According to salary information collected by new startup Glassdoor, Apple pays its engineers significantly less than competing companies in Silicon Valley. Apple engineers make $89,000 a year, whereas Google engineers can buy four more Segways a year (pre-tax) with their $112,573 paycheck. Microsoft and Yahoo are closer to Google: both companies pay their engineers $105,000 a year. See TechCrunch’s review of Glassdoor for the data.
I wondered how much of a difference this salary disparity made to Apple’s bottom line, so I took a look at its annual 10-K filings from 2003 to 2007. Each of these reports includes, buried among its 170 pages, Apple’s net income and how much it spent on R&D. For simplicity I assumed that the R&D budget was entirely spent on salaries; this isn’t far off the mark in a hi-tech company like Apple.
If Apple were to pay its engineers the same salaries as Google then its R&D budget would increase by 26%. This amount (26% of the R&D budget) is how much Apple saves each year by paying below-market salaries. I calculated what Apple’s net income would have been if it had paid its engineers the same as Google, and these are the results:
- All dollar values are in millions.
- # Employees – from Apple’s 10-K.
- R&D Budget – from Apple’s 10-K.
- Adjusted R&D Budget – had Apple paid its engineers at the same level as Google, this would have been its R&D Budget.
- Net Income – from Apple’s 10-K.
- Adjusted Net Income – had Apple paid its engineers at the same level as Google, this would have been its Net Income.
- Increase in Net Income – the magnitude by which Apple’s net income was higher that year compared to what it would have been had it paid salaries at the same level as Google.
The Adjusted Net Income is a good estimate, but it’s not completely accurate. For example, the increase in Apple’s R&D Budget would have meant that its expenses are higher, so it would have paid less taxes. But the overall trend is clear.
Here’s the Increase in Net Income in chart form:
In 2003 and 2004, the effect of underpaying its engineers made a huge difference to Apple’s bottom line. In 2003, these savings turned around Apple’s year: from a loss to a small profit. In 2004, they doubled the profit. However, once Apple’s earnings began to skyrocket in 2005, the effect of the R&D savings became much smaller: just 6% of the net income in 2007, for example.
Paying low salaries to its engineers was a lifesaver for Apple during its difficult times. But now that Apple is immensely profitable there’s no more excuse for this practice. In the TechCrunch article mentioned previously, the site’s owner Michael Arrington says: “Apple software engineers make only about $89,000, on average, but they get to create some of the most loved products on Earth.” I’m sure this warms their hearts. But an extra $20,000 a year would make their hearts downright toasty, and their spouses’ as well.