SEED Plan for IT and Tech Companies
In this article, we discuss the role and importance of Information companies in brief along with the prevalent trends of employment and average salaries in this sector.
The Information industry, otherwise known as the Information & Technology (IT) industry is one of the fastest-growing sectors globally. The US IT industry specifically is the most advanced software and services industry in the world. The global IT market today is worth close to $5 trillion of which 40% is based in North America. In an increasingly digital economy, the products and services of this industry form the functional backbone of many other industries such as healthcare, education, transportation, etc.
IT and Tech Companies
There are close to 550,000 IT companies in the US. As of 2019, the US Information and Technology industry employed close to 12 million people. The US Bureau of Labor Statistics estimates that employment in this sector will grow by 8.8 million jobs by 2028. But what do companies in this sector do? Why is this industry crucial to the economy? Let’s take a look.
What do IT and Tech companies comprise of?
The Information and Technology industry comprises companies that create and publish software, supply custom computer programming services, computer designing, and facility management services. Innovation and relevance are the cornerstones of this sector. Globally the US market is best suited for such companies to thrive because apart from ideal business conditions, the US has strong Intellectual Property laws that nurture and protect innovations.
The Information and Technology industry is constantly evolving. The factors that drive this sector are:
- Innovations and demand for Artificial Intelligence
- Growing demand for Cybersecurity
- Growing demand for domain integration and automation
- Internet of things (IoT) redefining the structure of this sector
- Diversity in the workforce
With these factors as the primary driving force, the Information and Technology industry plays an important inter-disciplinary role in all sectors including social security systems, local and long-distance transportation systems, communication, healthcare, energy, space, etc. Besides, the Internet of things (IoT), machine learning, and virtual reality are constantly changing the way society and industries are functioning.
Thus the IT industry has to employ educated and skilled people who have the vision and capability to drive innovations and adaptability in this sector. The US IT sector has a reputation for producing reliable and effective solutions that are quickly adopted by the market making this an ever-expanding and profitable industry.
Forecast for the IT sector
The forecasted growth in the IT sector remains steady, with a report from Gartner predicting a 6.2% growth in IT spending for 2021. This figure is supported by an industry report by Interindustry Economic Research Fund predicting a 6.8% increase in the industry this year. This shows the strength in the market for IT related products and services, with this industry expected to remain strong despite the economic downturn from 2020.
Types of IT companies
Companies of the Information and Technology industry can be broadly categorized into the following sectors:
- Cloud computing: This sector includes companies that deal in solutions for Infrastructure-as-a-service (IaaS) and Platform-as-a-service (PaaS). This is the fastest-growing segment in the IT industry and the US is the global leader in this sector.
- Entertainment software: This includes solutions for the entertainment industry such as gaming, OTT platforms, mobile software, etc. This sector is a fast-growing one as well and employs close to 2 million people in the US alone.
- E-commerce: These companies cater to all online shopping solutions.
IT Industry Statistics
By number of firms:
| # of employees | Average | 2017 | 2016 | 2015 | 2014 | 2013 |
|---|---|---|---|---|---|---|
| 0-9 | 75.33% | 75.38% | 76.09% | 75.55% | 74.93% | 74.71% |
| 10-19 | 9.90% | 9.83% | 9.67% | 9.79% | 10.00% | 10.18% |
| 20-49 | 7.43% | 7.37% | 7.08% | 7.33% | 7.62% | 7.74% |
| 50-99 | 2.84% | 2.82% | 2.77% | 2.82% | 2.88% | 2.92% |
| 100-199 | 1.76% | 1.80% | 1.68% | 1.74% | 1.82% | 1.75% |
| 200-499 | 1.19% | 1.25% | 1.19% | 1.20% | 1.16% | 1.14% |
| 500+ | 1.56% | 1.55% | 1.52% | 1.58% | 1.58% | 1.57% |
As per the five-year data trends observed between 2013 and 2017, on average almost 75% of the companies in the Information industry employ 0 – 9 employees. Companies with 10 – 19 employees form the second category at 9.90%. This is closely followed by firms employing 20 – 49 people forming 7.43% of the industry. The least number of companies are those employing more than 500 people. On average, this forms 1.56% of the Information industry.
On the whole, the Information sector is widely populated by small companies employing less than 10 personnel. This creates a perfect opportunity for Startups and small IT companies to utilize ESOP plans to motivate their staff.
