Last week there was discussion either here or on reddit that Amazon has a hard cap for salary compensation at ~160k in the Seattle area.
Dropping the threshold from 180k to 100k would cause everyone who has maxed out their salary at Amazon to have enforceable non-competes.
I'd be curious what types of jobs at Amazon were immediately under the 100k threshold, and what percent of the total Washington state Amazon workforce has a salary of 100k+?
$100K isn't what it used to be. In addition to inflation^1, the death of pensions means that salary and other liquid compensation is now a much larger percentage of total compensation.
For example, in our state, teachers and government employees receive a full pension after 20 years of service. That pension pays out 1/2 of some average of their previous few year's salary. Even if you retire making a relatively modest $60K/yr, that pension is still worth north of $50K/yr over those 20 years.
Salaries that don't include pensions aren't nearly as generous as they sound. $100K/yr without a pension is comparable to $40K/yr with a pension.
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1. Including absolutely incredible housing price inflation in major cities like Seattle which typical measures of inflation don't properly capture).
I think that you would be shocked to find out how little an annuity costs that pays out starting at age 62 (common US federal government minimum retirement age).
I don’t know the specifics of the examples you are thinking of, but pricing the pension value/cost at $50k a year probably posits some extreme assumptions (e.g., start and retire at lowest age, end with a very high salary, take pension with full value immediately, and live a very long time).
> I think that you would be shocked to find out how little an annuity costs that pays out starting at age 62
I think you would be shocked how much an annuity costs that pays out starting at <50 years (like police or other workers with very strong unions get). One million dollars saved up might get an annuity of $30,000 per year.
The post my original reply was to was for teachers and “general government workers”. I gave a typical retirement age for those folks.
Military, police, firefighters, and (iirc) prison employees are a completely different cup of tea. Unions are a part of it, but the element of danger is also supposed to be factored into their pensions (rightly or wrongly). They also can start getting paid as soon as they retire without regard for age (unlike many/most other pensions).
All that said, the reality is actually worse. Structurally those positions tend to give members of those groups a relatively-easy-to-get disability component to their retirement (which can often be huge). They also have functionally similar jobs with higher pay that are designed to goose up their salaries for the last x years that is used to determine their pension.
These pensions are completely out of control, imho. That said, the politics and optics around those jobs make them tough to change to a more reasonable level.
These types of pensions are completely different than that of a typical government worker that doesn’t work in these types of jobs — a complete apples and oranges comparison, imho.
For a civilian employee, the pension basically equates to about a 20% premium on top of salary. Usually pensions are 60% of salary after 25-30 years. It’s not worth as much as you’re estimating, unless those employees get free healthcare or something else.
The crazy benefits that people nag about are for uniformed folks only, as they tend to get overtime based on seniority, and don’t have aggressive caps. Most civilian employees like teachers don’t get anything like that.
US federal civilian pension (FERS) is 1.1% per year after 20 years, so roughly 27-33% of your final 3 years of salary. They also took out the hacks for overtime, bonuses, etc. to prevent the games you sometimes see with state and local pensions.
The caveat to that is as of today you contribute 4.4% of your salary / year into the pension fund, in addition to 401K savings + social security. The Obama administration raised it from 0.8%.
Again, I think that number is probably considerably lower when you include pensions in the calculation. And especially when you include CoL differences between Seattle and the rest of the country.
Even then, sure, it's above median. My point is that it's still "normal middle-class average joe" money, not "basically an executive so there should be different special non-compete rules" money.
Most people do not have pensions in the United States, and those that do don't have it worth 2/3rds their yearly salary. It's not average joe money either, a six figure salary is firmly in the upper middle class everywhere in the country. Including the Bay Area.
It may not "feel like it" but to be alleviated of financial burden and put away meaningful savings puts you above half the country outright.
This isn't the right yardstick, middle class does not mean 'median income'. Its a cultural idea.
Non-conpetes should be reserved for select few in the firm that know the secret sauce, and are paid well enough that a year on the beach will hardly affect their cash flow.
Basically executive level compensation and responsibility.
This clearly does not qualify.
I doubt it. United States gdp per capita is 53k. The median should be a lot lower because of the outliers. Of course that does include everyone not just salaried folk.
Just to put some real numbers on the value of a pension. A lifetime annuity of $30K a year (1/2 of $60K) is worth about $600K if you retire at 60. You can play with different numbers here.
