The 7 Types of Compensation Offered to Product Managers

As a product Manager there are 7 types of compensation which you’ll be offered as part of your total compensation package. Understanding the difference between these types of compensation, their individual scope and impact, and how they balance one another is crucial for ensuring you maximise your earnings and are satisfied with the compensation you’re receiving based on your new responsibilities and workload. The 7 types of compensation include:

• Base Salary - the core, fixed, annual amount paid to an employee, importantly this figure does not include bonuses, equity, or other forms of compensation.
  
  
• Bonuses - both performance and spot bonuses form an important component of the total compensation package offered to Product Managers.
  
  
• Sign-On Bonuses - a one-time payment given to new employees as part of their job offer, typically paid soon after an employee starts working with a company.
  
  
• Equity and Stock Options - often forming a significant component of the compensation package, Equity and Stock Options can provide a substantial financial reward beyond a Product Managers base salary and bonuses.
  
  
• Benefits - ranging from health insurance to transportation and even free meals, most companies offer a range of Benefits which are directly linked to employee job satisfaction and well-being
  
  
• Relocation Assistance - for Product Managers moving to a new location, Relocation Assistance may offer financial support for relocation expenses.
  
  
• Profit Sharing - a type of incentive plan under which a company distributes a portion of its profits to its employees, based on its earnings over a specified period.

You’ve submitted countless job applications to various tech companies, gone through several rounds of interviews, and after all that hard work it finally arrives - a job offer. This is a hugely exciting step in anyone's career and should be celebrated. However, as you start to comb through the contract your attention will be drawn to the compensation you’ll be receiving as part of your new responsibilities and workload.

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When joining a tech company, or any company for that matter, Product Managers will typically receive a combination of several types of compensation to create a complete package. As you begin to negotiate and work with a company, understanding the types of compensation, their individual scope and impact on you, and how they balance one another to create a well-rounded package that best supports you is vital. In the following article you will learn about the 7 main forms of compensation offered as part of a complete compensation package, how they can vary company to company, and gain greater understanding of what is most important to you.

A base salary is the core, fixed, annual amount paid to an employee, usually this is paid in bi-weekly or monthly instalments. Importantly, this figure does not include bonuses, equity, or other forms of compensation. 

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The base salary offered to Product Managers varies significantly based on several factors including:

• Experience and Level - more experienced Product Managers, or those in more senior positions, command higher salaries. An entry-level salary may start lower, while roles requiring higher levels of responsibility could offer six-figure salaries.
  
  
• Education and Skills - higher educational qualifications or specialised skills (like an expertise in data analytics, UX | UI knowledge, or a specific tech stack) can positively impact the base salary offered to a Product Manager
  
  
• Company Size and Type - larger, or more established, companies tend to offer a higher base salary in comparison to a newly founded start-up. However a company offering a lower base salary may compensate by providing greater equity, benefits, or profit sharing.
  
  
• Industry - there is significant variance in the base salary offered by companies dependent upon the industry. For example, Product Managers working in finance or tech industries often have higher salaries compared to those in retail or non-profit sectors.
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• Location - geographic location plays a crucial role in the base salary offered by a company. Regions with a high cost-of-living, such as London or New York City, usually have a higher base salary to compensate.

To learn more about how these factors influence base salary, read our article: The Salary of a Product Manager
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Given these factors, the base salary a Product Manager could typically expect is highly variable. For example, in the United States an entry level base salary would typically range from $40,000 to $75,000 (USD), however more senior Product Manager positions could command base salaries of up to $500,000 (USD) - as discussed in our article: A Product Manager Earning $426k Annually!

It is common for the base salary of a Product Managers base salary to be adjusted overtime through raises. There are two primary scenarios in which base salary raises occur:

• Annual Raises - many companies offer annual raises, typically ranging from 3% to 5% depending on the overall company performance and market conditions. Annual Raises may also include salary adjustments based on inflation.
  
  
• Performance-Based Raises - it is commonplace for companies to carry out several performance reviews throughout the year (particularly for newer employees), these reviews may come with the opportunity to discuss base salary raises dependent on the employees perceived performance over the given time period.

Bonuses form an important component of the compensation package offered to Product Managers as they provide an additional financial incentive based on overall performance or specific achievements. Bonuses can be divided into two primary categories:

• Performance Bonuses - typically cash payments that are given to employees based on the achievement of predefined performance targets. These targets can be individual, team, or company-wide.
  
  
• Spot Bonuses - a one-time bonus given for exceptional work or contributions that go above and beyond the regular job description or responsibilities. Spot bonuses are typically awarded without prior expectation or set criteria.

