Manage Your Tech Career

It may sound strange for the CEO of an investment management firm to say this, but managing your career well is much more important than managing your investments well.

Good investment management – using low-cost ETFs and low-fee advice – can mean higher returns in your investment portfolio. Over time, that might add up a lot of money, maybe hundreds of thousands of dollars on larger portfolios. But the economic rewards that follow from good career decisions in the technology industry are potentially much larger.

Today, Wealthfront is launching a Startup Compensation Tool to help our clients with that part of their financial lives: their careers. The Tool offers data on the tech startup job market, including cash compensation and equity packages for a range of jobs, so that you can maximize the return on your career. You can embed the Tool by using the toolbar at the bottom.

We’ve licensed data typically used by human resources departments and made it available for free – one more example of how Wealthfront is democratizing access to sophisticated financial advice and information.

I’m not suggesting money should be your first concern when you think about your career. People do the best work, and have the best chance of great success, if they do what they love on a day-to-day basis. The data in our Tool supports that idea — take a look at the way individuals with expertise in their fields earn as much or more than managers in their fields (filter by engineer – hardware or software – on all job levels, and you’ll see what I mean). A top-level scientist (an architect, in the Tool), for instance, earns as much as the person who manages the scientists, and a top-level engineer earns as much as a person managing engineers.

So, work at what you love — and then, maximize the return on your work. To do that, you need access to good information.

How To Use The Tool

You can use the Tool to give you context about the tech startup job market, specifically around equity compensation. This information isn’t available anywhere else. It can help you evaluate job offers and make counteroffers. I hope the Tool also helps you think about your career path broadly, including considering what kind of company you want to join and in what position.

When I was a venture capitalist, one of the first things I discussed with my CEOs was setting a budget for salaries and equity, using what we knew about typical pay at companies in the Valley. For each position and at each level, there’s a range of compensation and, of course, a mean.

The CEO decided where his or her particular firm would fall compared with other firms. For instance, would the company pay in the 60th percentile for salaries, and in the 40th percentile for equity? (That would be typical for an already successful company, which is likely to pay higher-than-average salaries and offer lower-than-average equity).  Never would a company offer both above-market salary and equity.

That leads to my first suggestion for managing your career well: Pay the most attention to the quality of the company when you are deciding where to apply or which job offer to accept.

Find The Right Company (Or Pie)

Choosing the right tech startup to work for is the single most important factor for maximizing the return on your career. Choice of company trumps position, salary and even the size of your equity package. A small equity stake in a big success is exponentially more valuable than a big equity stake in a failure or a minor success.

I illustrate the importance of growing the size of the pie to one’s share of pie to my entrepreneurship students at the Stanford Graduate School of Business by reminding them of the formula for a circle’s circumference versus its area. The formula for circumference (a proxy for share of pie) is linear (2 πr) vs. the formula for area, which is quadratic (πr²).

The single most important factor in a company’s big success (growing the size of the pie) is the size of the market the company ultimately addresses. Other signs of a future big exit that pays off for employees: a scalable business model and an unfair advantage (such as intellectual property, a unique business model or a proprietary relationship) that allows a company to earn high margins.

Those things might not be obvious from the get-go because so many successful technology companies pivot. Sometimes, the best clue to a company’s future success is the team’s ambition. The team will work on a big problem because that’s what’s important to them. I can’t think of a better example than my colleagues at Wealthfront, many of whom joined us because they wanted to work on an important problem: democratizing access to sophisticated financial advice.

Get What’s Fair, But Don’t Negotiate Too Much

You’re talking to a great company, and they’re offering you a job you love. Now it’s time to figure out how you’ll be compensated.

If the company asks you to name your salary first, ask them what they believe is fair. You can use our Tool to determine where the offer falls in comparison with the market. The mean cash compensation across all tech startups in all the markets was $112,000.

If at some point during the negotiation you’re asked to name an amount or an equity stake, you can use our Tool to decide on reasonable numbers. Don’t ask for an amount that is far above the average; the company most likely won’t break its budgets to hire you, and you will have damaged the relationship right from the beginning.

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If you’re going to ask for a reasonable increase in the offer, ask for more equity. Getting another .1% can lead to a hell of a lot more money than another $10,000 of salary. The mean equity compensation across all tech startups across all maturities in all the markets was .072%.

