Wednesday, December 17, 2014

Evaluating a Job Offer Part 9: Conclusions

Few decisions can have a larger impact on your financial life as a software developer than accepting (or not accepting) a new job. This is part nine, the final part of an essay on the financial considerations when evaluating a software developer job offer. Just tuning in now? You can jump to the beginning to learn the risks of taking a new job.

Before you’re ready to accept a new job offer, you’ve hopefully considered your job offer from many different angles. You’ve explored the possible risks of the new job, and compared the costs of living at the new job, the value of the benefits, and the value of any equity in the bargain.
Track Speed
You have all the data. Now you just need to make a decision. Lucky for you, a job offer is not a yes/no decision.

There is a third option in every negotiation: “You’ll have to do better than that.” It’s a line I learned from Secrets of Power Negotiating by Roger Dawson. It really works.

One recruiter sent me a LinkedIn message out the blue. It was for a position in San Francisco with a “competitive salary.” I asked him what the salary range was. He replied that the top of the range was $165,000. I messaged back “Sorry, you’d have to do better than that” and was immediately told they could do $185,000. That’s a 12% increase and I hadn’t even discussed my experience, much less interviewed. Those magic words can pay.

If you look at the numbers and decide to ask them to do better, be prepared for their response. If their recruiter is a good negotiator, they may ask you to justify your numbers. The recruiter might also ask you what they have to offer you to get you to say yes. If you’ve already gone through the process I’ve outlined, it won’t be difficult to explain why the offer isn’t good enough.

You should also be prepared for the recruiter to decide not to do better. Many software developers undervalue themselves, or simply aren’t aware of how to properly evaluate a job offer. As a consequence, many companies have learned that they can hire a developer at the price they want by just making enough offers to different candidates. I’ve personally experienced this, and it’s not fun saying “no” to a job that looks like a lot of fun, but which offered significantly lower compensation than the job I had. It’s even more difficult when you’ve flown out for an interview, met the team, joked around with them, and had a great time. It was difficult, but I did say no.

Hopefully your decision won’t be that difficult. Hopefully you have an offer that you can give an enthusiastic “yes” to, and your new job will make you happy and open new doors for you. Just make sure to consider compensation, benefits, equity, and intangibles like happiness when making that big decision.

Now you know as much as I do about job offers for software developers. If you'd like an easy way to use what you've just read, you can use my calculation spreadsheet to examine and compare job offers. Simply fill out your email below and I'll send you the spreadsheet.
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Tuesday, December 16, 2014

Evaluating a Job Offer Part 8: Happiness

Few decisions can have a larger impact on your financial life as a software developer than accepting (or not accepting) a new job. In this segment, we won't talk finance. Instead, I'll give you permission to turn down more money for less happiness. This is part eight of an essay on the financial considerations when evaluating a software developer job offer. Just tuning in now? You can jump to the beginning to learn the risks of taking a new job.

There is one very good reason to take a job without an increase in pay: happiness. That’s a subject big enough for another essay, and something that should be carefully evaluated separately from the economics.

Just like your job probably has the largest impact on your financial situation, it has one of the largest impacts on your overall happiness as well. You’ll spend about a third of every year at work, so it makes sense to have a job that aligns with your interests and gives you a sense of accomplishment.
The Baguashan Buddha, #Taiwan You can climb inside and see scenes from Buddha's life. Pretty interesting!
One of my worst jobs was a great fit for my skills. The company had a mission that could have had a large positive impact its potential customer base. Unfortunately, the folks in charge at the company were focused on the product instead of the mission. The product was a challenge, but it was developing fine. The biggest challenges, like funding and developing a market, were left up to fate. I hated the feeling of building something really great, but not believing that the company would be successful either financially or at achieving its mission. The situation made me miserable.

The situation of a job can make you more or less happy too. A bad boss can make your life miserable. Nothing has motivated me to leave a job faster than a boss that I didn’t like. Even the work environment can harm you. This article mentions that job strain had a similar impact on health as smoking! How much of a raise would you need to persuade you to take up smoking?

Your job can have an indirect impact on your happiness as well. This study shows how a daily commute impacts happiness. Take particular note that the study found that higher pay didn’t make up for a poor commute.

