State of startup compensation, H2 2022 | Carta

State of startup compensation, H2 2022

Author: Peter Walker
Read time: 8 minutes
Published date: February 27, 2023

Startups in 2023 are facing compensation markets unlike any in recent memory.

In this report, we’ll cover the most significant changes to the compensation market since publishing our debut State of Compensation report and attempt to shed light on a few key questions:

At Carta, we see it as our responsibility to share the insights that come from an unmatched amount of data about the private market. This compensation report is drawn from more than 216,000 employee records from startups that use Carta Total Comp. We also layer in metrics on employee movement from the aggregate pool of more than 1 million employees currently working for the 33,000 startups that use Carta to manage their cap tables.

While the majority of the data presented below deals with changes in base salaries (with a dash of variable compensation), we’ve also charted key updates in equity compensation in our equity addendum. Be sure to download the addendum to get the latest figures for option pool sizes, early employee and advisory shares, and suggested equity geo-adjustments for 20 key countries.

H2 2022 highlights

Employee movement

Carta data on employee movement—who leaves their company, who joins another, and whether those departures were voluntary or involuntary—is drawn from across our more than 33,000 startups on platform. This provides Carta nearly unmatched visibility into hiring trends across the private markets.

The headlines have it right: Startup employees are getting laid off at higher rates than at any point since 2020. Economic uncertainties provoked by the global pandemic sparked a sharp layoff spike that quickly subsided. The current mix of difficult fundraising and declining startup valuations has caused a prolonged layoff season.

Layoffs have been rising across virtually every major startup industry. Fintech has had an especially rough few months, but no sector has escaped unscathed.

One underrated consequence of rising layoffs at startups is that employees are choosing to remain in their current roles for longer. Uncertainty about the present job market and widespread layoffs make the Great Resignation of late 2021—early 2022 feel like the distant past.

As companies see less voluntary turnover, they may reduce hiring plans further from their already diminished projections.

Compared to years past, hiring as a whole is down across the startup ecosystem. We expect those orange bars representing negative headcount growth over the past several months to rise slightly as Carta becomes aware of hires who have already joined—but the trend is unmistakable.

Headcount & payroll

So where do layoffs and slowed hiring leave startup headcounts today? Many companies are making do with less. Payroll is still the primary driver of cash burn for most companies, causing many to rethink their headcount projections in light of new fundraising dynamics.

Company payroll typically crosses the $1 million threshold around the time the company reaches a $10 million valuation. A company typically breaks through the $10 million payroll threshold when it has 60-80 employees.

Payroll, headcount, and company valuation don’t scale at the same pace. Because payroll is a function of headcount, the two metrics scale alongside each other. Company valuation, however, scales faster.

Companies in each valuation tier tend to cluster around specific headcount ranges. For instance, about three quarters of companies worth less than $25 million have fewer than 25 employees.

Headcount growth slowed significantly for smaller startups and turned negative for larger companies in the second half of 2022. As valuation resets for public tech companies took their toll on private valuations, many startups were forced to conserve cash by curtailing hiring plans and, in some cases, conducting layoffs.

Payroll shows a similar dynamic to overall headcount: impressive growth over the first half of 2022, followed by a much reduced rise from July through December.

Across the startup ecosystem, January 2022 was a month of unprecedented hiring. Companies on Carta added 3.9 employees for every one who left that month. That ratio fell with every passing month last year.

Salary changes over time

Are tech layoffs the harbinger of decreasing employee compensation?

It depends greatly on the role in question. Carta Total Comp tracks hundreds of salary bands. A salary band is defined as the combination of a job function, role, and valuation—for example, an engineering manager at a company worth $50M-$100M. On average, those bands increased by 2.1% from April to August and declined 0.4% from August to November.

Not every band saw a decrease in average salary in the second half of the year. But as the constricted cluster of black data points shows, bands that eked out some salary gains from August to November had more modest increases than in prior months.

When we examine the data by job function instead of seniority, the results are more equal. Every function saw average salary plateau or dip slightly between August and November.

Engineering, the most populous function, offers a convenient proxy for startup salaries as a whole. After leaping forward by more than 5% from January to April, salary growth slowed to 2.2% between April and August before basically flatlining for the rest of the year.

Engineers commanded the highest median salary across all startup functions as of November 2022, at $191,000. Nine functions received median salaries over $150,000, while 15 of 17 had six-figure medians.

Although engineers represent 25% of all startup employees, that percentage varies across industries. Hardware companies are spending even more resources on engineers than other sectors, while industries like biotech devote more cash to specialized talent like scientific researchers.

Remote work

The narrative that companies would soon be compensating all employees equally, regardless of where that employee resided, has proven false. The vast majority of startups on Carta Total Comp use some form of geo-adjustment in their compensation strategies.

From Q2 2020 to Q2 2022, the percentage of hires that were in state vs. out of state essentially flipped. In Q4 2022, however, the out of state hiring percentage dipped slightly. It’s too soon to say whether out-of-state hiring will retreat further or if it has simply found a new standard level.

Certain industries appear more resistant to out-of-state hires. While verticals like SaaS and fintech have adopted new hiring practices (across both early and late-stage startups), biotech largely remains an in-person sector.

Some industry segments (like consumer startups) tend toward local hiring until they achieve a certain scale, then pursue out-of-state candidates more regularly. Hardware startups exhibit the opposite tendency, with the share of out-of-state hires falling as the company grows.

Geographic compensation

Four metro areas in the U.S. pay the highest rates for tech talent: San Francisco, New York, San Jose, and Seattle are all nearly identical in terms of base salary for tech workers.

The relative adjustment by metro area tended to shrink over the first half of 2022. More cities across the U.S. moved towards San Francisco salaries, if only marginally. Today, 10 markets pay 90% or above of San Francisco rates.