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The primary difference between the two forms of bonuses is that performance bonuses are designed with specific requirements over a set time period with predefined impacts expected. When outlining a performance based bonus, there are several key aspects to consider:

• Criteria - the criteria for earning a performance bonus can include meeting or exceeding sales targets, completing projects on time and within budget, improving operational efficiencies, or achieving specific KPIs. By outlining clear metrics or objectives, Product Managers can gain clarity on both how and when a performance based bonus can be achieved.
  
  
• Measurement Period - performance based bonuses are often measured over a set time period, typically annually or semi-annually, being paid out at the end of that period if the set targets are met.
  
  
• Calculation - the size of the bonus can be a percentage of the employee’s base salary, a fixed amount, or tied to the level of target achievement. Some companies use a tiered system where the bonus increases with higher levels of target achievement.
  
  
• Impact of Company Performance - in many cases, the availability and size of performance bonuses are also tied to the overall financial health and performance of the company. During economically tough times, bonuses might be reduced or suspended.

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To learn more about setting effective performance based bonuses, read out article: Performance Bonuses Demystified: What Product Managers Need to Know.

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When negotiating bonuses tied to the Product Manager role it is important to understand the company’s bonus policies, how they are awarded, under what conditions, and the typical amounts. When possible, get the bonus criteria, potential amounts, and any additional requirements in writing; this reduces ambiguity and sets clear expectations from both parties. 

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In most jurisdictions, both performance and spot bonuses are considered to be taxable income and must therefore be reported accordingly. The tax rate can vary, and sometimes bonuses are taxed at a higher rate than regular income. To learn more about the taxable income you receive as part of your compensation package, it is recommended that you consult a certified professional in your region of employment. 

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As a Product Manager, understanding these aspects of bonuses can help you better evaluate the total compensation being offered by a company and negotiate accordingly.

A sign-on bonus is a one-time payment given to a new employee as part of their job offer. It’s typically used as an incentive to attract candidates who might have multiple job offers, or to compensate any losses that the candidate may incur by leaving their current job (like forfeited bonuses or unvested stock).

A sign-on bonus is usually paid out soon after an employee starts working at the company. There may be a requirement within an employee contract which stipulates that the employee must stay with the company for a certain period of time. 

Similar to performance-based and spot bonuses, in most jurisdictions, sign-on bonuses are considered to be taxable income and must therefore be reported accordingly. The tax rate can vary, and sometimes bonuses are taxed at a higher rate than regular income.

For a more detailed understanding of sign-on bonuses, read our article: The Hidden Strings: A Closer Look at Sign-On Bonuses.

Equity and Stock Options are a significant component of the compensation package, particularly in tech companies. They can provide substantial financial rewards beyond the base salary and bonuses. As a Product Manager, understanding how Equity and Stock Options function is critical. Not only will it help you make informed decisions about a job offer, but also in planning for financial growth and stability. There are three types of Equity compensation commonly used by companies to create a complete compensation package:

• Stock Options - these give employees the right to purchase shares of the company’s stock at a pre-set price, known as the exercise or “strike price”, typically lower than the market price at the time of granting. Stock options usually come with a vesting period, meaning you earn the right to exercise them over time, often over four years with a one-year cliff (you must be employed for at least one year to receive the first 25% of the options).
  
  
• Restricted Stock Units (RSUs) - RSUs are company shares given to an employee as part of their compensation, but they also come with restrictions and vesting criteria similar to stock options. Unlike options, RSUs give you stock directly, and they have value upon vesting unless the company’s stock is worth nothing.
  
  
• Employee Stock Purchase Plans (ESPPs) - these plans allow employees to purchase company stock at a discount, typically via payroll deductions over a set offering period.

For more detail on Equity and Stocks, check out our article: Insights on Equity and Stock Options for Product Managers.

In many countries, it is commonplace to offer a range of ‘benefits’ which can include health insurance, dental and vision coverage, life insurance, retirement plans, and even perks such as gym memberships, transportation reimbursements, and free meals. These benefits are a crucial part of the total compensation package received by Product Managers and has been directly linked to influencing job satisfaction and employee well-being to the same extent as base salary. Consequently, it is an important aspect of the total compensation package and prospective employees should understand both the scope and impact of benefits offered by an employer when evaluating a job offer comprehensively. Depending on the region of employment the type and level of these benefits may vary, outlined below are some of the key benefits typically offered internationally.
 

Health and Wellness Benefits:

• Health Insurance - typically includes medical, dental, and vision coverage. Employers may cover a significant portion of the premiums, and sometimes coverage is extended to family members.
  
  
• Wellness Programs - this may include gym memberships, fitness classes, mental health support programmes, and sometimes onsite health services or wellness stipends.
  
  
• Life and Disability Insurance - it is common for employers to provide life insurance and both short, and long-term disability coverage to protect employees and their families financially in case of unforeseen events.