I don’t think there is anything wrong with accepting a job offer that compensates you less if it will make you happier. Likewise, it makes sense to pass up an increase in compensation to stay at work that will make you happier.

Finally, we'll wrap things up in the conclusion.

To get your offer in black and white, I've created a spreadsheet that will make your decision easier. Fill out your email below and I'll send you the spreadsheet. I promise to never sell or share your email.
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Saturday, December 13, 2014

Evaluating a Developer Job Offer Part 7: Details and Avoiding Traps

Few decisions can have a larger impact on your financial life as a software developer than accepting (or not accepting) a new job. In this segment, we'll get prepared for some persuasive techniques your recruiter might use, and also go over some of the remaining offer details. This is part seven of an essay on the financial considerations when evaluating a software developer job offer. Just tuning in now? You can jump to the beginning to learn the risks of taking a new job.

There are a number of other factors you have to consider before accepting a new job.

Recruiter Gambits

Some recruiters try to sell their equity by claiming that in the past employees were allowed to sell some of their shares after funding rounds. I think that’s a great way to let employees get value from their shares. However, there isn’t any way to know if that will ever happen again, or if you will be allowed to participate. Issues like vesting schedules, the class of stock you have, your seniority, and your contract can prevent you from selling when others might be allowed to.

Another key to understanding your equity is getting a copy of the equity agreement. I’ve made the mistake of accepting a job offer before doing this, and when I eventually saw them, the terms of the agreement were quite surprising to me. Among other things, the stock units had an expiration date. If they expire before the company is sold or makes a public offering, the equity returns to the company and my value is zero.

With those terms, it hardly feels like “my” equity at all.
Pacific surf breaks at Yehliu Geopark. #Taiwan
The kind of equity you’ll probably be offered is worth a lot less than the equity the founders and investors have, but recruiters will tell you that your shares are worth what the last investors paid. I find these claims outrageous. Not only is it unlikely that you would receive the same preferred class of shares that investors have, you also have far less control of the company.

Unless you’re an accredited investor with cash to spare, you can’t invest in a more diversified portfolio of private companies like most investors would. This puts you at a significant disadvantage to the investors, who may have invested because they are specifically looking to invest in risky growth companies that have a chance at 10x or 100x returns. And it seems like those venture funded companies fail about 75% of the time.

It’s also important to know what preferred stock can mean. In some cases, the investors have negotiated a guaranteed return, called a liquidity preference. These preferences mean that the investor gets to take some multiple of their investment out of the value of any sale of the company. If the investor invested $1 million with a 3x liquidity preference, then they get to remove $3 million from any deal in addition to their split of the remainder based on the shares they hold.

I imagine liquidity preferences are an intentionally confusing tool to help investors, and not employees profit from a successful startup. You can ask your recruiter or hiring manager about the financial structure of the company, but I wouldn’t count on their knowledge of the situation. It’s not like public company where investor disclosures are publicly available. I’m sure there are many other tricks investors use that I’m not aware of.

Some companies will have a more credible explanation for their shares value because they have filed for IPO or publicly announced a merger or acquisition. Even if the company has filed for IPO or some other liquidity event, keep in mind that it might change its plans. Just google for “cancels IPO!” There is also no way of knowing how the shares will be valued at the time you’re able to sell them. You’ll almost certainly not be allowed to sell your shares immediately when the IPO or transaction occurs.

To sum up, I almost always value the equity component of an offer at zero. Equity is a great incentive to align your interests with the company so that you’ll share in it’s success. Its contractual caveats, vesting schedule, and lack of liquidity or control make it a poor substitute for cash. Ultimately you buy food and pay rent with cash, not equity.

Bonus Plans

Bonus plans and profit-sharing plans are motivational devices that can be almost anything. Like equity, the value of a bonus plan involves lots of wishful thinking. It’s a lottery that’s held once or more a year.

