How Companies Structure Pay
Two engineers at the same company, doing the same type of work, can earn 2x different compensation. This isn't random. Companies have structured systems — levels, bands, geographic adjustments, equity schedules — that determine what you're paid. Understanding these systems lets you see where you sit, where the ceiling is, and what you need to do to move up.
Levels & Bands
Every large tech company has a leveling system. The specifics vary, but the structure is universal:
Company Entry Mid Senior Staff Principal Distinguished
Google L3 L4 L5 L6 L7 L8+
Meta E3 E4 E5 E6 E7 E8+
Amazon L4 L5 L6 L7 L8 L9+
Apple ICT2 ICT3 ICT4 ICT5 ICT6 ICT7+
Microsoft 59 60-61 62-63 64-65 66-67 68+
Each level has a compensation band — a range of base salary, equity, and target bonus that applies to everyone at that level. The band has a minimum, midpoint, and maximum.
Example: Senior Software Engineer (L5 equivalent)
Base salary band: $175,000 - $225,000
Target bonus: 15%
Equity band: $150,000 - $350,000 over 4 years
Total comp range: $238,000 - $365,000
Same title. Same level. $127,000 difference in TC.
Where you land within the band depends on your experience, negotiation, performance, and how badly the company needed to hire you. New hires who negotiated hard often enter at the top of the band. People who were promoted into the level often start at the bottom.
Why Two People at the Same Level Earn Different Amounts
Engineer A: Hired 3 years ago at $190k base.
Two 3% annual raises: now at $201k.
Initial equity grant mostly vested.
Small refresher grants.
Current TC: ~$260k
Engineer B: Hired 6 months ago at $220k base.
Negotiated aggressively with competing offer.
Fresh 4-year equity grant at current stock price.
Current TC: ~$340k
Both are L5. Both do similar work.
$80k difference in TC.
This is common and it's a direct result of how companies operate. Internal raises are typically 3-5% per year. External hires get market-rate offers. Over time, long-tenured employees fall behind market rate while new hires come in at or above it. This is called pay compression, and it's the single biggest reason engineers change jobs every 2-3 years.
Geographic Pay Adjustments
Many companies adjust pay based on location. Remote work made this more visible and more contentious.
Typical geographic pay tiers:
Tier 1 (100%): San Francisco, New York, Seattle
Tier 2 (85-90%): Los Angeles, Boston, Washington DC, Austin
Tier 3 (75-85%): Denver, Portland, Chicago, Atlanta
Tier 4 (65-75%): Smaller metros, rural areas
Example on a $300k TC package (Tier 1):
Tier 1: $300,000
Tier 2: $255,000 - $270,000
Tier 3: $225,000 - $255,000
Tier 4: $195,000 - $225,000
Cost of Living vs Cost of Labor
Companies frame geographic adjustments as "cost of living" adjustments. This is misleading. What they actually use is "cost of labor" — what they need to pay to hire someone in that market.
Cost of living: What it costs YOU to live somewhere.
SF vs. Austin housing: 2.5x difference
SF vs. Austin groceries: 1.2x difference
SF vs. Austin overall: ~1.8x difference
Cost of labor: What the COMPANY needs to pay to fill the role.
SF vs. Austin senior engineer market rate: ~1.3x difference
Cost of labor is always a smaller gap than cost of living. This means engineers in cheaper markets often get a better deal in real purchasing power — they take a 15-25% pay cut but save 40-50% on housing. The math usually favors lower-cost cities if you're optimizing for savings rate.
Remote Work Pay Cuts
Some companies cut pay when employees move to lower-cost areas. Others don't. This is a negotiation point, not a law of nature.
Company policies (examples):
Google: Adjusts pay by location tier
Meta: Adjusts pay by location tier
Airbnb: No geographic pay adjustment within the US
Spotify: No geographic pay adjustment
Stripe: Pays SF-competitive rates everywhere
If you're considering a move, ask about the pay adjustment before you move, not after. Some companies will let you keep your current pay if you were hired at the higher tier. Others will adjust immediately.
How Refresher Grants Work
Your initial equity grant vests over 4 years. Without refresher grants, your equity compensation drops to zero in year 5. Refresher grants (also called annual grants) are new equity awards given each year to maintain your total compensation.