Based on my experience, most companies will offer you a fair wage and a fair equity package. Those that don’t are those you don’t want to work for.

The Bottom Line

Managing your investments well is important. Wealthfront manages portfolios of ETFs for our clients, at a fee of only .25% a year. Over 20 years, the money you save on our fees relative to traditional advisors’ could save you as much as 60% of your initial investment. That’s a lot.

Managing your career well is even more important, because the stakes are so much higher.

When technology companies win, they win big. There’s no way to predict exactly how much you’ll make if you work for one of those winners when it goes public, but I can give you a sense of the value. Consider: the typical successful public technology company generates revenue of $500k per employee, and is valued (that’s its market capitalization) at 5 to 10 times revenue. To find the value per employee, we multiply the revenue per employee by the typical market capitalization/revenue ratio. We can then multiply that number by .15 – the percent of shares that employees excluding executives typically own.

It’s a rough calculation, but it gives us $375,000-$750,000 for the typical employee in a typical IPO. That’s more than three to six times the average pay at a tech startup – $112,000 in 2011, according to our data.

With any luck, and if you join a tech startup in the early years, the payoff can be much larger.

Wealthfront can help you understand what you deserve to earn, when you should sell the options you receive and how you should invest the proceeds. Over time, you can expect us to create more tools and publish more research to answer financial questions for people who work at technology companies.

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39 Responses to “Manage Your Tech Career”

  1. Lydia September 18, 2012 at 11:11 am #

    What’s the source for the compensation data?

    • Andy Rachleff October 8, 2012 at 5:52 pm #

      A recent survey of 135 private technology companies

  2. Marc Canter September 19, 2012 at 7:19 am #

    Yo!

    Clearly you guys think the whole world is Silicon Valley or NYC!

    Perhaps another key quotient/comparison variable – is LOCATION! Nobody is paying these rates in Kansas City – and CERTAINLY not Cleveland.

    Then there’s this place called Jamaica – or Gurgaon, India. I mean come on dudes!

    - marc canter

    • J September 19, 2012 at 11:04 am #

      Seriously, you aren’t kidding… You could really use some more information about different regions. And when you say northeast, there’s a big difference between Cleveland and NYC…

      • Qian Liu September 20, 2012 at 1:05 pm #

        Northeast includes Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. We don’t have state-specific breakdowns now, but we will add them if we get them.

        • Jonathan September 25, 2012 at 8:52 am #

          Will you be adding a tool that lets people anonymously include their comp? I’d be more than happy to contribute to this to enhance the app on the whole.

    • Joseph September 19, 2012 at 12:29 pm #

      Agreed, these salaries make Canada look like the third world.. or maybe we are!? The highest IT salary we can get is 80 to 100K, but in most big cities like Vancouver you have troubles getting paid more than 60,000. Vancouver is the least affordable city for housing in the English speaking world.

      • Drumwaster September 25, 2012 at 8:05 pm #

        I would have pointed out “San Francisco”, but you specified “English-speaking”

    • AT September 19, 2012 at 1:45 pm #

      Wow, you are dumb, you didn’t even read the chart. Look at that little ‘region’ drop-down menu.

    • kb September 19, 2012 at 3:14 pm #

      Marc – of course no one pays these rates in Cleveland or Jamaica, but let’s get real – how many startups are there in Cleveland? Compared to NYC or SV? If you’re writing an article on equity and pay at a startup, you’re going to aim for where the bulk of your audience will be located. And if you’re located outside a startup hub, you’ve probably already realized that a lot of valleyisms simply aren’t going to be true or help you in the area where you’re located.

  3. steve September 19, 2012 at 9:53 am #

    are these just salaries or total/w-2 comp? For example, are the sales #’s just salary or do they include a commission/incentive pay targets?

    • Chris June 5, 2013 at 8:33 am #

      Was there ever an answer to this question on the data being salary or salary + bonus (i.e., total cash compensation)? A big difference in my opinion, particularly for business development and sales positions, would be good to understand this better.

      • Andy Rachleff June 7, 2013 at 8:34 am #

        It was total compensation

  4. Isaac September 19, 2012 at 10:18 am #

    How does one determine “level” in this model?