> I’ll leave it as an exercise for the reader to calculate how much you would have to save in a 401K over 20 years to have that much at retirement.
When making these calculations, remember:
- lifetime annuity
- include death protection (at least in my state, surviving spouses continue receiving pension payments).
- Everything above $19,500 is fully taxed (...and, in fact, not including tax on that $19.5K isn't even an apples-to-apples comparison).
Anyways, you can add or subtract many tens of thousands to the annual salary equivalent and the point remains the same: without a pension, $100K is not "special person who doesn't need non-compete" money.
>Salaries that don't include pensions aren't nearly as generous as they sound. $100K/yr without a pension is comparable to $40K/yr with a pension.
I don't know how to square this with 12 percent of salary I was contributing towards the state pension. Care to share your math? I agree that pensions are worth something, but not 150% of salary.
Every job in the US saves 15% of your income for retirement. It is called social security. The problem is the politicians control it instead of the individual so the money is not invested but spent. If people were allowed to have private retirement accounts with that Social Security money, everyone would be able to retire comfortably.
I guess you’ve never been in a country with (hyper)inflation or with stock market dropping 90%, and when all of your private retirement money goes up in smoke in a year. the closer you are to retirement age the more interesting it gets.
This isn’t technically true in a lot of ways. Social security is taxed at 12.4% for up to $137,700 in wages, and technically 6.2% come from your paycheck and 6.2% come from the employer. There is Medicare taxes, which could be considered retirement savings in some ways, which is a total of 2.9% (1.45% from both the employee and the employer), bringing the total “retirement” associated taxes at 14.4%. There is an additional 0.9% Medicare tax on all earnings over $200,000.
There is a big difference between money taxed and money saved, and calling money collected from Social Security “savings” is misleading.
> If people were allowed to have private retirement accounts with that Social Security money, everyone would be able to retire comfortably.
The drawback of a capital-only pension system is that ever more and more "dumb money" gets locked into things like ETFs - and more and more shares of "safe" companies get owned by entities which have ... questionable interest in exercising their voting rights.
For example, take big oil or coal companies. Their time to live is limited, last but not least because the demand is going to dry up sooner or later. Normally, investors would shed off these shares or at least push the company to sustainable goals - think car companies here: the long term goal that's most beneficial to society is to shift to electric / hydrogen, while the short-term goal that's most beneficial to next quarter's benefit is to cut r&d and sell high-margin SUVs instead.
The other problem that locking huge amounts of money into ETFs presents is a bit more complex: as more and more marker volume is held by ETFs which have to track the base stock get into a precarious position. Assume a stock drops in value because of a large sell-off, bad news, a Presidential Tweet or whatever, the ETFs the funds have to follow... and sell off, creating a race to the bottom due to oversupply (and the other way around). That means that, as more and more percentage of wealth is gobbled up by "dumb money", the remaining traders gain undue influence since they can essentially force the hands of the dumb money.
And then there is the final drawback: a government backed pension scheme like the German one where current employees pay the pensions of current pensioners in exchange for the in-kind promise ("Rentenpunkte") will weather any economic crash as long as the government keeps existing. A capital-based system is in for a nasty surprise in a total collapse event. The 'rona was a warning sign in that case.
> The problem is the politicians control it instead of the individual so the money is not invested but spent.
You're undercomplicating the story of Social Security.
1. The program was instituted with an eye towards applying to everyone immediately, not 30 years from now. You cannot hand out retirement benefits to people using savings that were never set aside; so the program was always pay as you go. Not necessarily a bad thing but considering the government has low borrowing costs, perhaps it should issue some low cost, long term debt to fund the program. On the other hand, investing on the margin like this is fraught, so /shrug
2. There actually was some investment made when the boomer population came around. They were putting in more money than their predecessors took out and thus we have a surplus. Those boomers are now retiring and drawing down social security surpluses has begun, leading to the '75 cents on the dollar' estimates we've seen
3. The actuarial estimate of the cost of running social security relies on predicting variables far into the future, many of which are affected by the rules of social security itself. Longevity in particular has gone up with time.
4. People on average are not great at investing. They buy high and sell low, they buy the dividend, they don't read the prospectus. They're not even great at saving; it's why we had to institute the SS program as mandatory. Folks pointing to their 401k strategy on HN ignores how the HN crowd is a highly biased sample of the population.
Anyways, even if it were equivalent to $30K, as others have suggested, I think that still speaks to my original point. That doesn't exactly hit my threshold for "wow you're definitely super duper well-paid so we should exempt you from non-compete rules because you're making so much damn money".
