How Much Should Startup Employees Earn? Wealthfront Tells Us With A Clever Tool

http://pandodaily.com/2012/09/18/how-much-should-startup-employees-earn-wealthfront-tells-us-with-a-clever-tool/

by protomyth • 14 years ago

78 53 14 years ago

Am I reading this wrong - out of 8,000 employees surveyed, no-one had more than 1/10th of 1% of equity.

That's a nice pension contribution not an equity share.

If you were in facebook at that level, you might get a house. But really why is that level of equity share of any influence in anyone's hiring equation?

Or am I missing something?

dkf• 14 years ago

You're basically right for the initial display.

But equity is heavily dependent on company size, click on "Company Size" to see it break down. Or "Job Function" == Software Engineer and then click "Company Size".

2is10• 14 years ago

On the initial view, only the 40th to 60th percentiles are shown. On subsequent views, only the 25th to 75th percentiles are shown. There are many above those ranges, including some outliers with 3% or more of their company (choose Scientist > Fellow for one example).

Also, according to the Source line at the bottom, executives and founders are excluded from the data set. Getting a large share of equity of a private company is rare for everyone else.

untog• 14 years ago

Equity offers to employees (past, say, the first ten) are usually at joke levels and used to try to negotiate your salary down and prevent you from leaving. Sometimes they'll even throw in a statement about "keeping you connected" or "making sure you're motivated". It's all crap- at best, the money you'll get from it will be equivalent to the bonus you'd get working for a larger company.

potatolicious2• 14 years ago

Welcome to the ugly, ugly truth about startups. Employees have so little equity compensation it's almost hilarious - and yet founders will hand out 0.1% offers and expect you to take huge haircuts for the privilege of owning a tiny sliver of a 7-8 figure exit (potential exit, actually).

Having seen the stock and bonus structure at Amazon and Google, I can confidently say that your expected outcomes are considerably higher at a top-tier tech company than at your average startup.

Sometimes I wonder where all of this "take a haircut for equity" advice is coming from for employees. It's patently terrible given the amount of equity that most deals involve.

pork• 14 years ago

I'm sorry, do you mean "paycut" or is this some sort of idiom I'm not familiar with? What does hair have to do with it?

confluence3• 14 years ago

It's a founder generated myth - come here and work for me cheap in the hopes I become a billionaire and change the world blah blah blah. The funny thing about equity is the guy who starts benefits disproportionately by simply being there earlier than others of equivalent technical ability. Contrary to popular belief - most founders are selfish morons compared to some of the people they hire later to make them rich. It's the halo effect that occurs when some of them succeed luckily that makes people think founders are different from normal people - they aren't.

Fun fact: You know all those perks provided by startups to their employees that are marketed like charity - the value of said services doesn't come close to the haircut taken for becoming a startup employee. It's psychological arbitrage.

I wonder if startups are just an exercise in psychological arbitrage driven by myths and lies that allow them to take the delta of wealth from their employees' haircuts and transfer them to founders. 40% haircut for 100 employees for 3 years at 100k par value is worth 12 million - more with DCF and even more with an adequate investment strategy investing said wealth to acquire users below cost and psychologically arbitrage big company fear into a sale or acqui-hire.

qq66• 14 years ago

It's probably an artifact of the data that Wealthfront is collecting. They're catering to people with wealth to manage, and critically, they omit founder-level employees in this chart. If you look at the people who've made over, say, $5 million from equity in Silicon Valley in the last couple of years, there are probably many more Facebook employees with 0.01% stakes than there are 1% employees at companies acquired for $500 million, or 2% employees at companies acquired for $250 million (above that and you're probably a founder).

columbo• 14 years ago

> But really why is that level of equity share of any influence in anyone's hiring equation?

To be fair the article doesn't say if it influences many people or not. I do think it is putting emphasis on something that is simply of no real importance to most people in the job market.

For example, it isn't clear to me if those jobs are paying market rate salaries or not. If that is the case then "equity" may as well be lumped into the 'free E-ZPass', 'paid gym memberships' category (not something to write home about, but nice all the same).

With that said, I'd cut any interview short that was expecting me to take a serious pay-cut for a fractional equity share.

chudi• 14 years ago

So if I moved to SF and work in the same start up that I'm working right now I would be rich by my country standards.