When negotiating at one place, I was told that one employee purchased a new Porsche with last year’s bonus. I never got a large enough bonus to buy a used Volkswagen, much less a sports car, at that place. I later heard that he had been saving for that car for years and the bonus just made it happen faster. Never take the recruiter’s word on these things at face value.
The sun sets begind the birds and windmills of Gaome Shidi #Taiwan
The nice thing about bonus plans is that there is often documentation to go along with them. I got an offer letter at a different business that laid out the bonus plan rules. Much to my surprise, the bonus was capped to 15% of the base salary. Earlier, I was assured by the recruiter that the annual bonus would make up for the cost of living gap. Even a 15% year wouldn’t get me there.

Obviously you shouldn’t anticipate the best possible year for a bonus, even if the recruiter says otherwise. Take the sage advice from mutual fund prospectuses: “past performance does not necessarily predict future results.” Be sure to at least make note of what things look like with a 0% bonus. Ask the recruiters, managers, and any employees you talk to what the bonus percentages for the past few years were.

Most important of all: don’t forget the taxes that will be taken out of any bonus. I’m happy to have a bonus plan, but I ultimately value these at zero as well.

Sign On Bonus

The sign on bonus is a one-time payment made to the employee, typically in their first paycheck. The sign on bonus might seem like a nice way the new employer can compensate you for the risk of a new job. It might, except that you usually have to repay the bonus if you leave the company before a certain time period. The bonuses I’ve seen require one year of service before you can quit or be fired without repaying the sum.

In summary, the sign on bonus is nice, but it usually won’t help you if you get fired early on. I consider the sign on bonus to be compensation, but because it is paid only once, I amortize it over the two or three years I typically spend at a company.

For example, if I’m offered a $30,000 sign on bonus, I’ll divide it by two years and treat an additional $15,000 as part of the annual compensation. If there are direct expenses related to this job, like relocation, I’ll subtract those from the amount (plus additional for taxes) before figuring out the contribution to my salary.

Titles

Titles may not seem important, but they can have an impact on your career. This is a topic that is on the intangible side, so I’ll save my thoughts for a future essay.

The final crucial factor to consider when considering a job offer is happiness, the topic of the next post. That post is coming soon...


To get your offer in black and white, I've created a spreadsheet that will make your decision easier. Fill out your email below and I'll send you the spreadsheet. I promise to never sell or share your email.

Is your job offer fair?

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Friday, December 12, 2014

Evaluating a Developer Job Offer Part 6: Equity

Few decisions can have a larger impact on your financial life as a software developer than accepting (or not accepting) a new job. Today we'll consider a controversial topic: equity. A lot of private companies (e.g. startups) try to sell their equity as a form of financial compensation. I use a ridiculous metaphor to explain why you maybe shouldn't give up money for paper. This is part six of an essay on the financial considerations when evaluating a software developer job offer. Just tuning in now? You can jump to the beginning to learn the risks of taking a new job.

Though it may seem daunting, equity is actually really simple. All you have to do is make sure you get as much as you already have at your current company, or more (in supposed dollar value, based on the last investment). Unless the company has filed for IPO or is publicly traded, value the equity at zero. Don’t accept equity for a salary of lower value.

Lots of people will disagree with the value of zero. I plan to write more about this because it is a complex topic. Most equity in private companies is so encumbered that it has little or no real value. In any case, there typically isn’t enough liquidity to accurately value it.
World Trade Center Building
Unless the company is publicly traded, I see stock, stock options, and restricted stock units (RSUs) as an incentive, not compensation. An incentive is something that helps align your interests with the interests of the company.  Debateably, it can also serve as a motivational tool.

Even if the stock is public, that doesn’t mean that it will keep its value over the next couple of years while it vests. When I last worked at AMD, the stock price was around $7.50 per share. Now in October of 2014 it’s about $3.00. The S&P 500 has increased in value almost as much as AMD has lost value over that same time period. Holding a large amount of your compensation in one undiversified equity is a very risky thing.

Compensation is an exchange of value. You trade one thing of value for another thing of value. Equity is different.