By number of employees:
| # of employees | Average | 2017 | 2016 | 2015 | 2014 | 2013 |
|---|---|---|---|---|---|---|
| 0-9 | 3.96% | 4.05% | 3.96% | 3.91% | 3.92% | 3.97% |
| 10-19 | 2.93% | 2.99% | 2.85% | 2.87% | 2.92% | 3.01% |
| 20-49 | 4.84% | 4.97% | 4.61% | 4.73% | 4.90% | 5.02% |
| 50-99 | 4.07% | 4.13% | 3.98% | 4.02% | 4.05% | 4.18% |
| 100-199 | 4.71% | 5.05% | 4.49% | 4.62% | 4.78% | 4.60% |
| 200-499 | 6.30% | 6.87% | 6.41% | 6.28% | 6.04% | 5.89% |
| 500+ | 73.18% | 71.94% | 73.70% | 73.57% | 73.39% | 73.33% |
Meanwhile, the data trends in employee preference during the same period are shown in this table. It is evident that on average almost 73% of the workforce in the Information industry preferred to work in large firms employing more than 500 people. Other companies of varying sizes are least opted for.
Overall, employees of the information industry preferred to work for large companies.
Top Jobs/ Average wages per job:
| 2019 | 2019 | 2019 | 2018 | 2017 | |
|---|---|---|---|---|---|
| Sample Size | Employment % | Average Salary | Average Salary | Average Salary | |
| All Occupations | 2,831,080 | 100.00% | $80,050 | $76,990 | $74,460 |
| Computer and Mathematical Occupations | 588,500 | 20.79% | $101,900 | $98,080 | $96,360 |
| Computer Occupations | 580,160 | 20.49% | $101,930 | $98,140 | $96,450 |
| Arts, Design, Entertainment, Sports, and Media Occupations | 464,660 | 16.41% | $73,480 | $70,500 | $70,140 |
| Office and Administrative Support Occupations | 405,430 | 14.32% | $44,930 | $43,560 | $42,260 |
| Sales and Related Occupations | 312,770 | 11.05% | $68,910 | $66,990 | $63,840 |
| Software and Web Developers, Programmers, and Testers | 303,840 | 10.73% | $115,050 | $110,200 | $108,850 |
| Business and Financial Operations Occupations | 255,620 | 9.03% | $88,040 | $85,700 | $84,040 |
| Installation, Maintenance, and Repair Occupations | 252,390 | 8.92% | $63,100 | $61,400 | $58,940 |
| Software Developers and Software Quality Assurance Analysts and Testers | 248,350 | 8.77% | $117,300 | $115,590 | $115,250 |
| Management Occupations | 236,680 | 8.36% | $159,460 | $157,230 | $153,500 |
| Business Operations Specialists | 203,850 | 7.20% | $88,000 | $85,390 | $83,640 |
| Sales Representatives, Services | 198,600 | 7.02% | $68,060 | $66,560 | $63,380 |
| Media and Communication Workers | 172,470 | 6.09% | $65,350 | $63,490 | $61,460 |
| Information and Record Clerks | 169,110 | 5.97% | $41,860 | $40,870 | $39,610 |
| Electrical and Electronic Equipment Mechanics, Installers, and Repairers | 154,070 | 5.44% | $60,860 | $58,640 | $56,260 |
| Radio and Telecommunications Equipment Installers and Repairers | 150,010 | 5.30% | $61,130 | $58,860 | $56,420 |
| Telecommunications Equipment Installers and Repairers, Except Line Installers | 145,200 | 5.13% | $60,970 | $58,720 | $56,180 |
| Customer Service Representatives | 142,560 | 5.04% | $42,910 | $42,000 | $40,750 |
| Sales Representatives of Services, Except Advertising, Insurance, Financial Services, and Travel | 132,430 | 4.68% | $71,770 | $70,580 | $67,140 |
| Entertainers and Performers, Sports and Related Workers | 120,810 | 4.27% | $86,610 | $85,770 | $90,900 |
| Actors, Producers, and Directors | 117,010 | 4.13% | $87,580 | $87,010 | $91,600 |
| Media and Communication Equipment Workers | 107,430 | 3.79% | $67,190 | $64,460 | $63,970 |
| Computer Support Specialists | 106,090 | 3.75% | $64,750 | $63,620 | $62,880 |
| Other Office and Administrative Support Workers | 89,420 | 3.16% | $36,700 | $36,040 | $34,940 |
| Producers and Directors | 88,720 | 3.13% | $95,740 | $92,530 | $93,450 |
| Operations Specialties Managers | 86,500 | 3.06% | $165,070 | $162,630 | $157,290 |
| Other Installation, Maintenance, and Repair Occupations | 83,250 | 2.94% | $63,980 | $64,190 | $61,780 |
| Writers and Editors | 81,380 | 2.87% | $71,250 | $69,070 | $68,370 |
| Database and Network Administrators and Architects | 78,420 | 2.77% | $103,940 | $101,910 | $99,320 |
| Personal Care and Service Occupations | 77,540 | 2.74% | $29,080 | $27,570 | $26,750 |
| Line Installers and Repairers | 73,000 | 2.58% | $65,540 | $65,940 | $63,520 |
| Telecommunications Line Installers and Repairers | 72,870 | 2.57% | $65,560 | $65,950 | $63,530 |
| Top Executives | 70,820 | 2.50% | $153,070 | $152,240 | $151,090 |
| Computer User Support Specialists | 69,940 | 2.47% | $59,460 | $58,160 | $57,380 |
| Advertising Sales Agents | 65,510 | 2.31% | $60,490 | $58,630 | $55,730 |
| Market Research Analysts and Marketing Specialists | 64,250 | 2.27% | $86,200 | $83,750 | $81,940 |
| General and Operations Managers | 64,200 | 2.27% | $145,550 | $145,160 | $143,580 |
The classifications for these occupations often overlap one another, so total employment size % may result in a larger number than 100% for all jobs.
