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  • Writer's pictureDarius Smith

5 types of Compensation When Working in Tech

As a Computer Engineering graduate from UNLV, my journey into the tech industry began in 2017. Over the past six years, I've navigated various tech companies, primarily in fintech startups. In this blog post, we'll delve into all the diverse types of compensation I've encountered during my career. Let's explore the five key components of compensation and what you should anticipate when negotiating your next tech job.

Dispelling the Myth: Tech Isn't Just for Engineers

Before diving into compensation details, let's debunk a prevailing myth: tech companies don't exclusively hire engineers. Tech firms encompass departments like Finance, Marketing, Legal, Sales, Operations, Executives, Human Resources, and IT, among others. While not every position or company provides all forms of compensation, it's crucial to understand your worth and negotiate accordingly. You can have a high paying career with all of these types of compensation we will discuss; you just have to believe you are worthy!

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On Target Earnings (OTE): Beyond the Base Salary

The first two and most popular types of comp paid by tech companies fall under what we call OTE. It stands for On Target Earnings, which which is the sum of your base salary and additional variable pay. It's a target because the variable pay could be more or less depending on performance. Tech companies generally offer competitive salaries, making them stand out across various industries. And when I say competitive, I mean 6-figures and sometimes multiple 6-figures for the right skillset and experience! Variable pay, such as quarterly bonuses, adds an extra layer of motivation and reward based on performance.

When I coach high earners that get bonuses, I always teach them not to add variable pay into their regular monthly budget, but instead to strategically use it to take gigantic steps at their big goals. Variable pay is not guaranteed so we can’t count on it in our budget, so we look at as additional income. But when you know it's real because you get that bonus check in your account, we have a lot of fun planning for that money! Some use it to knock out huge chunks of debt, some use it for investing, some obviously use it for fun. My favorite thing is to save 2 or 3 quarterly bonus checks out of the year to use as a downpayment on an investment property. We've done this once in 2022 and I'm looking forward to doing it again.

Investing in Your Future: 401k Match

The third component is the 401k match, a crucial aspect of your long-term financial planning. This gives you the ability to you essentially double your investments but at half the cost, but you can contribute more than the match of course. Everything contributed by your employer is literally free money used to increase your net worth and is saved specifically for retirement so do NOT leave that money on the table!

Regardless if your employer offers a match or not, or even whether they offer a 401k or not, you still want to be investing on your on to sweeten the deal. You should do this in an IRA or brokerage account. Both are very easy to set up and use.

Equity: Your Piece of the Ownership Pie

This type of compensation won’t be offered by every company but it is very common in the tech industry, especially tech startups, and all of the best tech companies give shares of the ownership in the company as compensation to its employees. You do what you want, but I'd be very hesitant to accept a job offer at a company that did not offer equity as part of compensation.

Equity is especially prevalent in tech startups because it’s used to incentivize top prospects to join an unproven company with hopes of a big payout some time in the future. Equity is super powerful when the company is on pace to either go public or be bought out by a larger company. Equity is worth a thousand pounds of air if the company is not on a trajectory of success. So be cautious of companies giving empty promises.

Out of the 4 times I’ve been granted shares at a tech startup, the equity has only panned out to actually be worth something only 1 of the 4 times. 2 of the companies went out of business, meaning most or all of the staff was laid off. And in one case, I left the company before my equity had vested. They ALL say they are working on going public. They ALL are super excited about the company’s progress so far. But they ALL don’t end up making it to the finish line. Now while you should be cautious of companies over hyping this, you should also know that finding the right company at the right time could literally change your life.

This advice is specific to tech startups. Many people for tech companies that have already gone public and they offer equity as well. This is basically like cash. Every share you are granted that vests is money in your pocket that you can either keep to let grow or sell for actual cash. The only caveat is public companies generally are more stingy with equity as compensation.

Sign on Bonus: Negotiating for Immediate Impact

Negotiating a sign on bonus is one of the fastest ways to make a very large impact on your personal finance journey. A sign-on bonus is just money companies use as a negotiation tool to incentivize top prospects, like you, to choose to work for their company over another company you might be interviewing with.

Two things you need in order to negotiate a sign-on bonus are: 1) You have to set yourself apart from other prospects to show you can bring more value than anyone else. And 2) you have to show that you have other employment options other than their company. The easiest way is to interview with other companies that also want you. You need the company to say you are the person they want to hire and they will do anything to not lose you to a competitor. Sign-on bonuses are offered often for experienced and proven employees because great workers are hard to find.


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