The Investment Metaphor for Equity

Imagine that one day you get an unexpected phone call from someone named Pat. You’ve never talked to Pat before, but Pat has an amazing opportunity for you. If you jump in now, you’ll get in before everyone else! Pat wants you to buy stock in a company working on the future of envelope technology. TongueCut Inc. and their safety envelopes are going to be huge! Not only is it impossible to get a lip or tongue injury with their new envelope technology, Pat explains, but they’re working on flavored adhesives and have 14 envelope patents pending. If you want in — and of course you want in — you only have to invest $40,000. So what do you say?

I think most software developers I know would say “no thanks!” But at least some of them would gladly take a $40,000 paycut in exchange for restricted stock units in an unproven startup. The investment in the envelope company might actually be a better deal since presumably Pat isn’t selling restricted shares!

The Fishing Co-Op Metaphor for Equity

Imagine that instead of developing software, you fish for a living. Instead of selling your fish on the market, you join a fishing co-op. The co-op has an interesting deal. You and the other co-op members deliver all your catch to the warehouse every day. The leaders of the co-op then trade or sell all the fish on behalf of the co-op.
Tug on the Mississippi at Dusk
Some days the leaders decide that they should spend the co-op money to buy new fishing gear, pay rent on the warehouse, that the division of shares should be changed, or that they should give some fish away. At the end of the month, the remaining funds of the co-op are split among the members according to the number of shares each has. It might be zero. If the co-op can figure out a way to make the fish more valuable, or if you have a disproportionate number of shares, you might make more money than you would have as a lone fisherman.

Is that compensation? I don’t think so. It’s more of a form of collectivism with totalitarian rule. Also note that the only thing which you can control is how much effort you put into your fishing. The leaders can eat all of the fish, they can give shares of the co-op to lazy friends, they can take a loan against the co-op to buy a Super Bowl commercial.

Now this metaphor isn’t perfect, but hopefully it illustrates just how little value the stock of a private company can have, unless you own enough to have control (e.g. a seat on the board of directors).

My Equity Experience

If you’re trying to figure out how to evaluate an equity offer, maybe my experience can help. Years ago, I gave up more than half my salary for a chance to work at an interesting startup. Replacing that salary was options that gave me ownership in a few percent of that company. Less than a year into the project, I saw issues that I thought would hurt our chances for success. I tried to persuade the CEO to make some changes, like talking to more than one VC for funding and working more to develop interest in the product. He wasn’t very interested in my opinion. After I quit, I heard that the company let the staff go when funds ran out. I still own the stock, which hasn’t earned me a dime and probably can’t be sold.

I think this perfectly illustrates how even holding actual shares of a private stock doesn’t give you any control. I couldn’t change the course of the company even though I could talk to the CEO every day, and I held more than 1% of the stock! And unlike a shareholder of a public company, I don’t receive quarterly reports on the status of the business.

Even equity in more successful startups offers relatively few rewards. Although I have heard of founders being able to cash in some of their equity during funding rounds, it seems like a very rare option for employees.

As a minority shareholder, I have very few rights, and the shares are mostly useless. And that’s why I believe that the value of equity in startups is a myth that usually benefits the biggest owners of a company, not the employees.

Another important task is examining the details of the offer and avoiding common mistakes, which is covered in the next segment

To get your offer down to the bare numbers, I've created a spreadsheet that will guide you through the process of calculating the financial value of a job offer. Fill out your email below to see how different jobs compare. I promise to never sell or share your email.

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Wednesday, December 10, 2014

Evaluating a Developer Job Offer Part 5: Extra Perks

Few decisions can have a larger impact on your financial life as a software developer than accepting (or not accepting) a new job. Today we'll examine a few of the extra perks and other incentives a new job might include. This is part five of an essay on the financial considerations when evaluating a software developer job offer. Just tuning in now? You can jump to the beginning to learn the risks of taking a new job.

Besides the benefits you expect, many businesses offer perks above and beyond mere vacation time. By factoring in these benefits, you can get a clearer idea of how much aspects of your new job will cost and whether or not these benefits actually benefit you.