Year 1: Initial grant vesting ($50k/year for 4 years)
Year 2: Initial ($50k) + Refresher 1 ($30k/year for 4 years)
Year 3: Initial ($50k) + Refresher 1 ($30k) + Refresher 2 ($35k)
Year 4: Initial ($50k) + R1 ($30k) + R2 ($35k) + R3 ($40k)
Year 5: No initial + R1 ($30k) + R2 ($35k) + R3 ($40k) + R4 ($45k)
Steady-state annual equity (year 5+): ~$150k
vs. initial annual equity: $50k
Good companies size refresher grants to keep your total compensation at market rate. Bad companies give small or no refreshers, expecting you to be content with a declining equity curve.
Questions to ask about refresher grants:
- What is the typical annual refresher grant at my level?
- Are refreshers tied to performance ratings?
- When are refresher grants decided and communicated?
- What vesting schedule do refreshers use?
The Equity Cliff
The equity cliff is the point where your initial grant is fully vested and refresher grants haven't caught up. It usually hits around year 4-5.
Annual equity value by year:
Year 1: $50,000 (initial grant only)
Year 2: $65,000 (initial + first refresher)
Year 3: $80,000 (initial + two refreshers)
Year 4: $95,000 (initial + three refreshers) <- last year of initial
Year 5: $60,000 (refreshers only) <- the cliff
Year 6: $75,000 (refreshers stacking)
Year 7: $90,000 (approaching steady state)
Many engineers leave around year 4 because they see total compensation dropping. This is rational. If the company isn't making up the difference with larger refreshers, the market is offering you a new initial grant worth more than staying.
Compensation by Company Type
Different types of companies structure pay differently:
FAANG / Big Tech:
High base ($180-250k for senior)
Significant equity (RSUs, 40-60% of TC)
Moderate bonus (10-20% target)
Strong benefits
TC: $300-500k for senior engineers
Late-stage Startups (pre-IPO):
Moderate base ($160-200k)
Large equity grants (options or RSUs, but illiquid)
Small or no bonus
Decent benefits
TC: Hard to value. Cash comp $160-200k. Equity is speculative.
Early-stage Startups:
Lower base ($120-170k)
Large option grants (high risk, potentially high reward)
No bonus
Basic benefits
TC: Cash comp $120-170k. Equity is a lottery ticket.
Enterprise / Non-tech Companies:
Moderate base ($130-180k)
Small equity or none
Moderate bonus (5-15%)
Standard benefits
TC: $150-210k for senior engineers
Consulting / Contracting:
High hourly rate ($100-200/hour)
No equity
No bonus
No benefits (you pay for your own)
Effective TC varies. Hourly rate looks high but benefits gap is real.
Common Pitfalls
- Not understanding your level. If you don't know what level you are, you can't benchmark your pay. Ask your manager or check your offer letter.
- Assuming your band is where you'll stay. You might be at the bottom of your band and not know it. Ask during performance reviews where you sit in the range.
- Ignoring the equity cliff. If you joined with a big initial grant, your total compensation will drop when it fully vests unless refreshers are strong. Plan for this.
- Accepting a geographic pay cut without doing the math. A 15% pay cut to move from SF to Austin is almost always a net positive in purchasing power. A 35% cut might not be. Run the numbers.
- Comparing base salary across company types. A 150k in RSUs is not comparable to a $180k base at a startup with speculative options. Compare total cash compensation at minimum, and be honest about equity risk.
- Staying too long without market-testing your value. Internal raises grow at 3-5%. The market may value you 20-30% higher. You don't know until you look.
Key Takeaways
- Companies structure pay around levels and bands. Know your level, know your band, and know where you sit within it.
- Two engineers at the same level can earn vastly different amounts based on hire date, negotiation, and refresher grants. Pay compression is real and systemic.
- Geographic pay adjustments are based on cost of labor, not cost of living. Lower-cost cities often offer better purchasing power despite the pay cut.
- Refresher grants determine your long-term equity compensation. Ask about them before joining and monitor them annually.
- Different company types offer radically different compensation structures. Compare total compensation including benefits and equity risk, not just base salary.