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Equity as compensation in startups creates competition in tech industry

September 22nd, 2016

 

Companies such as Airbnb and Uber surpassed companies like Amazon and Apple in terms of compensation of their software engineers in the past few months.

 

Data from Paysa, a provider of compensation information, shows that tech start-up companies like Airbnb and Uber give their employees more equity annually than any other tech company.

 

Equity compensation is getting paid in various ways that does not include physical cash, such as payment through receiving stocks in the company.

 

An article from Paysa states that several public and private consumer Internet companies pay roughly the same average salary to their software engineers and other techincans of about $130,000.

 

This suggests that  although employees are being paid roughly the same average salary, a few companies such as Airbnb and Uber are providing additional compensation.

 

When it comes to bonuses and equity, companies such as Airbnb, Uber and Twitter excel. Airbnb, being the top company in total compensation, gives $158,000 in equity annually. This also includes the additional $136,000 base salary but does not give a signing or annual bonuses to their employees rarely ever.

 

Overall, the software engineers receive a total of $312,000 yearly. Amazon, the lowest company in total compensation, pays $121,000 as the base salary, $33,000 in equity, $30,000 in signing bonus and $19,000 in an annual bonus.

 

Although there are bonuses as well as equity, the compensation only totals $203,000.

 

The other companies fall between Airbnb and Amazon, like Uber paying their employees $292,000 while Apple pays theirs $208,000.

 

According to Bizjournals, Paysa did not gather “senior” software engineers’ salaries when comprising the annual salaries from the companies studied.

 

Instead, those companies prefered to use software engineers who were lower down the company totem pole.

 

This makes the data more accurate since none of the companies had a outliers who could skew the data with outrageously high salaries. Rather, the data reflects what a new software engineer would receive when beginning a job at each of these respective companies.

 

An article from The New York Times acknowledges the issue with the idea of employees being paid through equity.

 

When receiving stocks during a healthy period in the stock markets, an employee will feel that they are getting fair compensation while keeping interested in the longevity of his or her company.

 

When the stock market begins to crash, an employee will see a drop in pay, causing outrage due to the thought of pay cuts.
Outrages could potentially result in the formation of unions and strikes.

 

Even though Airbnb and Uber are currently paying their employees more, this does not project the stability of the stock market within the upcoming years.

 

Companies may be more strategic by paying signing and annual bonuses, not equity compensation, in order to retain quality employees.

 

Editor’s Note: Information from Paysa, The New York Times, and Bizjournals was used in this report.