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Compensating Software Engineers in 2024: The Comp Leader's Playbook

The catch-all job title “Software Engineer” represents a broad range of technical professionals with varying functional specializations and levels of proficiency. In addition to the plethora of required core competencies, Software Engineers must continuously hone their technical skills as they relate to specific tools and programming languages. 

These lifelong learners invest heavily in their own development, both in terms of time and money. Systems designers and developers expect their employers to follow suit by valuing their skills and investing in their career growth. Employers need to identify the key factors driving software engineers to join and stay with their organizations. 

The success of SaaS businesses in 2024 hinges on their ability to incorporate all elements of SaaS employee compensation in the right measures and combinations. By designing a tailored total rewards strategy, companies can set themselves apart as the employer of choice for their ideal hires.  

The Role of Total Rewards in Software Engineer Recruitment

Workforce Planning and Job Design

Before implementing a recruitment strategy, your company likely takes inventory of existing and needed skills. As you’ve observed, planning only for immediate hiring needs perpetuates the cycle of triage. Frequent advancements and changes in technology create the ongoing need to develop existing employees, redesign jobs, and hire new talent. Unless employers proactively identify where and how to obtain the right future tech talent, they’ll forever chase high-price-tag unicorn candidates with magical skill sets. 

Career Benefits for Millenials and Generation Z

One consideration is the generational. With the looming mass retirement of Baby Boomers and the debut of Generation Z in the workplace, SaaS companies need to focus on retaining millennials and Gen Xers and recruiting Gen Zers. 

In addition to upskilling and reskilling millennials and Gen Xers, employers need to continuously source new graduates and junior-level developers in Generation Z. Your success in this undertaking hinges on understanding the motivations and priorities of Gen Zers. 2023 survey results published by Samsung show that 30% of Gen Z respondents plan to work in the tech industry. This tech-savvy demographic, born between 1997 and 2012, watched their parents struggle during the Great Recession. As a result, they highly value the financial security of higher-paying jobs. Research by Deloitte shows that other rewards like career development, interesting projects, flexible work, and company core value alignment also rank very high on their list of non-negotiables.

Notably, this generation of future employees aspires to be entrepreneurs more than any other type of professional. It follows that Interesting and rewarding work for Gen Zers includes intrapreneurship, which allows employees to function like entrepreneurs without the risks of self-employment. As intrapreneurs, employees function as part of relatively autonomous teams to innovate and improve upon or create new products and services for their employer. This job design benefit is also popular with millennials, so the recruitment and retention gains from offering intrapreneurship opportunities are both immediate and long-term. 

With so many must-have career benefits on future and junior tech employees' lists, homogeneously checking all boxes for every candidate is an uphill endeavor. Employers looking to land and retain the best and brightest software professionals must develop a total rewards program with the flexibility to cater to individual preferences and priorities.  SaaS companies must offer highly customizable career paths and total compensation plans while complying with pay equity and transparency laws. Easy, right?...Don't worry, our Guide explains how. Read on!

Combining Base Pay and Fringe Benefits 

More Money, Fewer Problems?

Competitive base pay for software engineers is critical for both recruitment and retention. In the tech industry, a higher base salary has been directly linked to decreased quit probability. According to research conducted by Mercer, a tech industry employee’s likelihood of quitting decreases by 3% for every 1% increase in base pay. This measurable impact signals the need to continuously reevaluate existing employee’s compensation and make needed adjustments.  

As previously mentioned, competitive base pay is a top priority for the future workforce. What about current talent? Despite prior research on Millennial priorities, a new survey by the Harris Poll reveals that millennials, on average, think they need $525,000 per year in base salary to “buy” happiness. Generations Z and X, in contrast, only believe they need salaries of about $130,000 a year to be happy. The stark contrast in the perceived cost of happiness is attributed by many to high student loan and credit card debt among millennials, combined with inflation and high-interest rates. 

Fringe Benefits to Bolster Total Compensation

Employers have the opportunity to save on base salary while focusing on what matters to their software engineers.  By augmenting base pay with meaningful fringe benefits that directly address their employees’ concerns, employers of tech talent craft attractive total rewards programs. 

One fringe benefit that has recently gained popularity is student loan debt support. Through 2025, the IRS is allowing employers to include student loan debt relief in their Education Assistance Programs. Under Education Assistance Plans, employers may reimburse up to $5,250 per tax year for qualified education expenses. Thanks to the SECURE ACT 2.0, employers may also match employees’ student loan payments with contributions to their 401(k) retirement plan. 