The flip side of this is there are a lot of teachers who claim (and probably believe!) they are poorly compensated, but are actually paid well if you factor in the cost of the pension.
$1.2mm/20 years = $60K. So, max out your 401(K). Your before-tax income is now $80K. Of that, you have to save $40K to reach $1.2mm in 20 years. So your pre-tax income that doesn't go to retirement is $40K.
Sure, there might be an employer match, and your money will maybe grow over those 20 years, but unless there's a generous match and your portfolio grows, a lot of that gets eaten up by the 20%-30% taxes you're paying on that extra $40K you need to save. I mean, market returns were good between 2009 and 2019, but beating that tax burden of 20%-30% a year is pretty damn hard.
Also, your money might now grow over those 20 years. Especially the next 20 years. I don't think anyone has high hopes. "Past performance is no guarantee of future results". C.f. public sector pensions, which receive extraordinary protections and pay out the same whether the market is up 5% or down 30%.
That market independence is the major benefit of a pension.
The other not talked-about benefit is that a public pension is doing the investing and maintaining the financial discipline for you. Most people in the United States are not capable of this, as the savings rate has only been approximately 7%[https://fred.stlouisfed.org/series/PSAVERT], and 5 years down the road Once the Covid vaccine is developed and the economy has recovered it will probably return to those levels. Which brings me to the point that it is almost impossible for 99% of people in the United States to save 40k/yr. At a 10% savings rate this is someone making 400k/yr which is way above average even for FAANG companies. So government work might not be so bad afterall.
Every worker in The US is already saving 15% year for retirement. It is called social security. If that system was managed correctly it would be all we need. But instead the money is lumped in with general funds and spent.
That 15% would need to be distributed evenly among workers otherwise it doesn’t amount to much. That is only $5055 for the $33k real personal income from the fed https://free.stlouisfed.org/series/MEPAINUSA672N
That $5055 is not much, under the Roth IRA limit and not nearly enough to pay the median rent for a 1br apartment in the United States At $1025/mo per month https://www.abodo.com/blog/2018-annual-rent-report/amp/. IMO it’s time to go full ubi and Soviet housing blocks as we are keeping way too much artificial scarcity in housing. This will only get worse and causes more social unrest as we are currently seeing the beginnings of.
Depends on the state, but yes, generally public pension funds receive extraordinary (literally, as in "more than the ordinary") protection. It's certainly going to be a hell of a lot harder for a city/state to stop paying their pension than it is for your 401k to simply shrink and/or stop paying out 4% YoY. Just ask anyone who's checked their 401k balance this year.
Except that they don't follow the rules necessary for private pensions - they expect that there is always tax money to top it off when it can't get paid. We'll see if that happens.
Interesting. So hard to find trustworthy people, up to the task of supervising such a large sum of money. Extraordinary protections are certainly needed.
These are advantages in public sector recruitment. The public sector is never going to be able to compete with the private sector on pay, but for many people the promise of steady and reliable income and benefits combinded with a good retirement plan is very attractive.
> The public sector is never going to be able to compete with the private sector on pay
Why? I’d rather pay government employees in cash rather than with future tax money from my kids as the politicians and government employee unions will undoubtably understated benefit costs and underfund it.
That's politically tricky -- if the rank and file are paid less than government workers, then it's easy to make ad hominem attacks on the government employees for living a cushy life / excessive spending.
Advantageous to whom? The government can promise money that may or may not be there in the future, and it is up to future generations to deal with it. So current politicians get the best of both worlds - love and sympathy from their constituents who are promised guaranteed income for life, without actually having to figure out how to pay for it.
pensions are a great deal for the government because it doesn't really have to fund them properly. if a private company offers pensions, it has to fund them enough to essentially guarantee that there will be money available for all the pensioners, making pessimistic assumptions for the market and optimistic assumptions about the pensioners' lifetimes. the government usually makes fairly lax requirements for funding its own pensions and relies on the ability to make up any shortfalls in the future from taxes. shifting from something like $40k + pension to a competitive salary-only compensation would cost a lot more money in the short term.
"begs the question", like using "literally" to mean "figuratively", is so widespread that is is difficult to call it an incorrect use of language. However, both constitute what I consider a dismal use of language. (But for different reasons.)
"literally"'s conversion to meaning its opposite represents a loss of meaning in the language; expressiveness dulling into useless ambiguity.
