Ping-pong tables and catered lunches are passé. Mention employee benefits to most start-up employees and the discussion quickly veers into artisanal coffee bars, ergonomic furniture and on-site yoga classes. From outlandish to practical, companies are getting creative in the types of benefits they offer. There are even tools to manage these perks and specialists that design the best office experience.
While it’s possible to compare salaries and equity packages across start-ups, how does one quantify benefits? Companies attempt to answer this by normalizing employee reviews across companies. The rankings, while based on employee experiences, can feel subjective. After all, some value free gym membership, while others may place a premium on flexible work hours.
To remove human bias, we took a different tack by analyzing only the monetary component of employee benefits. The results surprised us.
Most employers are required to file a statement of their employee benefits with the Department of Labor (DoL). These filings contain information about the type of retirement plans offered (pension or welfare), its source of funding and specific characteristics of the plan (matching contributions, type of investments available etc). Companies are also required to disclose details of the welfare benefits they provide. Consequently, these filings are a good way to measure an employer’s generosity and compare it to its peers.
For this post, we restricted our sample to US-based start-ups that are valued at over $1B and have active retirement plans. The chart below lists the 74 startups, the yellow square indicates the year that the company was founded, and the red bars represent the year the company first offered a retirement plan.
Chart 2: Billion dollar start-ups by founding year (yellow square) and year retirement plan first offered (red bar)
Salaries are above average
First the good news. Unicorns pay their employees above the market rate. How did we conclude this? The chart below plots the average annual contribution per employee into their 401(k) plans. The amount contributed by employees is correlated to age and income - high-income earners contribute more to their retirement plans than low-income earners, and older workers contribute more than younger workers.
The median age at most start-ups skews young, so we can assume that the age curve isn’t much of a factor in employee contributions. Hence the average employee 401(K) contribution is a strong indicator of overall employee salary. While the median annual contribution for the tech industry as a whole is $4,000, most unicorn company employees set aside much more, indicating higher than median salaries.
Chart 2: Average annual retirement contribution
But retirement contributions are small
There’s a catch though. Even though employees at these start-ups are paid above market rates, the start-ups aren’t good at matching their contributions. As the chart below shows, while tech companies match 30 percent of their employee contributions (median), within this cohort of high valued companies, the median match rate is zero.
Seen in this light, Airbnb’s policy of paying its employees $2,000 every year to splurge on a vacation doesn’t seem as generous. It would cost the company more to match their employees’ 401(K) contributions.
Chart 3: Proportion of employee 401(K) contributions matched by company
Valuation and generosity aren’t correlated
Looking at employee match rates based on the valuation of the companies, another trend is visible. The most valued start-ups don’t match employee retirement contributions (Dropbox is an outlier).
Chart 4: 401(K) match rates by start-up valuation
There are good reasons why start-ups fare poorly when it comes to retirement plans. Unlike other perks, retirement plan contributions are sticky – it’s easy to cancel artisanal lunches during lean times, but once you start matching employee contributions, reducing the match-rate can create discontent. For start-ups, consistency in cash flows is always a challenge, and setting aside a percentage of payroll can seem expensive.
But as an employee, you should weigh the cost of the perks with what you lose out when your company doesn’t match your retirement contributions.
PPS: The piece generated some discussion on Hacker News; worth a read.
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