In addition to debt relief benefits, companies can expect an ROI for their non-cash rewards. The Incentive Research Foundation reports that inflation has increased the perceived value of non-cash rewards like all-expense-paid trips, merchandise, and event tickets. 

With the ever-increasing need for flexible fringe benefits and career development opportunities, combined with the demand for higher base pay, employers need one source of truth for managers and compensation executives to view, administer, and report on the total value of all forms of employee compensation. Total rewards statements and career roadmaps should accompany every software engineer offer letter.

Barriers to Effective Total Compensation Management

Lack of transparency and clarity 

Even the most innovative or holistic compensation plan designs fall flat when employers fail to effectively convey the full vision and value proposition to employees and job seekers. Managers, in particular, need to be educated on the “why” behind your organization’s compensation structure. Employees look to their supervisors for clarification on the rationale behind pay decisions. They also want reassurance that they are being compensated fairly relative to their team members. 

Nebulous equity packages with unclear, hypothetical payout criteria confuse employees and make them question the value of the benefit. Even raises can bomb with software engineers if poorly communicated. Unclear pay increase criterion also generates uncertainty and undermines employee trust in the organization. 

Team members want to know if their pay increase was intended to offset inflation, reward them for their performance or tenure, or all of the above. How did the company calculate employees’ bonus payments? To what extent were they based on company performance? For managers to confidently and correctly covey this critical messaging, they need real-time access to the information. Managers should be able to report on their team’s total compensation relative to their established budget. They should also be able to see where increased salaries fall within each position’s pay bands.

Inefficient processes

Inefficient processes often cause or result from poor communication, outdated technology, disorganized or inaccessible information, lengthy hiring processes, and high turnover. Signs of poorly designed compensation management processes include:

  • Wasted time and delays. Valued employees wait in limbo for answers about pay increases and bonus payments from their uninformed Managers. Managers experience frustration as they are at the mercy of other stakeholders (e.g. HR Admin, Controller, etc.) to receive reports on their team members’ historical salary, bonus, and equity data. Poor collaboration between key stakeholders such as HR, managers (reviewers), and leadership delays compensation decisions. 
  • Missed opportunities. Poor manager workflows for reviewing their team’s compensation and recommending increased results in missed opportunities to effectively reward and retain top performers. Strategy falls by the wayside in the time crunch to get all of the data into spreadsheets and share the right data timely with the right people. The status quo, in these instances, represents the best-case scenario.
  • Costly mistakes. Manual, error-prone compensation calculations, and communications harm morale, jeopardize retention, and create legal liability.

Inconsistent pay administration 

Inconsistent pay practices often result from department heads operating in their own bubbles, They set pay rates without regard to the company’s overall objectives. Instead, Pay decisions are based on anecdotes like “This was what we paid Full-Stack Developers at my last company.” Managers unilaterally decide that they “have to” offer above-market base pay to hire the right talent. The poor alignment with candidates' overall motivations results in subpar hires. The over-inflated base pay for new hires causes wage compression and demotivates long-term, loyal employees. 

Another major issue occurs when pay for performance criteria varies wildly from team to team or even from team member to team member. This inequity increases the potential for discrimination claims and lawsuits. This practice also triggers compliance concerns where employers are required to offer men and women “equal pay for substantially equal work” under pay equity laws.

Pay Practices That Improve Software Engineer Retention  

Everyone from your CEO to your end customers feels the financial and cultural impact of top talent turnover at your organization. Product and service quality and delivery measurably suffer. Sales take a hit, and loyal customers leave for other solutions. Employers need the most help retaining employees during the first 2 to 5 years of employment. Employees who make it past these initial years are far more likely to stay on with the organization longer.  Retaining software professionals long-term requires a tailored approach. Sound pay practices will play a critical role in software engineer retention in 2024 and beyond.  

Define your compensation program in “techy” terms

Software engineers tend towards analytical thinking, and they question things by nature. These conscientious problem-solvers value accuracy and objectivity. (Just the facts, please!) Employers should communicate pay policies clearly, and be ready with ample supporting information about their promotion and incentives strategy. Managers and Comp leaders' should leverage their compensation management system’s built-in interface, graphs, charts, and reports to demonstrate pay grades, pay for performance criteria, and total compensation composition. 