"begs the question" isn't a term that expresses the underlying idea effectively, it merely indicates a failing attempt to sound educated.
In either case, I prefer to educate people on how to use language less dismally. This does make me a pedant.
401k contributions are tax deductible, and they are often matched to some percentage, so it isn’t that bad. You get to sock away around $30k/year pretax, and that grows (or shrinks) with the market.
Uhh, in what way is mandatory payments to the government not a tax? If your unlikely to live to retirement age your still stuck making SS payments. The cap is also 137,700$ so it depends on how close you are to retirement age and if your making catch-up payments.
Also, medicare doesn’t have a cap and is also ignores your 401k.
Let's modify the law slightly: you are now required to invest at minimum 6% of your income into a 401k or Roth IRA. This 6% is, invested in goverent bonds. Caps are increased to compensate. Social security is removed.
Is this a tax? Is it materially different from the universe today?
Social security is an investment, you should consider it as such when budgeting for retirement.
Yes. If I put 12.4% of my income in a 401K (the employer’s half is part of your compensation) and I drop dead before I can use it, my heirs get to keep the money.
A retired couple on SS simply gets their benefits cut if one of them dies. The ‘death benefit’ is a token 250$. In many cases the survivor gets exactly half as much money as the couple would have.
The spouse of a young worker can also receive benefits assuming they have children. But, that’s very much a social program effectively independent of how much money the worker had paid into SS though not their income.
Your spouse can collect either your social security or their own if they don’t get remarried. Your minor children can collect your SS until they are grown. It’s nowhere near what you can do with your own 401K.
From the government’s perspective they would suddenly need to pay for many programs like:
Supplemental Security Income (SSI).
The SSI program pays benefits based on financial need and is intended for low income individuals and families.
If SS taxes where not paying for that money then it would need to come from the general fund. Similarly, with SS doubling your income from 50k to 100k doesn’t double they payout at retirement age. Instead, money is being shifted to support the less fortunate. Further, a married couple with one worker get’s a 50% larger payment than if that same worker never married.
In the end social security doesn’t act like a self funded retirement program.
19,500 is your contribution, I think employer matches are limited to 50% of that (at least mine is, so something like 28,750/year total). The contributions are pre income tax (but not pre-Payroll tax), you pay income tax on the out (but not payroll taxes), when you’ll likely be in a much lower tax bracket.
> I think employer matches are limited to 50% of that
No, I they can be much higher than 50%. I think the NFL does a 200% match.
There is a $56,000 total limit though of employee + employer contributions. So assuming that an employer wants to do the max match that still has the employee contribute 19500, then that employer should have a (56000-19500)/19500 = 187% match.
>1. Including absolutely incredible housing price inflation in major cities like Seattle which typical measures of inflation don't properly capture).
I'm sorry, but what? Rent or Rent equivalent is absolutely a part of US regional inflation measures.
edit: The BLS publishes a Consumer Price Index published by for Seattle metro area^1. The breakdown^2 quite literally includes housing as part of the basket of goods, listing about a 3 percent increase for that section yoy, and I believe the weighting is typically 1/3 of the total index. Seems like it's capturing it just fine?
The union contract I was party to with a state university used one; seems like a no brainer when your staff is regionally concentrated.
EDIT: And rent is part of the national CPI as well. It just doesn't reflect narrow regional trends because why would it? Those are outliers, and not particularly relevant national news media, and even those news stories that do cover it would use the more specific Case-Shiller indecies to tell the story.
>Last week there was discussion either here or on reddit that Amazon has a hard cap for salary compensation at ~160k in the Seattle area.
I don't understand - are you saying that Amazon pays nobody in Seattle more than $160k? I can't believe that's true. How are they employing competent senior people for so little? Are they paying their corporate lawyers that low?
I've heard of Amazon's hard $160K salary cap many times over the years. The rest of the compensation is through stock and bonus. It wouldn't be unreasonable for a senior engineer hired in at total annual compensation of, for instance, $350K, but only $160K of that will be in salary.
I'd guess they have some leeway make exceptions to the cap, and I have no idea if it applies to management track positions.
They do have a max salary limit. When you first join, before your stock vests they give you an extra hire on bonus. This has clawback restrictions, something like you lose a quarter of it when you leave before 2 years (someone current there will know the rules better). So if you were going to make lets say 200k a year you'd get that extra 40k divided into 4 quarterly parts to equal it out. Then after you start getting stock this 'extra' goes away. I had an offer like this a few years ago, but I don't recall the exact details of clawback.