Lunch and Snacks

When I worked at AMD a long time ago, my department decided to make our vending machines free. Like the other buildings, we had a coke machine and one of those snack machines with the spirals that sometime would leave your bag of Hot Fries dangling instead of pushing it into the tray. Unlike the other buildings, money wasn’t required to dispense anything. We all thought it was an amazing benefit, and I put on six pounds eating too many bags of Cheetos.
Ribeye paired with @Blacktoothbrew and @pineyriverbrew @greatamericanbeerfestival #gabf
It was so cool that folks in other departments would risk getting chewed out by our director to get free diet cokes.

When I later moved to Freescale, I was shocked to discover that they didn’t even offer free coffee. A few enterprising engineers banded together to form coffee co-ops, but the non-members had to either scrounge up their own materials or visit the on-site Seattle’s Best Coffee.

Today, it’s becoming more common for software firms to offer free catered lunches, fresh fruit, and gourmet snacks to their employees. I think this is a pretty good benefit for both employees and the employer, but the value to you may depend on your lunch habits. If you like to bring your own lunch and eat at your desk, it might have no value to you. If you enjoy eating with your coworkers, and don’t want to pack your own lunch, it could save you lots of time and maybe a couple thousand dollars a year.

The calculation is pretty easy, just take into account your vacation and holidays and any cost of living differences. For example:

46 weeks * 5 days * $10 per lunch = $2,300

Transportation and Parking

It is fairly common for businesses in the San Francisco area to have private busses that drive you to and from your home. They often feature free coffee and wifi. But don’t assume that they are a cure for a long commute! I’ve heard that some companies only run the busses twice a day: once to work and once from work. Some companies arrange the schedule so that riders have to put in nearly twelve hour days. Be sure to ask questions so that you don't become a bus slave.

Some companies also will pay for passes to use public transportation. If taking public transportation makes sense for you, that could be a nice benefit.
Storm on the Mississippi
Another benefit (which might reflect a cost of living expense too), is parking. If an employer is in an urban area a free parking lot isn’t a given. Some employers have contracts with parking garages to offer their employees free or low-cost parking. If you’re planning to drive to work, parking can be a significant expense. If you’re planning to live near work, free parking might make owning a car more practical.

These benefits are nice, but probably don’t provide a huge value unless they help you go carless.

Relocation

If you’re moving from one city to another to take a job, you may be offered relocation. This is generally offered as a choice of lump sum, or a package covered by the employer. The package usually means that the company hires movers for you, although sometimes they will also pay for other expenses: travel costs to visit the area before moving, closing costs to sell your house, corporate housing for a few weeks in the new city.

Relocation is really about breaking even on the move, so it is more of a concern when it doesn’t exist, or if it is inadequate to your needs.

Another important subject to consider is equity, which is the topic of the next segment... 

So you can get your offer down to the bare numbers, I've created a spreadsheet that will guide you through the process of comparing the financial details of your current job to a new offer. Fill out your email below to see how you offer compares to your current job. Don't worry, I won't sell or share your email.

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Tuesday, December 9, 2014

Evaluating a Developer Job Offer Part 4: Benefits

Few decisions can have a larger impact on your financial life as a software developer than accepting (or not accepting) a new job. Today we'll examine the basic benefits a developer job offer usually includes. This is part four of an essay on the financial considerations when evaluating a software developer job offer. You can start by learning the risks of taking a new job in part one. Updated 10 December 2014 with more on "unlimited vacation" policies.

A new job is about more than salary and title: there are a variety of expected benefits, like retirement, insurance, and vacation, that can dramatically affect your assessment of an offer.

Retirement Accounts

One often-overlooked benefit is the 401k or SEP IRA, especially if the employer contributes towards those retirement funds. Don't let recruiters give you a sob story about being too small for the 401k either. The SEP IRA is like a 401k for small businesses. Even my 1-person company had one when I was consulting. These are useful tools to help you save for retirement and defer paying income taxes.
Another view of the Pacific Ocean near #Kenting #Taiwan
I don’t consider the 401k part of compensation unless the employer offers matching contributions. A typical matching contribution might be 50% of the first 4%. If the matching contributions have  a vesting period of more than a few months, I consider it a gimmick to keep you from leaving, and I don’t consider it part of compensation.

