have got 50% of the stock by working for two years. Amazon knows that its stock policy is skewed and could discourage candidates. Hence, it jacks up its base compensation to cover the stock that doesn’t come to the employee in the first two years. For example, in the first year, Amazon gives a padded-up compensation to balance the 20% stock, which the employee does not get. This strategy means that Amazon’s base compensation can be sky-high. So comparing Amazon’s base comp to another tech company’s base stock is like comparing apples and oranges. It makes no sense. A better strategy would be to compare Amazon’s total comp to the total comp of the other company.
Apple and Intel compensation:
Apple pays well, but it is not a paymaster. It regularly competes with Google, Amazon, and Facebook for talent and wins them often. Steve Jobs was generous with stock for the best employees and used that as a strategy to keep them at Apple (even though he treated them miserably). Because of the founder culture, Apple is still one of the best places to be if one is the best in some engineering field. Unlike Google or Facebook, Apple is heavily involved in hardware. This presence means they have different compensation pressures than a pure software company, which has to fight to prevent talent from joining well-funded startups. Also, Tim Cook has prevented layoffs for a long time as Apple never indulged in crazy hiring practices in the first place. For all these reasons, employees stick longer in Apple. The relatively remote location of Cupertino and more affordable housing options there is also a big draw for employees.
Intel was a behemoth in the past but has fallen on hard times. It struggles to fight for software talent with other big tech companies. It nevertheless still attracts Ph.D.s to locations like Portland and Boise, where there are few tech companies. Once settled, these employees rarely move out. Intel still offers the safe, steady jobs which used to be lifelong, making it an attractive destination for people hit by layoffs in Silicon Valley.
Dell and Austin:
Dell is in Texas, which has zero state income tax. The exact location is in Roundrock, which is a suburb of Austin. In the past, Austin had few tech companies. Hence companies like Dell didn’t face competitive pressures, unlike Silicon Valley, to raise compensation. Dell is also no longer the profit center it used to be. Its spinoff investment in VMWare has paid out handsomely, though. Austin is fast changing, with numerous tech companies fleeing Silicon Valley to come there. The employee costs, and real estate prices in Austin are also rising dramatically since the COVID pandemic. Austin is now the second most expensive place to hire software engineers outside the bay area.
Finance (JP Morgan, Capital One, Bloomberg, EY) and New York:
New York has a lot of catching up to do regarding high tech. It traditionally was the place for Finance, Wall Street, Fashion, entertainment, and so on. Big companies like Google or Meta have a negligible presence in New York. Zuckerberg had to run away from the east coast to Silicon Valley to be taken seriously as a tech entrepreneur. Finance and Financial companies have traditionally been a paymaster for many decades. Since 1998 and more so after 2010, the luster of Wall Street was hit by the recession, layoffs, scandals, and the boy billionaires coming out of Silicon Valley. Now suddenly, Finance has woken up to the fact that technology can make a huge difference and is bulking up their engineering teams with the best talent they can find in the market. For example, I know of some people being offered 3-4 times their existing compensation to move to Manhattan from the Bay Area. While compensation can attract people, factors that complicate such poaching activities are:
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