Macro Factors Influencing Software Engineering Salaries

Software engineering salaries exhibit a wide range, with some earning $50k/year and others $150k/year. What accounts for this disparity? Based on my experience and understanding, here are the key factors.

What Company Are You Working For

  • Is your company selling software engineers' hours? In other words, are you in consulting? You'll be valued for your client relations skills and the ability to deliver quality software.
  • Is your company a software product developer? If so, you're in a product company. Here, you're valued for your ability to understand the organization's needs and efficiently build and release features.
  • Is your company focused on selling other services or products? This describes the majority of companies. For them, software engineering is simply a means to an end, a tool in their arsenal to generate revenue. In these settings, your value hinges on your ability to deliver projects within or under budget. Your role, while important, is not the centerpiece.

What Organization Within Your Company Are You Part Of?

Delving into the specifics of your company, which department or division are you a part of? Sizec Teller postulates, each software engineer's salary is funded from one of three primary budgets:

Sales & Marketing Budget

Outcomes in sales & marketing are straightforward to quantify. When delivery teams execute well, key performance indicators such as revenue or customer retention typically see a rise.

Research and Development Budget

Software engineers in R&D are seen as a crucial investment. Companies are willing to invest significantly in this area, anticipating that R&D efforts will create valuable assets that provide benefits for years to come.

Maintenance Budget

This budget is focused on cost optimization. Generally, companies are reluctant to spend heavily on maintenance, as it is not directly associated with generating revenue.

What Talent Is Your Company Competing For?

In 2023, Gergely analyzed engineer salaries and concluded that compensation is trimodal, dependent on the competitive landscape for talent:

  • The first tier consists of jobs paying around the average salary. These positions typically do not directly generate revenue from the technology built by the engineers, nor do these companies view technology as a core competency. A prime example would be the IT department of a local supermarket. Salaries of these companies mainly compete with similar local businesses.

  • The second tier includes companies that compete with all other local businesses. For example, in Berlin, companies like HelloFresh might offer slightly higher salaries than Zalando, aiming to attract local engineers across various industries.

  • The third tier comprises companies competing for talent on a global scale. For instance, firms like Stripe and Amazon recruit internationally, offering competitive salaries that reflect their global reach.

Conclusion

Your salary as a software engineer is influenced by your employer, your role within the company, and the level of competition they face in hiring talent. A clear understanding of these factors can provide valuable insight into your compensation and career trajectory.