Whether application developers, system testers, or database builders, software professionals want to understand the logic and calculations involved in pay decisions. It’s important to crunch as much internal and external compensation data as possible to support your decisions. The best compensation management software analyzes and benchmarks standard and custom comp and benefits types, including the estimated monetary value of equity, benefits, PTO, and perks.

Set well-aligned pay-for-performance expectations

Pay-for-performance practices notoriously backfire on employers who fail to link pay to the right criterion. Performance criteria tied to employee pay must align with company strategic- and team-level goals. An effective model starts with company-level goals like launching new product features or improving data security. Those are then mapped to team-level goals, such as coming up with automation solutions or identifying bugs. Individuals on the team are then provided with the big picture so they understand how their personalized goals support the company and their team. To pull this off, employers need to understand when and how to correctly employ OKRs, KPIs, and SMART goals.

These performance management tools are not new to SaaS leaders. For example, a recent OKR impact survey found that the tech industry makes up 45% of all companies that use objectives and key results (OKRs). How well OKRs work in practice depends on their design and application.  As the Harvard Business Review explains, OKRs alone are better suited for team-level objectives than individual-level ones. To design individual objectives, you need the ability to measure some kind of positive change. For example, a Software Engineer may want to improve her coding skills to move up to the next pay grade. What key performance indicators (KPIs) will prove that she is ready for promotion? How can we measure the achievement of her desired skill level? 

Managers who use the SMART framework to develop goals focus on specific individual-level improvements that are straightforward, accurately measured, relevant to the organization's current needs, and must be completed within a set timeframe. Ideally, the SMART goals are also tied to individual KPIs to show how well an engineer is progressing toward each goal. This works best with frequent one-on-one check-ins and quarterly performance reviews. The employee is then rewarded in some meaningful way for achieving their goals on a regular cadence. Teams, in turn, meet their objectives because individual teammates stay informed, motivated, and engaged. The team's successes take the company to the next level, and the cycle continues.   

Common Compensation Types for Software Engineers

Base Salary

Base salary or base pay is the component of compensation that covers essential job functions and does not fluctuate. Base pay does not include variable pay like bonuses or overtime pay. 

Software engineers may be paid a set per-week salary or may be paid a set hourly rate. In either case, US software engineers usually fall under the FLSA’s computer professional exemption, meaning that they are not entitled to overtime pay. The minimum employers are allowed to pay software engineers to keep them exempt from overtime pay is $27.63 an hour or a weekly wage of $684. A proposed rule would also increase the minimum weekly wage for exemption purposes to $1,059 (about $55,000 per year). Apart from paid internships, which are rarely exempt from overtime anyway, most software engineers make a base salary of more than $100,000 per year. So the proposed rule is not expected to cause any major disruptions in the SaaS industry. 

Source: Motion Recruitment’s 2024 Tech Salary Guide

2024 Base Pay Increases

On average, US employers are expected to increase salaries by 4% in 2024. The tech industry’s pay increases have been higher than the general employer population’s. This trend is expected to carry forward into 2024.

While base pay increases in 2024 may vary slightly between different software engineering functional areas, the base pay increase for AI-focused software engineers is 8% to 12% higher than their corresponding non-AI counterparts. Based on job levels, this percent difference puts AI specialists squarely into their own separate pay bands.

Source: Motion Recruitment’s 2024 Tech Salary Guide

Sample Pay Bands from 2023 Data

Example bands from data: 

- Entry Level $75-$85, 

- Level II $95-$105, 

- Level III $115-$125 

- Level IV $135-$145 and 

- Level 5 $155-$165

Bonus

Bonuses are variable compensation in addition to base pay. These payments are usually triggered by specific achievements or events. In 2022, the average bonus was equal to 11% of the base salary for US-based FLSA-exempt employees.

Relocation Bonus

When candidates are in high demand but in low local supply, organizations may offer a one-time relocation bonus to incentivize candidates to move to the required work location. While the computer and IT industry overall offers the most remote work opportunities, certain sectors require software engineers to work onsite. The primary considerations for whether or not a software engineer needs to work onsite are the type of data and equipment he needs to access and the level of public or governmental oversight. For example, a programmer or analyst with top-secret security clearance working for the Department of Defense is more likely to work onsite than a test prep application developer working for a privately held company. 

