Chapter 1: Overview of Salary Trends

Levels.fyi has unveiled its 2022 "End of Year Pay Report," which aggregates 150,000 verified salary submissions from candidates who uploaded their offer letters. This data culminates in a ranking of companies offering the highest salaries, categorized by engineering level and geographic location. Astonishingly, new graduate software engineers may earn as much as $275,000, while senior engineers can reach up to $550,000, and principal engineers can exceed $1 million.

While these figures seem remarkable, it’s essential to delve deeper into the companies involved and the implications of these statistics.

Section 1.1: The Importance of Cash Compensation

When it comes to compensation, cash is paramount. For instance, data from firms like Two Sigma, known for their all-cash pay structure, likely reflects accurate compensation levels.

A staggering new graduate salary of $274,000 is certainly noteworthy. For further insights into Two Sigma, I've documented my interview journey and a subsequent $550,000 offer in a separate article.

Interestingly, Two Sigma stands out as the sole hedge fund or trading firm on this list, prompting inquiries about the limited data from other high-paying firms in this sector. For instance, Jane Street's offers for new graduate software engineers would likely position it near the top of this leaderboard, along with firms like Hudson River Trading, Citadel, and Jump Trading.

Here’s another compelling example: a Netflix engineer with six years of experience received an $800,000 offer from a trading company.

Thanks to Netflix, which also ranks as a top cash-only compensation firm outside of trading and hedge fund categories, for contributing to this trend.

Section 1.2: The Impact of Stock Prices on Compensation

Public company stock valuations have plummeted recently, with Roblox experiencing a 73% drop this year.

LinkedIn (a Microsoft subsidiary) faced a 30% decrease, while Facebook witnessed a staggering 65% drop.

To illustrate the effects of these declining prices, consider the January 2022 offer of $625,000 for a Facebook Staff Engineer.

This individual received $325,000 in stock. At that time, Facebook’s stock was around $300, translating to approximately 1,170 stock units. If they held onto these shares, their current stock value would be roughly $140,000, resulting in an annual compensation adjustment to $440,000.

Chapter 2: Challenges in Valuing Private Company Compensation

Evaluating compensation in private companies poses its own challenges, often leading to inflated perceptions. Two main factors contribute to this:

• Liquidity Issues: Companies like Stripe, Cruise, Databricks, and Waymo are private, making their stock difficult to trade. While early employees might sell stock options on secondary markets, restricted stock units (RSUs) typically lack easy liquidity. Cruise is an exception, offering a stock buyback program.
• Falling Equity Valuations: In 2022, outside investors marked down Stripe's valuation by 64%. Databricks also faced a 7% valuation decrease. When private firms issue RSUs, the price is based on a 409A valuation determined by independent auditors, which may not reflect the true market price and is updated quarterly.

It's important to note that the numbers presented are median values. The report includes a disclaimer emphasizing that while these figures represent the highest salaries for each level, exceptional interview performance, niche expertise, and strong negotiation skills can lead to offers surpassing these benchmarks.

Quantitative trading firms and hedge funds are particularly inclined to offer premium salaries to attract top engineering talent.

Interested in software engineering interview preparation or coding tips? Check out my comprehensive collection of writings organized by topic. If you have suggestions for future topics, feel free to share!