NonEUCitizen• 14 years ago

Your rent would go up a lot. But if you are careful about other spending, you can probably save up some money.

clarkmoody• 14 years ago

I would really appreciate a link to the page with the tool itself instead of to the blog post describing the page with the tool ;-)

BrandonM• 14 years ago

The submission is mostly-useless blog spam around a cool tool: https://blog.wealthfront.com/startup-employee-equity-compens...

danielweber• 14 years ago

Thank you, this makes it a lot easier to select which JavaScript to run. (I needed to enable wealthfront and cloudfront.)

protomyth• 14 years ago

Normally, I like to dig down to the first source, but I've noticed those articles don't get the same attention as submitting from "the big sites". I submitted the original source for a lot of today's A6 articles, but it got no upvotes and only one comment.

Looking over my submission history, the original source rarely gets the attention, and the rewrites articles get a lot of upvotes and comments. I'll keep alternating to see if there is some secondary pattern.

at-fates-hands• 14 years ago

This is actually a pretty interesting tool. Not sure how accurate it is, since its telling me I should be making the same salary I've made at large corporations the last two years.

Based on the interviewing I've been doing, most of the start-ups around here (Midwest) were offering close to 30-40K less than my corporate gigs.

svdad2• 14 years ago

In SF Bay area, my experience in the last year or so has been that salary comp is pretty much the same between start-ups and big companies, the only exception being super-early-stage startups (i.e. pre-series A) where they really don't have the money yet. The difference is that at bigco, they add bonus and equity grant that have real value, while at startup, they add some % of equity with unknown value. Companies like Amazon and Netflix are also different because they adjust the base salary up to compensate for their different equity award policies.

Evbn2• 14 years ago

Amazon pretty famously does not adjust base salaries upward compared to other big companies.

rbellio• 14 years ago

So, am I right in assuming that this does not clearly reflect that early stage in development when there are less than 20 people in your company and there are individuals with multiple roles? I understand that there's a 6-20 group in there, but what happens when your software engineer is also your administrator, QA and tech support and your CFO is also your sales developer and sales engineer.

Cool graphs though.

urish• 14 years ago

Could someone help me understand what is meant by job levels 1 - 5 ?

chrisa• 14 years ago

It's a fairly common way to do advancement in large companies, and is usually based on experience. "Software Engineer I" is entry level, "Software Engineer II" has 3 – 5 years of experience, etc.

mcherm• 14 years ago

Can you fill in "etc."? I'd be interested to know what definitions they used for the levels (and whether it was consistent across different sources of data).

paulsowden• 14 years ago

See here: http://www.bls.gov/ncs/ocs/ocs95apb.htm#programmer

dsolomon4• 14 years ago

What a load of crap.

If companies paid that much then unemployment would be next to nil.

purp• 14 years ago

For engineers in Silicon Valley, it very nearly is.

noahc3• 14 years ago

I don't think unemployment is caused by out of work programmers. It's more the folks who have no or low skill jobs and those effected most by the recession such as construction workers.

It's hard for me to imagine a construction worker being able to transition from the blue collar culture to the white collar culture that most of these jobs fall into.

Again, It's not so much that construction workers are stupid, but if the ones that reroof my apartment are any indication, insulting each others mothers and swinging hammers at each other when one pisses the other one off are standard fair.

portlander52232• 14 years ago

Actually, since the recession, unemployment increased by the same proportion in all sectors of the economy. That is, software engineering unemployment is about twice what it was before; construction unemployment is about twice what it was before; etc. etc. etc. This indicates that the problem is not structural (i.e. not due to people having the wrong skills), but due to a shortfall in demand: everybody tightened their spending at the same time.

Sources can be dug up if desired.

jasonkester• 14 years ago

I've noticed you make comments like this every time salaries are mentioned around here, with usually the same reception. You seem to honestly believe what you're saying, and you seem to be genuine when you say that you've observed lots of low salaries in your portion of the industry.

http://news.ycombinator.com/threads?id=dsolomon

But you'd benefit from knowing that it's not like that, pretty much anywhere else in the developed world. Real developers really are making six figure salaries writing code for a living, working 40 hour weeks, no tricks. More important to you, specifically: You could be making six figures as a software developer. You just need to step out of your niche and go find a job for a public sector company.

Given your comment history, I doubt you'll believe me, or any of the others here replying to you, or the dozens of people who have replied to you over the years. But it's true. We look forward to seeing you out here some day.

noahc3• 14 years ago

You sucked me in! I didn't recognize the name, but I remember him as the "DC Guy With Clearance". I browsed his comments over the past year, and it's pretty clear to me that he either enjoys being underpaid and views it as a badge of honor or is so completely mistrusting of other people that he thinks that we are trying to screw him over when we (tens if not hundreds of people) suggest that he can easily get a higher paying job else where.

strlen2• 14 years ago

I think you meant "for a private sector company".