Relocation bonuses may be paid as reimbursements, lump-sum, or direct bill (e.g., paying relocation companies directly). The amount of relocation bonus issued depends on the organization’s normal practices as well as the estimated cost of a specific employee’s relocation. Employers tally the estimated costs for travel, house hunting, temporary housing, storage, and closing costs.  

Performance Bonuses

Spot or Retention 

When to use spot bonuses. According to WTW’s latest Salary Budget Planning Survey, 40% of all employers plan on issuing spot bonuses in 2024. Retaining software engineers means rewarding them in real time for a job well done. In particular, spot bonuses are a must for companies that only issue base pay increases once a year. Organizations need to keep up with market changes and reward employees timely for work performed above and beyond the scope of their essential job duties. Projects that require extended or inflexible hours that impact work-life balance also trigger the need for spot bonuses. 

Avoiding discrimination. Regardless of the specific spot bonus triggering event, employers should be prepared to show that objective criteria were used and fairly applied to all team members in similar circumstances to avoid discrimination claims under EEO and pay equity laws. Even inadvertently disadvantaging a group of employees who share a protected class (e.g., race, religion, sex, disability, or veteran status, etc.) can amount to illegal employment practices. Human resources and compensation professionals should closely track when, why, and to whom spot bonuses are issued. The best compensation management software also allows custom approval levels for discretionary bonuses to ensure HR can approve them before managers issue them. 

Compensation management tools like Aeqium include automated warnings to managers when there are discrepancies in employee base pay or equity across the same job levels.

Stay Interviews. Regular stay interviews are a great way to identify at-risk employees who are likely to leave the company within the next 6 months. Stay interview results inform employers which employees would be more likely to stay if they received a spot bonus. Especially when stay interviews are skip-level, they improve the identification of cultural issues or opportunities to improve management practices. Leaders and managers looking to check in with team members should come to the conversation prepared by reviewing the employee’s compensation and promotion history ahead of time. Make sure your compensation management system allows the right stakeholders quick access to this information, including individual notes and team reports.

Monthly or Quarterly

The typical timeframe for goal setting and attainment determines whether monthly or quarterly performance bonuses work best for each team. Managers tie individual performance milestones like hitting SMART goal targets to monthly or quarterly bonuses. For example, if your organization analyzes end-user feedback on a specific application monthly, it might make sense to bonus the application developers and QA engineers who maintain and update that application monthly as well.  

Year-End

A year-end bonus is an annual bonus paid at or near the end of the fiscal year. Many companies pay out year-end bonuses in Q1 of the following year. This allows them time to review their financials and calculate the needed bonus. 

The bonus formulas may be based partly on a company’s operating income, net income, revenue, EBITDA, cash flow, EPS, etc. The metric selected depends upon the industry and what best represents a company’s performance. For example, technology companies tended to incorporate operating income into their year-end bonus calculations. 

Companies may pay X percentage of a predetermined reward if Y percent of the company’s financial goal was met. Employees might receive an equal piece of the profit pie, or their bonus might be based on a percent of their annual salaries. Alternatively, employees might receive a higher percentage of the profits based on their contribution to the company hitting its financial goals. 

Holiday Bonus

Holiday bonuses, typically issued in late November or early December, boost employee spirits during a highly stressful time of year. A Robert Half survey found that 96% of professional services firms plan to issue holiday bonuses in 2023. This includes IT professional service firms. Most employers tie holiday bonuses to company profitability versus individual performance. Holiday bonuses are often issued to all employees in the same flat dollar amount. Alternatively, holiday bonuses may be issued as non-cash bonuses. 

Vacation / PTO Bonus

With work-life balance ranking high on tech employees’ priority lists, additional paid time off serves as an excellent incentive.  One novel type of vacation bonus offered by tech companies is the travel bonus. Companies offer their employees a fixed dollar amount towards personal travel expenses. Some offer this kind of vacation bonus pay only to those employees who fully utilize their vacation time. The thought process is that taking enough time away to fully rest and recharge improves employee performance and well-being. In other cases, companies issue a bonus vacation day or extra floating holiday for favorable job performance or adherence to the company’s attendance policy. For example, if employees get all their vacations planned and requested by X date, the employer awards them an additional day of PTO. 

