Meta bets on lower developer compensation
Following layoffs, Meta cuts stock refreshers by 10% after years of almost top-of-market pay rates.
We talked before about the fact that Meta planned to lay off 5% of its workforce at the beginning of 2025. The cuts have come and gone, and 5% of the workforce was indeed laid off.
At the same time, Meta also started offering executives a better bonus plan. Previously they could earn up to 75% of their base salary, but now the bonus scales up to 200% of the base salary. The plan — which excludes Mark Zuckerberg — comes as Meta decides that they don’t give their executives enough cash.
Meta approves plan for bigger executive bonuses following 5% layoffs
A committee for Meta’s board of directors approved the change on Feb.13 after determining that the “target total cash compensation” for its executives “was at or below the 15th percentile of the target total cash compensation of executives holding similar positions” at peer companies.
Meta is famously one of the best-paying big tech companies, with stock being the lions share of compensation across roles and levels. This new plan increases the total amount of cash paid to executives. If you look across news outlets, many are drawing a straight line from the layoffs to the executive bonus improvements. It’s easy to get worked up about this, but there are a small number of executives and their base salary is a small portion of their compensation1. It’s more likely that this is a minor fix to cashflow problems2 for the executives than taking money from the terminated employees and giving it to the executives.
So Meta is paying the affected employees a severance, they intend to backfill the 5% of employees that were cut, and they are expanding executive salaries. Meta is strictly increasing the money they spend on employees, right?
Well, not so fast!
Meta is additionally rumored to be cutting RSU refresher grants by 10% across the board, with some steeper cuts internationally. It’s hard to find a big outlet for this, but Andre Nader’s Substack is a good summary of the rumors that I’ve seen.
From the outside, there are basically three explanations for this. I don’t know which explanation is right, but they’re ordered from what I believe is “most likely” to “least likely.”
Stonks
Supply
Signaling
In the “Stonks” school of thought, Meta is waking up to the reality that their stock price has soared over the past few years and this has caused their employees to have wild total compensation numbers.
If you look at levels.fyi at other big tech companies, Meta is one of the top-paying companies in big tech. Most of the difference comes from stock-based compensation. This is clear if you select different time horizons for their stock. Their stock has outperformed many similar companies across many different windows. Their 4-year, 3-year, and 2-year returns are all incredible. Why would you look at 4, 3, and 2? These are the time frames where you might still have active RSU grants under normal RSU and RSU refresher policies.
So under the “Stonks” school of thought, Meta is deciding that the total compensation is too high. They could cut it by thousands of dollars per person without consequence. Where else would those people go? Somewhere that doesn’t pay as well? Nonsense. This web developer that we hired for the sole purpose of getting mobile web Instagram users to use the app? They’re going to just have to suck up getting a few thousand less over the next few years.
Let’s look at a less-likely alternative. In the “Supply” school of thought, Meta has decided that the field is maturing, and there are enough top-level developers that it doesn’t particularly matter how you treat them. You can cut their introductory offers, you can cut their refresher grants, you can publicly announce “we’re going to lay off 5% of people for performance reasons and hire different people” and then just fire whoever anyways. As long as you stay competitive with other companies and cozy up to regulators, you are basically insulated from the negative effects of reducing morale and salary.
Let’s look at the least-likely alternative, they are “Signaling” to other companies that everyone should start cutting developer salaries across the board. Over the past 20 years, the big tech companies have expended great effort to copy everything the other does. From explicit anticompetitive agreements to copying each other’s interview practices to wild pandemic hiring sprees to all magically laying off employees around the same time to all going big on LLMs, big tech companies really try to walk in lockstep. And who can blame them? The formula clearly works. So in this theory, Meta is trying to say to the other tech companies, “chill out! We don’t need to pay quite so much money. We have enough reputation that we can all cut the total compensation a little bit. Let’s drop the salary offers a bit. Let’s downlevel people a bit. We don’t need to go so crazy.”
But that theory makes Meta sound too much like its decisions are produced by one person. In reality, they probably did some absolutely boring process like
We are doing our yearly compensation review
Our employees are overpaid
Oh, it’s because our RSUs have grown out of control over the past 4 years
Accordingly, we can adjust by dropping the RSU refresher this year
Let’s go through 9 layers of executive signoff.
Once a company gets to a certain size, it becomes a mistake to anthropomorphize the company into the actions of a single person. It’s a full multicellular entity making independent decisions across all of the little organs.
This uses the Senior Director numbers to prove the point, but if you look at how compensation increases through levels the trend is crystal clear.
The mind runs wild imagining cashflow problems that Meta executives might have. “Oh no, I need to pay my credit card bill for renting a mansion in Tuscany for a month, but I can’t sell a share of stock without filing a 10b5-1 form and waiting 6 months. I need to take out a loan secured by my fleet of expensive foreign cars again.” I hate when this happens to me.