  5. Joseph September 19, 2012 at 10:38 am #

    Technical support in the $100K range? You’re kidding, right? These figures are wildly inflated for NON-startups. Besides, most startups aren’t worth even one of these salaries. “Privately held technology company” is not equal to “start-up”, which goes some way towards explaining things. By this definition, Valve Software is a “start-up”. A start-up is three people working from home offices or turning one of their garages into an office. This chart would indicate a “start-up” can burn through millions a year in salaries or even afford or need things like human resources. Who needs HR with ten employees? I’ve been the first employee of a start-up and the CEO never made half the average salary in that chart during the eight years I stayed there, except one year with big bonuses.

    • Qian Liu September 20, 2012 at 1:04 pm #

      By “startups”, we mean privately held, funded technology companies – these companies certainly have more capital resources than a three-person startup working from a garage. Our data covers headcount ranges from six to 100+; development stages range from product development, product beta, product launch, to profitable. Larger companies (e.g. with more than 100 employees) do tend to hire HR personnel, though you are right that most smaller companies do not.

  6. Abdelrahman September 19, 2012 at 11:52 am #

    marc is right! These rates sound so high. For example, here in Egypt I hear fresh Electrical Engineers receive around $100-400 a month.

  7. Anthony Birkbeck September 19, 2012 at 11:56 am #

    Hi Andy,

    I like the tool, and your advice around career management is sound.

    Adding to Marc’s comment, it would be great to see you expand your locational data to include Europe!

  8. Mike L September 19, 2012 at 5:40 pm #

    These numbers are WAY too high. I have worked with startups and prospected literally thousands of execs when i was doing lead gen./bus. dev. This chart is useless.

  9. Leah September 19, 2012 at 8:19 pm #

    How do you determine what level you would start at? Would I be starting at a further up level with a masters or PhD? Does it depend on the field? Because in UX it seems like you have to have a masters to do anything. But thanks, this is the first place I’ve found with info on UX salaries.

  10. Qian Liu September 20, 2012 at 12:55 pm #

    Unfortunately, this edition does only include U.S. compensation data. We felt we had enough data to accurately represent the compensation landscape specifically for the Central/Midwest, Northeast, and SF Bay Area regions. Most of the positions in the dataset are indeed based in Silicon Valley, and the tool reflects the intensifying talent war in the Bay Area. As the tech startup industry changes, the regional breakout may very well shift. We plan to update the tool when new data becomes available. On a side note, though the tool shows that professionals in the Central/Midwest generally earn less, the sales related positions at later-stage companies in telecommunication sector in the region earn a high cash compensation, due to bonuses.

  11. Um...? September 20, 2012 at 1:25 pm #

    In this context, do you consider technical writers to be engineers, technical support, customer support, UX, or marketing staff?

  12. theexplorer15 September 21, 2012 at 10:28 am #

    This is super helpful! Andy, an interesting follow-up article to this might be: how can you learn about, analyze, and judge the quality of the company? For someone who might be juggling offers from a few different startups, what factors should they be looking at? What questions should they be asking beyond cash position and burn rate? And finally, how does joining a later stage, larger, less risky startup differ from joining an earlier stage one?

  13. Jeremy Toeman September 24, 2012 at 7:46 am #

    Nice start, but until this breaks down equity/comp by stage of funding/company, I don’t see how it can be a valuable resource. Are we talking about 500k seed funded companies, or ones with 2M in the bank, or 20M? All so vastly different…

  14. Ben September 24, 2012 at 3:30 pm #

    From My data it appears the NW is better paying for startups then San Fran. Given this itis funny how little the people in Vancouver are making. Also, person who asked about PhDs, no, post grads in engineering are all treated (with only a few notable research positions) as entry level just like people with only BSs.

  15. Ruby on Rails developer September 26, 2012 at 2:48 am #

    This is awesome. Great job!. My rule of thumb was simple – Salary = 0.4 X by the amount of money I can make for the company. I wish it could be as transparent but it always boils down to a gut. It becomes easier in a services company to know your worth as compared to a product company.