Referral Bonus

With high salaries for software engineers and 25-30% headhunter placement fees, referral bonuses potentially save organizations tens of thousands of dollars a year on recruitment costs. Many companies offer flat dollar referral bonuses of varying amounts based on the job level or type. For example, a junior software engineer referral might generate a $1,000 referral bonus, while a senior software engineer referral bonus might generate a $2,000 referral bonus. And executive-level roles might result in a $5,000 bonus. Referral programs typically require that a hired referral remain employed for at least 90 days before paying out the referral bonus to the referring employee. Another recommendation is to offer a second bonus if the referred employee successfully makes it, for example, past 120 days with the company. This incentivizes employees to source people in their networks who they feel would be great long-term hires.

Longevity / Tenure Bonus

As the name suggests, a longevity bonus is additional pay that is issued at a specific anniversary milestone. Companies should identify the typical timeframe by which they start to lose high-performing employees. Do you see the most turnover in year 2? Year 5? Once you understand the problem you are solving, you can set the ideal tenure trigger to release your longevity bonus. Some companies have multiple bonuses, for example, one at year 3 and another at year 7. 

Equity

Equity remains a popular part of total compensation packages for software engineers. A WTW tech industry pulse survey revealed that about half of tech companies expect their total spend on employee stock shares to remain about the same moving into 2024. Types of equity vary, depending on company type, stage, culture, and objectives, among other considerations.

RSUs

Restricted stock, also known as restricted stock units (RSUs), allows employers to compensate their employees with shares of stock. Companies employ restricted stock to attract top talent, reduce immediate cash outlays, retain crucial personnel and executives, and align the incentives of employees with the overall success of the business. Burgeoning tech startups often leverage RSUs, and in 2023, 75% of top tech companies, including Amazon, Google, Tesla, and Meta, also offered RSUs. These companies moved away from offering traditional stock options, setting the tone for other tech companies in 2024. 

This type of stock is "restricted" because it’s subject to a vesting schedule that requires the employee to fulfill certain conditions before gaining complete ownership. The stock is issued to employees based on the plan rules and vesting requirements, which may dictate payment in shares or cash. For example, a software engineer’s stock may only vest if and when a startup is acquired if the engineer is still actively employed with the company at that time. One drawback of RSUs is that it has no monetary value until or unless the stock meets the vesting criteria. This amounts to monopoly money, and the hypothetical payout scenario makes RSUs particularly unfun to explain to candidates and employees. 

ESOP

An Employee Stock Ownership Plan (ESOP) is a benefit plan for employees that grants them an ownership interest in the company through shares of stock. ESOPs are commonly used in professional services firms to keep their culture intact without bringing in outside investors. Cyber security, IT, and software design consulting firms are among those organizations likely to offer an ESOP. ESOPs motivate employees to improve the company’s profitability to increase the value of their company-issued stock. Additionally, these plans contribute to employees feeling more valued and fairly compensated for their contributions. ESOPs also reward loyalty and tenure. Distributions from the plan are often linked to vesting, gradually providing employees with rights to employer-provided assets over time. Reviewing the terms of your specific ESOP is crucial, as variations and distinct rules may exist for each plan. Compensation management systems that track and grant plan shares should be highly customizable to align with your organization’s specific plan requirements.

Phantom Stock

Like other types of equity, phantom stock is based on the company’s financial performance. The equity of phantom stock mirrors the value of real stock but does not give employees actual ownership of the company. Employees receive cash or stock appreciation rights (SARs) tied to the company's performance. This type of incentive works well for privately held companies that want employees to benefit from the company's growth without holding actual shares. Software engineers at tech startups often receive phantom shares as part of their total compensation package. 

Specific scenarios that might prompt companies to issue phantom stock instead of traditional stock include:

  • A foreign parent company needs to simplify the granting of stock to executive employees of a U.S. subsidiary by avoiding the use of a foreign stock exchange.
  • A U.S. parent company may choose to motivate executive employees of a subsidiary without providing shares of the parent company’s stock to incentivize executives based on the subsidiary’s performance.
  • A company wants to avoid the compliance and administrative headache of traditional stock’s legally required voting rights or minority rights.
  • An organization wants to easily terminate employees’ stock ownership when their employment concludes.

Lifestyle Perks

Remote work

Remote work has become the new normal, particularly for SaaS employees whose duties have historically been compatible with working from home.  Software engineers often expect to work remotely or at least have the option available. For this reason, remote work is no longer viewed as a perk but as a given. That being said, not offering remote work flexibility disadvantages employers and impedes their ability to hire qualified, motivated employees. Employers looking to allow remote work for the first time should account for the added costs of ensuring information privacy and security, such as virtual desktops with VPN or the cost of shipping company-issued equipment.