Employee Stock Purchase Plan

An employee stock purchase plan (ESPP) is a way for employees to deduct a fixed amount from their paycheck each month and invest it in their company stock. Typically the employee gets a significant discount on the market price of the stock. One of my former employers offered a 20% discount on the closing price of their stock on the first or last day of the quarter (whichever was lower).

In my experience, only a limited percentage of your salary can be invested in the ESPP.

Vacation

Vacation. Two weeks of vacation (i.e. 10 days) is the bare minimum amount most companies offer software developers. I think it’s a miserly amount. I would try negotiating for 20 days of paid vacation, since 10 days is less than 3% of a year. Who wants to spend 97% of their life working 40+ hours a week?

The baseline value for a vacation day is the salary divided by 260 (52 weeks * 5 days). I value vacation days at least twice as much as their salary value. You can make more money, but you can’t make more time.

Some companies offer "unlimited" vacation. The word unlimited means "no limits” to humans, but "zero" to many employers. Even in companies with good intentions, unlimited vacation policies can create peer pressure to take less vacation, as this essay written from the perspective of a founder describes.  If you want to read even more on the subject, this essay thoroughly evaluates the pros and cons of unlimited policies.

If your employer uses the word unlimited, make sure to get it in writing. Keep in mind that you might have to really stand up for yourself to take a reasonable amount of vacation. I would ask the manager and recruiter how many days of vacation the typical developer takes per year. If the number seems good, save it somewhere safe for later negotiations when you want a two-week vacation.

Holidays

US companies typically offer 10 or 11 holidays per year. Unless your offer doesn’t meet this expectation, it’s probably not a point of comparison. I think some employers offer “floating holidays”, which are nice since you’re not forced to travel or go to the beach when it’s crowded. If they offer 0 holidays, then they’re being sneaky and expect you to use your vacation days.

Sick Days

Some jobs dictate how many days you’re allowed to be sick. Others will let you take as many sick days as you need provided that it doesn’t meet the definition of short term disability. Typically they offer insurance for that case. Other companies lump their sick days in with vacation, which seems like a bad idea since it encourages the sick to infect their coworkers. Except in the unlimited case, you’ll need to make some estimates and see if you’re going to lose vacation days (or pay) when you’re sick.

Insurance

Medical insurance, dental insurance, life insurance, accidental death and dismemberment, short term disability, and long term disability are all common benefits offered by companies of all sizes. Some companies will cover the monthly cost of all these types of insurances. Others will require employees to contribute some fraction of the cost out of their paycheck. In some cases, depending on your age and health, it’s cheaper to get your own coverage.
Macaques having family time at Shoushan Nature Park. #Taiwan #Kaohsiung
Recruiters may make it sound like the question of health insurance can be answered with a “yes” or “no,” but that’s an oversimplification. Every company that offers insurance should have a few sheets of paper documenting their costs and coverage. Ask for it, especially if you need coverage for more than yourself. Because each company has to negotiate their own health insurance, the plans are almost unique.

Before you finish evaluating your company’s offer, make sure to consider other benefits they may offer, which is the topic of my the next essay.

I've created a job offer calculator that will help you compare your current salary, cost of living, and benefits to a job offer. It also helps you compare other aspects of a job offer that we'll go over in future posts. Fill out your email below, and I'll send you a link to the calculator spreadsheet. Don't worry, I won't sell or share your email.

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Monday, December 8, 2014

Evaluating a Developer Job Offer Part 3: Comparing Salaries

Few decisions can have a larger impact on your financial life as a software developer than accepting (or not accepting) a new job. Today we'll examine what we know about salaries. This is part three of an essay on the financial considerations when evaluating a software developer job offer. You can start by learning the risks of taking a new job in part one.

Salary: you might not think it requires much thought-- and if your offer just takes you down the street, you may be right. However, you’ll need to move cross-country, or even to a different city, you have some comparison work to do. Location significantly impacts the value of a dollar.

To start with, the value of your new salary should probably be at least 10% more than the value of your current salary. By way of comparison, the typical raise when moving companies is 10-20%. If you didn’t disclose your current salary during salary negotiations, you may do better than that. (I know I have!)
Dragon Claw
 But what is the value of the salary? It's not simply the dollar amount. Even though people say “the world is flat”, the value of money is quite geographic. A salary, and the value of that salary really depends on where you live.

