Silicon Valley's engineering salaries are finally getting fair. Thank Facebook.

By Farhad Manjoo , written on February 4, 2012

From The News Desk

Silicon Valley’s engineers have it great. That’s the conventional wisdom, anyway. Everyone’s heard about the free food, on-site laundry, the Wi-Fi commuter shuttle, and the haircut trailer in Google’s parking lot. It’s not just perks. These guys are swimming in cash, too, aren’t they? Facebook’s IPO will create more than a thousand millionaires. Then there are those tales of high-stakes bidding wars between Google, Facebook and Twitter, with the most-prized engineers getting potentially millions to go to certain hot companies.

To people who live outside the Valley, these accounts of unbounded compensation paint a picture of a place overflowing in bullion. And in some parts, that’s kind of true: Go to Atherton or Old Palo Alto and you see enormous, multi-million-dollar mansions that rival the best that Beverly Hills has to offer.

But those properties belong to executives and finance guys. The hard-toiling coders, meanwhile, live more modestly. I’ve spoken to many engineers at the Valley’s biggest companies, and from what I can tell, their salaries range from $100,000 to $150,000. You find people making more than $200,000, but they’re the exception, not the norm. The starting salary for engineers at Facebook and Google is around $100,000 a year. According to several posts on Quora, the companies have also been throwing in signing bonuses of $50,000 lately, and of course there’s stock as well.

To most Americans these sound like amazing wages. But when you move to the Valley you realize that a salary that looks fantastic in other parts of the country will barely buy you a comfortable, middle-class lifestyle here. The median home price in parts of San Francisco, Cupertino, Mountain View, and Palo Alto hovers around $1,000,000. Just the mortgage and taxes on such a property will eat up nearly half the wages of a two-income family here. Every other expense—food, taxes, childcare—is also through the roof. That’s why when you visit Google and Facebook, you see parking lots crammed with Toyotas, not Teslas.

I’ve been on this hobbyhorse for a while. I argued in Fast Company last year that Silicon Valley’s engineers aren’t paid nearly enough when you consider the billions in profits they create for their firms. But it’s now clear that the industry’s surprisingly low wages for engineers weren’t just a strange quirk of the labor market. They were by design: For years, the biggest tech companies conspired to drive down salaries by illegally agreeing not to poach one another’s workers. The Department of Justice settled with Adobe, Apple, Google, Intel, Inuit and Pixar in 2010. But now several of their former employees have launched a class-action lawsuit against these firms, and the evidence emerging from the case is devastating.

The documents show that no-poaching policies were agreed to and enforced by top executives, and HR departments observed them as ironclad rules. Among other facts revealed in a court filing last week, we learned that in March 2007, Steve Jobs forwarded Eric Schmidt a recruitment pitch that a Google employee had sent to an Apple engineer. “I would be very pleased if your recruiting department would stop doing this,” Jobs wrote. Schmidt sprang into action—not to explain to Jobs that poaching employees was fair game in hyper-competitive Silicon Valley, but instead to warn his HR department that “we have a policy of no recruiting from Apple.” Google’s staffing director, Arnnon Geshuri, wrote back to apologize for the misstep and promised that the Google recruiter “who contacted this Apple employee should not have and will be terminated within the hour.” Later Shona Brown, who was then Google’s senior vice president for business operations, chimed in to warn the HR department, “Please make a public example of this termination within the group.”

This is shameful. And now that the judge in the case has allowed plaintiffs to depose executives at these firms, it’s likely that we’ll see a lot more damning evidence soon. I can’t wait for it. Last year Google booked nearly $10 billion in profits. Apple made close to $26 billion. None of those billions would have been possible without legions of engineers and designers, people who were systematically screwed out of bigger paychecks for years. They deserve every penny coming to them.

The good news is that the Valley doesn’t work this way anymore. Nowadays there’s more poaching in the tech industry than at a short-order diner. Engineers have one guy to thank for the new era of competitive bidding—Mark Zuckerberg, now the richest hacker of them all. Facebook never agreed to play nice with its competitors, and when it became clear that its stock would be going supernova, the company proudly held it out as an inducement to grab the best engineers in the Valley. Thanks to Facebook’s pre-IPO allure—and, to a lesser extent, to that of Twitter, Zynga, and LinkedIn—salaries are rising all over the place. Google was forced to raise wages by 10 percent last year, and I’ve heard that other big players have had to write bigger checks as well.

The trouble is, as the industry’s biggest start-ups all go public, their stock options will lose their appeal. If you were given $100,000 of Facebook stock at last year’s valuation, your shares will likely be worth millions someday. But if you get $100,000 of FB at the current valuation, you’re not likely to see such a big windfall. Sure, other start-ups will come along to keep up the competitive pressure. There’s no shortage of money in the Valley, after all.

But we’re unlikely to see another Facebook-sized juggernaut soon. And that’s going to hurt employees’ bottom lines. If you’re in the trenches at one of these companies, you’d be wise to realize that your bosses are nothing without you. Ask for more money. Sure, the perks sound fun. But I’ve had those free lunches. They’re not as nice as a better paycheck.