Flexible Schedule

More than ever, employees expect the latitude to attend to personal business as needed throughout the workday. They need the flexibility to volunteer at their kids' school events, work out, or go get their license renewed. Why not allow this flexibility? Fluid schedules work well as long as software developers complete deliverables timely, according to specifications, and they communicate effectively about their availability. Managers who offer this benefit to their teams should set clear expectations around the method and timeframe for notifying them of the need to work alternative hours. For example, maybe you'd like your team members to message the team in a specific Slack channel first thing in the morning to let everyone know they are stepping out for two hours at noon and will be working until 8 pm instead of 6 pm that day.

Four-day workweek 

By this point, you've no doubt encountered at least some of the huge body of research around the benefits of the four-day workweek. Global case studies have shown success stories of employers in some industries who switch to a 4-day workweek of 32 hours per week are more likely to see increased productivity and decreased overtime costs, with the vast majority of employees voting to keep the 4-day workweek following trials. Microsoft Japan, for example, saw productivity increase by 40% during their 4-day workweek experiment. Offering employees a weekday off also allows them to attend to personal errands and appointments that could not be completed over the weekend. This work-life balance benefit reduces stress and allows employees to be more mentally present during their work days. 

“Unlimited” PTO

Unlimited PTO (also referred to as "Flexible Time Away") remains a popular benefit offering in the tech industry. Buildremote.com recently published a list of 97 companies offering employees unlimited PTO in 2023. The vast majority of these companies are well-known tech companies, and many are SaaS companies, including Asana, Microsoft, and Oracle. However, some candidates may be skeptical or weary of "unlimited" time off if they worked for companies with ambiguous policies. Employers looking to implement unlimited PTO policies should ensure that their policies are well-written, clearly communicated, and reinforced to ensure that employees use enough PTO to receive the ROI from the benefit. Some companies even go as far as bonusing employees for using X number of consecutive days off. Such vacation bonuses align well with a work-hard, play-hard culture that expects high performance but also focuses on employee retention. 

Family-focused leave benefits

In the past few years, we’ve seen increases in family-friendly benefits. In 2022, Google announced that new birth moms would receive 24 weeks of paid parental leave, and all new parents could take 18 weeks of paid parental leave. They also offer 8 paid weeks of caregiver leave so that employees can care for their aging parents. TheSkimm’s Show Us Your Leave Database shows the paid parental leave policies disclosed by 42 computer software companies. The majority of these companies offer between 20 and 26 weeks of paid family leave. Since most tech companies aren’t “Google,” and not all companies employing software engineers are SaaS companies, looking at high-level trends is helpful. In 2023, the number of employers offering paid maternity and paternity leave each increased by 5% from 2022. The number of companies offering paid adoption leave and paid foster care leave also increased year over year.    

Important Compensation Considerations

Geographic Location

Employers should factor in the local cost of living to hire strategically and maximize the salary value to the employee. Wherever possible, being selective about each job’s geographic location helps employers pay software engineers equitably without a significant decrease in spending power from one employee to the next.

Yoav Nativ, Chief Technology Officer of NoFraud, an eCommerce fraud prevention software service, shared his perspective on total compensation best practices for global software engineers.

"We strive to provide our international team members with equitable local spending power and comparable time off benefits; regular base pay and conversion rate evaluation, unlimited paid time off, and similar numbers of paid banking and company holidays are a few things that help in this area."

Garter’s Top 5 Priorities for HR Leaders in 2023 report reveals the importance of creating an internally equitable labor market and not just focusing on external market data. This means maintaining internal pay grades and job families, paired with clear career roadmaps that show the benefits of (and criteria for) advancement within the organization. Different geographical locations also come with different pay equity and transparency requirements and requirements for paid leave, PTO payout, and other benefits. Since employment laws are based on where employees physically perform the work, it’s critical to be proactive and deliberate when determining job locations.    

Below is a map provided by Dice.com that shows the variation in IT salaries between major tech hubs and lower average tech salaries in cities that are not shown on the map. You can see that the average salary of an IT employee in Miami is $40,000 less than it is in Silicon Valley. Such a huge spread makes nailing down a good-faith pay range a challenge.