This data provides an idea about the employment and salary trends of the top 20 job profiles in the Information sector. This data was observed across a sample size of 2,831,080 for three years between 2017 and 2019. In 2017, the average salary of all profiles combined was $74,460. By 2019 the Information industry posted a growth of 7.5% in average salaries and became $80,050. The top five engaging job profiles were:
- Computer and Mathematical Occupations
- Computer Occupations
- Arts, Design, Entertainment, Sports, and Media Occupations
- Office and Administrative Support Occupations
- Sales and Related Occupations
The roles of Computer and Mathematical Occupations combined and Computer Occupations employed 20.79% and 20.49% of the workforce in 2019. These two roles displayed a similar trend in average salaries too. It was approximately $96,360 in 2017 that grew by 5.75% and reached about $101,000 in 2019.
Meanwhile, Arts, Design, entertainment, Sports, and Media Occupations employed 16.41% of the workforce in 2019. In 2017 the average salary for this profile was $70,140. By 2019 this was $73,480, a clear rise of 4.76%.
This was closely followed by Office and Administrative Support Occupations employing 14.32%. Between 2017 and 2019, the average salaries increased from $42,260 to $44,930. This role posted annual growth of 6% in these three years.
Sales and Related Occupations was the fifth most preferred job. The average salaries were $63,840 in 2017. By 2019 this became $68,910 posting a growth of 8%.
ESOP in the IT Industry
Employee Stock Option Plans or ESOPs are a time-tested strategy to attract and retain talent. ESOP provides employees the opportunity to own stocks in the employer company. ESOP is usually offered as part of retirement benefits and employees find it motivating to stay invested in the company not just as an employee but as part owners. Data from 2018 shows that more than half (55%) of Information and Technology industry workers prefer companies that offer employment benefits like ESOP.
Why is offering ESOP a better option for IT companies?
Jobs in the Information and Technology industry are rigorous and mentally exhausting. Facing burnout issues is quite common. Thus an ESOP is a good way to encourage employees to find value in their contributions. Considering the expansive nature of the IT industry, the chances of accelerating profits are quite high. As a result, employees can earn quite a lot by owning stocks as an alternative to fixed perks.
ESOP in IT companies as a scheme is granted only to permanent employees. Though contractual work has been a trend in this sector, there is an increasing trend towards permanent positions. Since stock ownership is subject to a minimum vesting period of 1 year, employers need not fear the loss of company shares to undeserving employees. Besides, ESOP can be issued only through a trust set up separately for this purpose. All types of shares can be issued as part of this scheme.
SEED by Eqvista – Plan for IT Companies
Eqvista is the market leader in equity management software. Being a digital solution, Eqvista understands the nuances of the IT sector. Owing to the dynamic and competitive nature of this sector, employee benefits in the IT industry need to address the concerns of long-term employee engagements and profitability of the company. SEED is a unique scheme that caters to all these needs and for companies of varying sizes.
SEED or Simple Employee Equity Development is an equity rewards scheme for companies employing 0 – 9 people to more established ones. There are provisions for the staff of all levels – entry, medium, and senior with vesting plans ranging between 3-4 years with a mandatory 1-year cliff. SEED proposes granting 100% time based vesting in most cases. However, based on the size of the company and the position of the employee in the company hierarchy, it could be a combination of time based/milestone based vesting in varying percentages. The employee pool however is suggested as 10% that can be expanded up to 20% based on company needs.
Interested to explore SEED plans for your IT Company?
Equity distribution is an important function of all companies irrespective of size and industry. An efficient equity distribution plan not only attracts the best resources in the industry but helps to impress investors as well. Cap tables are easy to manage manually when the company is small operating with a handful of people. However, opting for automated solutions to handle all equity needs is advisable for growing firms. Eqvista offers a range of services that covers all equity needs of a company.
Explore more about our range of products, including our cap table software, 409a valuation services, financial modeling, and many more. To know more, reach us today.
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