The cost of living varies greatly from city to city. For instance, I live in Austin Texas. I own a moderately sized house in the city with a backyard, a kitchen, three bedrooms, 2.5 bathrooms, etc etc. I pay about $1000 a month in mortgage and property tax expenses. If I lived in San Francisco with my current salary, I wouldn’t be able to afford a home at all. Renting a decent two bedroom apartment would cost around $4500 a month! I’ve heard you sometimes have to interview just to get an apartment there!

If an employer wanted me to move to San Francisco, would they have to pay me the previously mentioned 10-20% more? (That would be (4500 - 1000) * 12 = $42,000 more per year.) Absolutely not. They would have to pay even more: income taxes would eat up much of that, not to mention staples like food, gasoline, utilities, and more. (More on taxes later.)

For my purposes, when I discuss the value of a salary, I mean the equivalent amount of money in your current city. A lot of the time, converting a salary in a new city to the equivalent value in your home city will make the comparison more familiar to you.

Salary Statistics

Never consider average geographic salaries for your position unless the average is well above the value you currently make. The same thing goes for average national salaries. So what if the average mobile software developer in New York City makes $169,000? If the value of your current salary in NYC dollars is $328,000, an average salary won’t make you smile.

Another issue with average salaries is that you know very little about the statistical distribution of salaries. For all you know, the salaries distribute bimodally: a group that makes $100,000 or lower (i.e. the suckers), and a group that makes $200,000 or more (i.e. the winners). Perhaps most developers make above the average, and a few low-paid outliers hold the numbers down. Knowing the average helps, but it doesn’t prove that a salary far from the average is ridiculous.
Mind the Gap. I'm happy to see folks in #Taiwan mind it just like England! #trainStation #Taichung
Average salaries are also lagging indicators. For instance, if there suddenly is a lot of demand for developers, salaries might go through the roof. Even so, the average salary data will reflect the obsolete situation until the next survey. The salary (and cost of living) data can be out of date quickly.

Finally, average salaries rely on accurate job titles. Job titles for software positions aren’t very well defined. Some companies have one title: Software Developer. Some have nine: software developer 1, software developer 2, software developer 3, senior software developer 1, senior software developer 2, senior software developer 3, Member of Technical Staff, Senior Member of Technical Staff, Fellow. Multiple levels of experience tend to get glommed together in the statistics. Developers fresh from college might get lumped in with developers with thirty eight years of experience.

Also consider that developers with different experience and specialities may rate higher or lower salaries. Open GL developers might make more than Perl developers. Or maybe the other way around. Either way, if everyone is a “software developer” it isn’t any help to you.

The lack of readily available data on this is probably why consulting firms make lots of money helping companies sort out this impossible mess of how much they should pay their employees.

Don’t let average salaries mess with your head. A bad offer is a bad offer, even if the average salary data makes it look good by comparison. An average salary is just one number trying to hide a complex reality.

Consultant or Contractor Rates

In the United States, asking folks about their salary is considered taboo. I don’t know how this came about, but it can make it difficult to do field research on salaries. Fortunately, the issue of contracting rates seems to be a little less taboo. I frequently ask my consultant peers what they think the typical prevailing rates are. None of them seem very upset by the question.

Consulting rates are usually hourly, by the day, or by the week. Multiply that number by the appropriate units to calculated the revenue for a fully-loaded year of consulting. From there, I usually divide that number by two and consider that the equivalent employee salary. This is a very rough approximation, but it can be a useful way to consider your value.
Dragon Slayer. Longshan Temple, Taipei #Taiwan
Why do I divide the annualized consulting rate and divide it by two? Because that’s something a friend told me once. It’s a gross simplification of the realities of business: the costs of health insurance, employee vacation, other benefits, the cost of acquiring customers, the lack of revenue between clients, and other expenses. Based on my consulting experience, I think you can have costs closer to 1/3 of revenue, but the revenue isn’t necessarily steady.

As an aside, consultants and contractors in your field are a great career resource since they tend to have experience with multiple companies, and they have a more direct understanding of what companies really value.

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