Source: Salary Trends - Dice Tech Salary Report

Source: Salary Trends - Dice Tech Salary Report

Company Industry, Size, and Revenue Impact

In addition to geographic location considerations, companies should benchmark their salaries, benefits, variable compensation, and equity against companies in the same industry with approximately the same headcount and annual revenue. Aligning compensation research with your industry captures figures for software engineers who work on similar projects with similar objectives. Company headcount gives a picture of total payroll and benefits expenses, and annual revenue ties to the value generated by the workforce. This apples-to-apples comparison is an important point of reference that can aid in pay-related conversations with candidates and existing employees. “Sure, you could make $10,000 a year more at Tech Giant Company X, but you’ll have the opportunity to make a real impact, get promoted faster, and work on the projects of your choice with our company. And, since we are a startup, you could make far more money with us long-term when you help the company get acquired or go public.” 

H-1B Employee Pay and Benefits Requirements

Due to the high demand for technical professionals in emerging or niche disciplines of software development, many US employers hire H-1B visa holders. According to the most recent H-1B Characteristics Congressional Report from USCIS, persons in computer-related occupations make up more than half of all H-1B recipients, and the average salary for these employees was about $130,000 in 2022.

In order to qualify for H-1B visas, employees must have been offered a job by a US employer and must meet specific specialized knowledge and education requirements. Employers, in turn, must meet certain pay and benefits requirements. The Department of Labor’s Wage and Hour Division requires employers of H-1B visa holders to pay the greater of:

  • the local prevailing wage or 
  • the wage paid by the employer to other employees who work in the same job role as the H-1B visa holder.

Employers must also commit to paying H-1B visa holders for a guaranteed minimum number of hours, even when no work is performed (as long as the employee is technically able and available to work). 

H-1B visa holders must be offered the same benefits the employer offers to their US employees in similar job roles. This includes all cash and non-cash incentives as well as benefits like health insurance and 401(k). Additional fees and admin labor costs are also associated with supporting the employee’s H-1B petition process. These include legal fees and can total up to $8,000 per H-1B employee.

Best Practices for Software Engineer Compensation

Frequent base pay evaluation and adjustments

Companies that wait until the beginning of a new fiscal year to evaluate and adjust employee base pay perpetuate a “too little, too late” compensation strategy. You’re undoubtedly familiar with your industry's annual compensation surveys. Maybe you’ve participated in a few in order to receive a discount on access to the final survey results. They tend to be expensive and ultimately untimely. 

Due to the extreme importance of real-time data, the US Federal Government publishes pay-related updates far more frequently. The Bureau of Labor Statistics puts out monthly information releases on the state of employment, real earnings, job openings, and unemployment, among other relevant topics. If you review the data, you can see month over month significant changes in wages, the job market and the cost of living. Other countries like the UK have also started publishing monthly compensation, jobs, and unemployment numbers. 

Many PEOs and Payroll companies with access to industry-specific pay data have also realized their customers’ need for frequent pay adjustments and have gone to monetized access to deidentified, aggregated company pay data. Job boards with access to self-reported (potentially inaccurate) jobholder data also release pay data on an ongoing basis. 

Regardless of the source of information, it’s clear that compensation changes far more quickly than annually, and your competitors have access to and likely take advantage of available data to stand out as an employer of choice in the saturated software company landscape. Companies should evaluate employee compensation on an ongoing basis, with pay adjustments made more frequently as needed. If your organization is not able to commit to frequent increases to base salary, monthly spot bonuses may be a good alternative to retain employees until a more formal evaluation of the company’s long-term outlook is completed.

Involve front-line managers in the compensation review process

No one knows your employees and the value they bring to your organization like their direct supervisors. In high-trust organizations, employees confide in front-line managers about their desire for pay increases, better benefits, and career advancement opportunities. By including supervisors in the compensation review process, you gain more accurate insights into the needed retention tools and properly equip supervisors with the needed context to effectively communicate the rationale behind pay decisions. 

Compensation management tools that allow managers to interact with compensation data and provide feedback and request pay changes keep compensation planning agile. Such adaptable pay practices allow your organization to remain competitive. The cultural gains from greater transparency and inclusion of front-line managers support increased productivity, morale, and retention.

Pay Equity Compliance

According to the EEOC, only 20 percent of executives in the “high-tech” industry are women. While 41 percent of qualified technologists, engineers, and scientists in their earlier careers are women, more than half of these women quit their jobs. While the main reasons for women in tech quitting are not directly compensation-related, the reported constant need for women to prove themselves professionally (despite their experience and credentials) and other issues like lack of mentorship and advancement opportunities contribute to lower average earnings for females in tech. 

