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The 4 Key Elements of Compensation for Software Engineers

April 1, 2022
Linzi Nield
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Calculating the right compensation is tricky for any job, but when it comes to software engineering roles, the stakes are higher than ever. The ongoing engineer shortage means that even a small misstep can turn top talent away during the hiring process, and a subpar compensation strategy can lead to retention issues for engineers already on the roster.

So what goes into an ideal compensation package for software engineers? We’ve put together a list of four key elements to consider when assembling or assessing an engineering compensation package.

1. Balancing salaries and equity compensation should be top priority

Compensation conversations are often centered around base salary and bonuses, but equity compensation should be considered just as critical.

For many engineers, the right equity package can be life-changing. Six-figure payouts are common, and seven- or even eight-figure windfalls are not unheard of. For example, one engineer grossed more than $12M during Doordash’s IPO after only 2 years at the company. It’s common for engineers to weigh their employment prospects based on the equity compensation they’re offered.

Of course, equity compensation is not without its risks. There’s no guarantee that shares will be worth anything, which is why equity isn’t important to everyone. According to Terminal’s 2022 State of Remote Engineering report, 32% of engineers say that equity compensation was somewhat important, and 11% say it wasn’t important at all. 

This highlights the significance of compensation packages that blend equity compensation with salary. Every compensation package should be considered a starting point, and the ensuing negotiations an opportunity to find the right balance for each individual candidate. By finding the right blend of salary and equity, each employee can match how they’re compensated with their own risk-reward profile.

2. Equity compensation is especially important for international hires

According to one study, 99% of all US tech companies offer shares in the company as part of their compensation packages to its engineers. But non-US-based engineers aren’t getting the same in their compensation packages, according to the State of Remote Engineering report. 57% of Latin American engineers and 46% of Canadian engineers say equity compensation wasn’t part of their overall compensation packages at all. And yet, 89% of international software engineers say equity compensation is important to them. 

This presents an opportunity for employers and employees alike. Employers who offer competitive equity packages to international engineers will stand out from the competition and attract the cream of the crop; engineers can use this fact as a way to open the conversation with their managers or during the interview process to advocate for their needs.

99% of US tech companies offer equity compensation to employees, but only 57% or Latin American engineers and 46% of Canadian engineers receive equity.

Terminal’s 2022 State of Remote Engineering report

3. Engineers need salary transparency more than ever

Whether considering either salary or equity compensation, many remote global engineers feel like they’re in the dark. Only 68% of engineers say they have a clear understanding of what the market pays remote engineers in their country, and many feel it can be challenging to find out what a role should pay in general.

But exactly what type of salary transparency do engineers want? 79% of engineers say salary ranges posted with job listings would help them better understand and evaluate an open role. And most would also like to know when a salary would be location-based: 74% say it’s important for recruiters to be upfront during the interview process when salary would vary based on where an employee lives. 

Businesses should use every advantage they can get when seeking talent, and salary transparency can be an edge when optimizing the talent pipeline. When an engineer knows right off the bat what they’ll be interviewing for, they may be more likely to apply. And it also likely helps with retention. Engineers who find out later that they’re making less than their peers may be more likely to become disgruntled and leave. Employers should avoid giving their engineers this sort of unhappy surprise.

4. Engineers don’t want to relocate – even if it means more money

Remote engineers aren’t interested in relocating. Instead, they expect Silicon Valley compensation to come to them. 27% of remote engineers say that they’d need their salary doubled to consider relocating; 19% say they’d need their salary more than doubled; and 23% say they wouldn’t move no matter how high the pay increase.

This shouldn’t be too surprising considering that more than half of global engineers feel a move isn’t necessary. 52% of global engineers say that they have great opportunities where they live. 

Employers should also be cautious when considering location-based salaries for their software engineers. Location-based salaries are deeply unpopular, with 30% of remote engineers saying they’d leave their jobs if their employers enacted location-based salaries.

Companies hoping to find top talent abroad should take note of these overwhelming numbers. It underscores the importance of tadopting a hiring strategy built on remote best practices and a remote-first culture

Remote engineers don’t want to relocate. Instead, they expect Silicon Valley compensation to come to them.

Terminal’s 2022 State of Remote Engineering report

Empowered engineers are happy engineers

Empowered engineers are happier, and they also do better work. That’s why employers and engineers should both invest in the tools needed to create an atmosphere of empowerment in the workplace. 

Compensation is a central part of this. A robust, holistic approach to compensation – including competitive salaries, generous equity compensation, and other employees benefits – will set employers apart and empower engineers along the way.

After all, the more empowered an engineer feels, the likelier they are to stick around and do amazing things.

Find out more about software engineers’ preferences and challenges in Terminal’s 2022 State of Remote Engineering report.

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