Over the past decade, salary growth in the tech industry reached unprecedented heights, with engineers and managers earning multi-million dollar compensation packages. However, the era of seemingly limitless pay increases is now over. This article explores the ongoing big tech salary collapse caused by subtle and overt compensation changes, stock vesting tricks, and shifting corporate priorities that are reshaping how tech employees are paid.
The Rise and Peak of Big Tech Salaries
The last ten years saw explosive salary growth in tech, driven by massive corporate profits and relentless growth ambitions. Entry-level engineers could command nearly $200,000 a year, while senior managers easily surpassed $400,000, and directors earned over a million. Stock compensation further amplified wealth, creating a cohort of multi-millionaires. The peak came in 2021 when demand surged amid the pandemic, pushing pay increases beyond real estate prices and forcing fierce bidding wars among the top companies.
Causes Behind the Big Tech Salary Collapse
Recently, several economic pressures have prompted a pullback on compensation. High interest rates and stagnant revenue growth forced tech companies to prioritize profit maximization. This shift translated into layoffs, program cuts, and salary reductions, but in ways that are less visible than simple pay decreases. Instead, companies have hidden these cuts in the fine print of their equity plans and compensation structures to maintain their reputation for generous pay while controlling costs.
How Big Tech Compensation Works
Big tech salaries are not all about cash payouts. For instance, a director at Facebook might have a $1.3 million annual compensation package, but only about $320,000 is cash salary. The majority is in stock units granted over multiple years. Stock compensation usually vests over a four-year period, often in equal annual increments. But companies now manipulate vesting schedules to reduce actual employee payouts.
Predatory Vesting Practices
Many companies use unconventional vesting schedules to reduce stock payouts. Amazon, for example, skews stock vesting heavily to later years—only 5% unlocks in year one and 15% in year two, with 80% delayed until years three and four. Since many employees leave before year two, Amazon retains much of its granted stock. Stripe uses annual one-year grants instead of four-year grants, limiting comp compounding when the company grows. Google introduced front-loaded vesting schedules, increasing early year vesting percentages while lowering total stock grants, effectively cutting stock comp value over four years.
Front Loaded Vesting and Its Effects
Google’s front loaded vesting meant offering more stock upfront but reducing total grant value. Initial plans gave 33% vesting in the first two years; current schedules escalate this up to 50% in year one but drastically reduce overall stock compensation. For example, a hypothetical $1 million stock grant might now be worth only $657,000 or even $500,000 after accounting for the new schedules. This front loading inflates first-year earnings but cuts total long-term payouts significantly.
Reduced Returns on Stock Compensation
Stock compensation’s value also depends on company growth. While Google employees who joined in 2017 saw their stock triple, new hires in 2021 faced stock values dropping as much as 45%. Even optimistic growth forecasts predict much smaller gains for mature companies, making current stock grants 3 to 4 times less lucrative than in previous years.
Direct Salary Cuts and Other Cost Reductions
In addition to vesting tweaks, big tech companies have also cut base salaries, especially for remote workers relocating to lower-cost areas. Google, for example, cut salaries by as much as 25% aligned with cost-of-living changes. Other measures include reducing benefits and closely monitoring employee productivity, further reflecting cost control efforts across the sector.
The Overall Impact on Big Tech Compensation
When combining vesting schedule changes, stock performance declines, salary cuts, and benefit reductions, compensation for big tech employees today can be 50% to 70% less lucrative compared to the 2010s. While still lucrative compared to other industries, the golden era of skyrocketing tech pay appears to be ending.
Future Outlook for Big Tech Employees
Cost-saving measures and profit-focus strategies signal maturity for big tech giants like Google and Facebook. With growth slowing, the focus shifts to operational efficiency rather than groundbreaking innovation. This trend may cause top talent to leave these companies in favor of smaller firms offering more opportunities and higher rewards. The big tech salary collapse marks a transition from rapid expansion to consolidation and profitability.
Conclusion
Big tech salary collapse is not just about visible pay cuts but a complex mix of stock vesting manipulations, reduced stock upside, and strategic cost reductions. While compensation remains relatively high, the industry has moved past the era of unchecked pay growth. Engineers and managers entering big tech today face a fundamentally different compensation landscape shaped by economic realities and company strategies focused on longevity and profit maximization.