What dsolomon is saying sounds completely incredulous to me: I've yet to hear of a single company that requires employees to purchase their own hardware or software. This is true not just of the top tier SV companies, but of _all_ companies who are aware that building software is their core competency. That's simply the difference between software being a cost center vs. a profit center.

dsolomon4• 14 years ago

I have a low tolerance for BS.

mirsadm• 14 years ago

Not sure about the bay area but $100k salaries are common in Australia. It isn't much money when you consider how expensive everything is.

jstultz• 14 years ago

From the actual Wealthfront page:

"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 exponential (πr²)."

It seems to me that the value of growing the size of the pie as well as one's share of the pie is pretty easily understood and not in need of an analogy. But yet, this guy has decided to use one, and it is terrible.

Not only is it quadratic, not exponential (a relatively minor detail), but what on earth, exactly, is the radius meant to represent in this analogy?

confluence3• 14 years ago

The bullshit you buy when you became a startup employee. Big companies grow their bullshit in linear time - whereas startups are exponential (whoops - I'm a wealth manager to stupid to do basic maths - of course I mean quadratic).

Seeing these math flaws make me wonder if most wealth managers are, in fact, morons. I'm guessing they are - otherwise wouldn't they be making their own wealth to manage?

Oh wait - this is how they are going to do it - ride the tech bubble and impressionable young millionaires to make their fortune.

Clever girl (Jurassic park reference).

/sarcasm

SG-• 14 years ago

I was hoping to read some real details instead of a simple paragraph and this tool. My opinion is that if you're a startup and you hire some people that don't get a share in the company, you're going to have to likely pay them a decent salary and not make promises of wealth one day. You'll also have to pay them more than you plan on paying yourself even if you're more qualified since you are getting more out of it if it succeeds.

I worked for someone that started a small company (we were 2), I was simply a contractor/employee. The problem was and why I left was that he treated me as an equal in terms of responsibility even tho I had no stake in the company.

peacemaker• 14 years ago

I guess I'm doing something wrong according to this tool! I recently moved to the bay area and as a software engineer (I'd say level 4-5 on this tool) I'm earning nowhere near the numbers this tool is showing. No equity either...

Are these numbers a true reflection of the compensation levels?

moocow01• 14 years ago

Id say from being involved with hiring in a few different spots that they are definitely on the higher side but not insanely so. There are a lot of jobs in startups that are quite low on salary but higher on the equity side (or atleast thats what the pitch is) and those may not be as represented here. The shock to me was how little of difference there seems to be in salary based upon location - with cost of living put into the mix it makes me question being in California

rabidsnail• 14 years ago

Why would I use this instead of the BLS data: http://www.bls.gov/ncs/ocs/sp/ncbl1627.txt

Search for "Software Engineers, Applications"

confluence3• 14 years ago

> We know Mark Zuckerberg did not build Facebook to get rich. His vision of “making the world more open and connected,” is Facebook’s real raison d’être.

Sounds like ex post facto rewriting history bullshit to me.

You start companies to make money (otherwise you'd start a non-profit). You may or may not have other reasons for starting the company. However saying that you didn't want the money after you become rich is false modesty and a form of social signalling.

Founders may or may not want to change the world - but they unequivocally want to make a lot of money regardless of their other reasons.

Indeed, most of these other reasons should be classified under the "reality distortion field" umbrella.

These are used so that founders can say "Come with me and help me change the world!" - when what they really mean to say is "Come make me filthy rich and get paid less for pleasure of doing so you ingracious B player!".

Psychological arbitrage is a real factor in start-ups and a lot of social negotiation. Be careful when dealing with others and remember - everyone is trying to screw you in some form or another (see Facebook founder fight over rights to stock).

Trust no one (this is a PR piece and I'm 100% biased).

aidenn0• 14 years ago

There are exceptions; Elon Musk clearly started SpaceX because he couldn't afford to develop the technology at a non-profit. Similarly it is common for well-off people who are retirement age to start a business that has no possibility of making any significant money just to have something to do.

exxec• 14 years ago

I'm from Germany, and 100k$ sounds enormous to me. This are saleries only top tier manegement is getting paid. But I'm curious about your additional costs like health insurance, unemployment insurance and so on. Also I'm curious about how much taxes you have to pay and whats a common net-salery (right word? opposite to gross^^)

donavanm• 14 years ago

After taxes, insurance, etc figure $65-70,000 net or "take home". Then you can invest up to $16,000 with deferred/sheltered taxes for 401k (private pension).

How Much Should Startup Employees Earn? Wealthfront Tells Us With A Clever Tool

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