  16. John September 30, 2012 at 6:07 am #

    This is interesting and I think pretty accurate for more experienced employees, certainly not entry level. I’ve worked in the tech industry for 25 years starting as a entry developer/tech support. Back in the mid 90′s I was at 60k working in software support (socal). I moved into technical pre-sales and bumped to 90k in 98′. Today I’m paid on a national scale (I work out of my home office and I can live anywhere in the US and my pay is the same ) my base is 160k with a OTE of 220k. Granted I’m a seasoned professional but that’s where the numbers sit. On a side note to the grad comment. I hold no degree but did take some CS trade school courses. The big hits; find a entry point, work hard, self study (ongoing), deliver results and never under estimate presentation skills. Blending strong technical skills with the ability to communicate is rare and demands the highest compensation plans. I would also add that I have been burned on the equity comp in the past so although the opportunity exists still negotiate a strong compensation package.

  17. slicingpie October 8, 2012 at 2:24 am #

    We need a simple model to help us properly slice the pie. It needs to be flexible and fair. By fair I mean it needs to give each founder what they deserve. And by flexible I mean it needs to adapt over time to re-allocate the startup equity so that the distribution stays fair until the fledgling company takes flight. check out Mike Moyer’s book slicing pie it talks about 50/50 share and how to divide it through his grunt calculator.

  18. Matt October 17, 2012 at 5:02 pm #

    Can anyone please provide some more context behind what a Level 2, 3, and 4 look like? Years of experience or other factors that determine level. Thanks!

  19. fenster March 12, 2013 at 12:43 pm #

    The equity numbers seem way off and I hardly know anything about start-ups. The average equity stake at a start-up is only 0.072%??? That’s only around 7 basis points. That probably describes more accurately the stock compensation of a Wall Street employee.

    I also find Andy’s payout calculation a little dubious. Using the 5-10 revenue multiples, he’s suggesting a per employee market valuation of $2.5-5mn, which just smells too high. Then he says to multiple by .15 to get the typical/average share payout — multiplying by .15 means a 15% equity stake, which is not anywhere close to the 0.072% mean equity stake previously mentioned. 1500bp is not the same as 7bp.

    • Andy Rachleff March 15, 2013 at 11:41 am #

      I think you misunderstood a number of the points we made in the post:

      1. I was in the venture capital business for over 25 years and sat on more than 50 boards. The numbers we received from a third party survey of 135 privately held venture backed companies covering 8,362 employees was consistent with my experience.

      2. Facebook’s market cap/employee is $12 million, Google’s is $7 million and Cisco’s (a company that needs more people per dollar of revenue due to its sales force and operations) is $1.7 million. $2.5 – $5 million is a pretty good estimation for a more modern technology company.

      3. WRT equity value stake employee, i think you misunderstood the formula I proposed. I suggested multiplying 0.15 times the market cap per employee, not 15% of the total market cap. If you run that number for Facebook ($12 million market cap/employee * 15%), you get $1.8 million per employee. In contrast if you multiply Facebook’s total market cap of $63.41 Billion * an average equity stake of 0.072% you get $4.6 million. In other words my suggested approach understated the true value. In general my approach comes pretty close to the actual number. Facebook was an amazing outcome for employees :-)

  20. Joe November 19, 2013 at 7:07 pm #

    Most startups in the silicon valley say they will give you X number of shares instead of saying Y% of the company. I will never know what this X number of shares is actual percentage of the company, hence I cannot make a fair decision if this is the right compensation. Any way to know this information.

    • Andy Rachleff November 21, 2013 at 8:13 am #

      I wouldn’t trust any company that won’t tell you the fully diluted number of shares outstanding if you ask when you receive your offer.

  21. Mike Haywood December 7, 2013 at 10:20 pm #

    A great study, great data and spot on for our situation in Perth Australia.
    Thanks Andy, this is an amazing resource, well done to your team for putting it together.
    Did you use Tableau for displaying this?

    • Andy Rachleff December 10, 2013 at 4:09 pm #

      We did not

  22. Jay @ Boston Startups Guide December 13, 2013 at 11:00 am #

    What’s the sample size for the Northeastern region? The graph is radically different by region. Shifting axes also makes it difficult to compare.

    • Andy Rachleff December 15, 2013 at 11:41 am #

      Our sample includes 1308 jobs from 88 companies

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