While there are certainly business cases for diversity and inclusion, pay equity is required by law in the US and other countries. Most US pay equity laws at the federal and state levels focus on women and men making equal pay for equal work. This means that absent a legally permissible business reason for a discrepancy, men and women who work in the same position or perform substantially similar duties should be paid the same salary. Title VII, ADA, and ADEA also provide for equal pay irrespective of race, color, religion, sex, national origin, age, or disability. Even a neutral compensation policy that has the unintended effect of disproportionately paying people in a protected category less than those not in that category is unlawful under these laws

In addition to the requirement for equal pay, many state wage transparency laws require companies to publish pay ranges and benefits for open positions both externally and internally. This means that current and prospective employees must see a good faith pay range for each position, and they will know if they are not paid commensurate with the advertised pay range. 

Regularly solicit employee feedback

An effective compensation strategy never rests on its laurels. Employee feedback helps ensure that your total rewards program achieves the intended results. The act of soliciting feedback also provides culture benefits since employees are more engaged when they feel prioritized and heard. 

Short pulse surveys that ask the same few questions and reoccur monthly allow you to view trends in employee satisfaction as they unfold. Many pulse survey tools integrate with Slack or Teams, or can be automated via project management tools like Asana or Jira. And several HR systems offer employee engagement survey functionality. Be sure to select a mode of delivery that is already heavily utilized by your team to avoid operational disruptions and obtain the highest participation levels. 

Another solid way to collect actionable feedback is via stay interviews. Stay interviews are interventions where the manager or a higher-level executive speaks directly with at-risk employees to learn how to retain them.  Company policies should also provide multiple, clear avenues for reporting concerns and making suggestions. By frequently conducting engagement surveys and stay interviews and maintaining an open door, employers can better react and adjust their total rewards programs to retain at-risk top performers. 

Compensation Management Tools 

Traditional Spreadsheets

Our trusty old friends Excel and Google Sheets continue to enjoy steady use by compensation, payroll, and accounting professionals, despite decades-worth of changing technology and shiny new interfaces. The robust yet customizable ways spreadsheets can be configured allow power users to create entire databases from scratch. Spreadsheet formulas and pivot tables are also extremely helpful when analyzing data from multiple sources. 

Unfortunately, there is a major disconnect between the spreadsheet version maintained by a power user and the deliverables to the department heads and then employees. There's no role-based access to limit the data managers can view, only filters. So even online spreadsheets can't be shared with all managers in real time. While you can create charts and graphs in spreadsheets, the setup is manual initially, and the output still has to be re-shared in a limited capacity. This delay in communication can slow down approval processes and spur lingering uncertainty among valued team members. 

HRIS Tools

The go-to tool for many teams’ compensation cycles is whatever system they’re already using as an HRIS.

In The State of Compensation Review Management 2024, nearly 70% of surveyed HR leaders and functional managers reported that they use an HRIS for their compensation planning efforts. These same HR teams rated the efficiency of their compensation cycle process a 5.87 out of 10.

HRIS tools are great for a lot of things, but they lack the flexibility required for a unique compensation process. That’s why the majority of survey respondents who use an HRIS tool also use spreadsheets as part of their process.

Further, HRIS tools often require a high degree of assistance from customer support personnel to make changes to their configuration. This means that last-minute changes to the process can mean high-stress situations where HR teams are stuck translating their needs to support managers in the hopes of getting their cycle quickly back on track.

Dedicated Compensation Management Software

While the marketing of "all-in-one solutions" as a silver bullet pervades the internet, your talented software engineers will agree that it's better to have a separate, dedicated, well-designed product than one inflexible system that lacks all the needed functionality. 

The best compensation management applications include:

  • Integrations with your HR data 
  • Automation of highly manual prep work ahead of compensation reviews
  • Impactful visualizations
  • Team collaboration and communication 
  • Customizable approval and review workflows 
  • Dynamic total rewards statements for employees 
  • Automated company and team-level insights on base pay, variable compensation and equity 
  • Budgeting and spend tracking

Keep your software engineers onboard and fairly compensated. Sign up for a demo of Aeqium today.

Additional Resources

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Aeqium recognized as a 2023 Compensation Management leader on G2.com

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