$100,000 is the start.
The rough idea:
A software engineer at entry level is paid at $100,000 mark. After that, you can expect about 10%~20% increase on average year over year, or equivalently, the salary is doubled to $200,000 within five years, and tripled to $300,000 in another three years.
I do not intent to write a science paper based on statistical data, because the median and average are highly skewed in silicon valley comparing to the rest of the world, and consequently the stats are somewhat meaningless. Instead, I will rely on anecdotal stories and first hand experience.
Top Tier
There are a handful of internet companies considered in the top tier. Facebook, Apple, Amazon, Netflix and Google, known as FAANG in the finance world, happen to pay the top dollar to software engineers. The total compensation is comprised of several parts.
- Base Salary
This is the most common part. Just like any other industry, you get paid once or twice every month in the form of checks or bank deposits. It usually ranges from $100,000 to $200,000 per year. The base salary is structured to be only a small portion of the total pay, because a lot of other benefits are often tied to the base salary, such as 401(k) match, disability insurance, and sometimes extra percentage-wise bonuses. - Stocks
This is the big part of the compensation. For a public-traded company, Restricted Stock Unit’s (RSU’s) are issued to the employees. It is typical for a new offer to commit a RSU vesting schedule of four years, with a one year “cliff”. The RSU is considered ordinary income by IRS, upon vesting date calculated by the market price, and will be subject to tax withholding and will reflect on the W2 form.
The annually amortized RSU value ranges from 50% to 200% of the base salary, issued as a fixed number of stock units spread in four years, which is about $200,000 per year. Considering the trend of bullish stock market in tech sector, at the third or fourth year, the vesting RSU’s may be as high as 400% of the base salary, and pushes the total yearly income to the half-million range! However, this also leads to a seemingly dramatic drop for perspective income of the fifth year, after all the RSU’s granted in the original offer have vested. Therefore, many companies have the concept of “yearly refresh” to make up the difference, or some engineers simply hop to another company at the end of the fourth year. - Miscellaneous
* Sign-on. Sometimes a one-time bonus is issued upon signing the offer, a.k.a, sign on bonus. This is a one time thing, ranging from $2000 to $30,000. Some offer states that this sign-on bonus has to be returned if you stay for less than a year in the company.
* Relocation Expense. This is kinda of an industry standard, to cover all the cost to move from a state to another. The worth of this package ranges from $10,000 to $25,000.
Salary-wise there are a lot of other established tech companies considered top tier, including but not limited to Oracle, LinkedIn, Square, Stripe, Snapchat, Twitter, Dropbox, Uber, Lyft, and more.
These tech companies provide the total compensation summed to a range of $200,000 to $500,000 per year. For more info, please refer to https://www.levels.fyi/
Unicorns
A unicorn is a private company with valuation over one billion dollars ($1,000,000,000). The compensation has similar structure to the top tier companies, except for the stocks.
Since unicorns are not public-traded, their stocks are “paper money” to the employees. To compensate the uncertainty of “paper money”, it is expected to have 20% ~ 50% premium in the value of stocks from a unicorn, on paper of course, comparing to a top tier company.
It is common for a unicorn to issue Stock Options to the employees, at a relatively low strike price, with some important caveats.
Good news: With a successful Initial Public Offering (IPO), you cam make a fortune by selling your options accumulated for years. You fortune can range from half a million to multi-million, less 47% tax due (federal 37% + state 10% in California), depending on the year you joined on the exponential growth curve of the company.
Bad news: For any reason you leave the company, you will lose the options after 90 days, unless you exercise them in time, namely buying the options at strike price out of your own pocket. Sometimes this is a big mount of cash you can not afford. And you may own tax, again out of your own pocket. If an IPO is not happening anytime soon, you are kinda stuck, and getting even more stuck every year. This sticky situation is known as the golden handcuffs.
Other Thousands of Tech Companies
Silicon Valley, recently extended to become synonym to greater San Francisco — San Jose — Bay Area, has 2,000 tech companies, 30,000 start-up companies, and it takes almost half of venture capital investment in the United States. It dwarfs all the other tech hubs combined.
The competition for tech talents is fierce, because there is a lack of software engineers. A start-up company may offer good salary and freedom to attract software engineers, because dreams and promises can only go so far. Sometimes an early employee may even have a salary higher than the Chief Executive Officer (CEO). Although the total is a bit less than the Top Tier or Unicorns, the base part of the compensation is on par across the board, namely $150,000 per year.
Good news: The start-up companies do not have the highest bar to enter, comparing to the Top Tier companies.
Bad news: You can only rely on your base salary, as the stock options of a start-up are more or less a game of lottery, if the start-up ever makes to an exit.
Summary
No matter what tech company you get in, the six figure salary is just a start in Silicon Valley.
Q.E.D.