It's still kind of amazing that so many people go there, I guess it's that great big top line number when you add in stock. I know so many people who left there before 2 years, cause they hated it so much. What are the places that don't suck there?
Your sign on bonus is paid monthly over two years. The first year you get paid more of it since you only get 5% of your RSUs, the second year you get paid less since you get 15% of your stock vest.
There is no clawback - I checked my paperwork. I think one of my friends told me that he did get part of his bonus when he was first hired. In that case there would probably be a clawback.
Does that not cause people cash-flow problems? In my experience things like mortgages are based on how much you're guaranteed to be paid and if you just say you hope to get a bonus and you hope your shares are worth something they won't be happy.
If your total compensation is something like a quarter of a million as an Amazon engineer does that mean you have to live much more frugally for your first year until you get your bonus and shares?
Yes, but this is offset by Amazon's sign-on bonus. According to online sources, Amazon's stock vesting schedule is:
5% in year 1, 15% in year 2, 40% in year 3, 40% in year 4.
This is unfavorable compared to other top-paying tech companies, however Amazon may offer a sign-on bonus for years 1 and 2 to help even out the total annual comp.
Not really, that offsetting by sign-on bonus is a lie too: other companies not only offer a higher sign-on bonus, but also monthly or quarterly vesting in even chunks.
Yeah, Amazon's compensation structure is really bad compared to other FAANG companies. Perks are worse (pre-Covid-19, at least). And most people seem to think work-life balance and company culture is worse.
On the other hand, AMZN stock has done much better than Facebook, Google, Apple over the last five years, so at least they have that.
> On the other hand, AMZN stock has done much better than Facebook, Google, Apple over the last five years, so at least they have that.
Yes, but you don't have to work at AMZN to buy their stock. And RSUs are just another name for 'cash compensation, that was immediately spent on buying company stock'.
True. But if your target comp over the first four years was hypothetically $900K based on salary+bonus+RSUs and the stock went up significantly during that time you would end up making more. Of course if the stock goes down....
I think I heard that Amazon bases future grants on the assumption that the stock price will increase 15%. But I can tell you that my salary+bonus+RSU when they made an offer was based on the stock price not changing.
No. My mortgage looked at taxes, which show the value of shares I received each year (and bonuses). Plenty of people earn income outside a salary - think of a successful sales guy, where most of their income is commissions.
The banks include RSUs if you have two years of history of receiving them. Otherwise they ignore the stock plan.
The same goes for the sign on bonus, they ignore the bonus portion of comp unless there is two years of history and an expectation that it will continue.
Source: I have been at Amazon for 2.5 years and checked with a LOT of banks.
That's salary. It's not uncommon for total yearly comp to be north of $300k, and very likely closer to $500k/yr. It's just paid differently. I'm not sure why their base is so low though.
Does seem strange - what happens when you want a mortage on a Seattle-price house? Do you tell them you only get paid £160k but you're definitely going to be getting a big bonus this year. Who would believe that?
Income is income in the US. Doesn’t matter if that income is monthly or one big check at the end of the year.
They look at what they can verify on your taxes. So let’s say you made $350k at Amazon last year, that’s all they really worry about. Doesn’t matter if only half of that was salary. They’d still consider your income as $350k and use that to approve whatever amount you’re looking to borrow.
If you just started at Amazon they wouldn’t be using your income to verify anyway. They’d want your previous work history going back, in some cases, 5 years.
I've heard from a few former Amazonians the same story: Amazon puts a hard cap on stock grants too, so if the stocks grow and you're due to a stock refresher, that stock refresher is withdrawn on the grounds of "your current stock has grown enough already". The total comp numbers are just OK in Amazon too.
2. People who are there previous five years are quoting their TC w/ current stock prices, people who recently onboarded do not have the same strike price and will be less.
3. Golden handcuffs, and apparently non-compete.
It sounds nice on paper, but spend some time in Downtown and go to a few Amazonian bars and you'll figure out alot of the downsides. Especially if you're at any of Amazon projects that aren't really..working e.g. Blue Origin.
Dropping the threshold from 180k to 100k would cause everyone who has maxed out their salary at Amazon to have enforceable non-competes.
I'd be curious what types of jobs at Amazon were immediately under the 100k threshold, and what percent of the total Washington state Amazon workforce has a salary of 100k+?