Equity is the primary reason that tech compensation is so high. Equity means your employer gives you ownership in the company as a portion of your compensation. The idea is that this incentivizes you to work harder to have the company perform well.
For most of Senior+ roles in US-based companies, equity will begin to dominate your pay. (This is the hallmark of a top tech company.) Some examples:
- For mid-level roles, the equity in a company could be something like $20K - $100K / year. Senior engineers at top companies start to make almost an equal amount in stock as they do in base salary (cash comp).
- For very senior roles, the majority of the total compensation comes from equity. e.g. at the Director level, the ratio is around 2:1, so their base salary may be $270K/year, and their equity could be $500K/year.
- Compare this to a non-tech, old-school company like General Motors. The average pay for a Director of Engineering is $280K, which is great, but you could easily make that amount much earlier in your career within Big Tech. The reason for this gap is because General Motors is a lot more stingy when it comes to giving out stock to their employees.