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Retirement Benefits:

• Retirement Saving Plans & Contributions - many employers offer matching contributions up to a certain percentage (for example in the U.S. 401k plans, in Canada RRSPs, and in Australia superannuation are all commonplace.

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Paid Time Off: 

• Vacation and Holidays - companies typically offer a set number of vacation days per year, along with paid national holidays.
  
  
• Sick Leave - Paid sick leave is standard, allowing employees to take time off without financial penalty when they’re ill
  
  
• Parental Leave - maternity and paternity leave policies vary widely but are crucial for parents. Some companies offer generous leave policies or even top up government benefits to full salary for a period.

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Flexible Working Arrangements: 

• Remote Work Options - particularly of recent, many tech companies offer the flexibility to work from home full-time or part-time.
  
  
• Flexible Hours - flextime allows employees to vary their start and end times, accommodating personal preferences or commitments outside of work.

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Professional Development:

• Training and Education - employers may offer training programs, subsidise professional certification courses, or pay for higher education related to the employee’s job.
  
  
• Conferences and Seminars - attendance at industry conferences or seminars can be supported by the company, fostering professional growth and networking.

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Additional Perks:

• Employee Stock Purchase Plans (ESPPs) - allow employees to buy company stock at a discount fostering a sense of ownership and investment in the company’s success.
  
  
• Commuter Benefits - assistance with commuting costs, like transit passes or parking fees, is often provided.
  
  
• Childcare Assistance - some companies offer onsite childcare, subsidies for external childcare services, or even back-up childcare for emergencies.

For Product Managers moving to a new location for the position they are being hired, companies may offer financial support for relocation expenses. This can be critical in facilitating a smooth transition for new employees and their families going through the relocation process. Relocation Assistance can vary widely depending on the company, but can generally be categorised into the following types of support: Financial Assistance:

• Moving Costs - companies often cover expenses for moving household goods, which can include professional movers, packing services, and transportation costs.
  
  
• Travel Expenses - a company may offer reimbursement for travel costs for the employee (and sometimes family members) to the new location, which might include airfare, fuel, and lodging along the way.

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Housing Assistance: 

• Temporary Housing - some companies provide temporary housing or a stipend for temporary lodging while the employee finds permanent housing.
  
  
• Rental Assistance -assistance in finding rental properties and sometimes financial help with deposits or first month’s rent.
  
  
• Home Buying Assistance - in some cases, companies might contribute to closing costs or other fees associated with buying a home.

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Miscellaneous Expenses: 

• Storage Fees - if there’s a gap between moving out of an old home and into a new one, companies may cover storage fees.
  
  
• Vehicle Shipping - if relocating involves significant distance or overseas, companies might cover the cost of vehicle shipping.

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Spousal Job Support: 

• Career Support for Spouse/Partner - a company may provide assistance to support an employee's spouse / partner in their job search. This can include resume assistance, job placement services, or even temporary financial support.

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Settling-In-Services:

• Cultural Training - for international relocations, companies might provide cultural training to help employees and their families adjust to a new culture.
  
  
• Language Training - also for international moves, language classes might be offered to help the employee and family communicate in the new location.
  
  
• School Search - assistance in finding suitable schools for children, which can involve direct help from relocation specialists.

Profit sharing is a type of incentive plan under which a company distributes a portion of its profits to its employees, based on its earnings over a specified period. The main goal of this form of compensation is to motivate employees in working towards the company’s overall success as they will directly benefit from the companies profitability. For Product Managers offered Profit Sharing as part of their total compensation package, there are two types of Profit Sharing plans to be aware of:

• Cash-Based Plans - these plans distribute a share of profits directly as cash bonuses. Payments are typically made annually and are taxed as ordinary income at the period of receipt.
  
  
• Deferred Plans - under a deferred plan, the profit shares are placed in a tax-deferred account for employees, similar to a 401(k) plan. These are taxed upon withdrawal, typically at retirement, which can also offer tax benefits over time.

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Regardless of the type of Profit Sharing plan you are offered, there are three key components which you should consider as you negotiate your complete compensation:

• Profit Sharing Formula - companies use a specific formula to determine how profits are shared. This could be an equal percentage for all employees or varied based on salary levels, tenure, or specific performance metrics.
  
  
• Eligibility - most profit sharing plans have eligibility requirements, such as being employed for a certain period or working a minimum number of hours. New employees might have to wait until a specific enrollment period to participate.
  
  
• Vesting - some plans include vesting requirements, meaning employees need to stay with the company for a certain number of years before they can claim the full benefits of their profit share.

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Depending on the type of Profit Sharing plan you are offered as part of your compensation package will influence the way in which this bonus is taxed. As with other forms of compensation such as bonuses and shares, it is recommended that you seek guidance from a qualified accountant in the region you are located for further advice and support.

When negotiating the overall compensation package offered to you as a Product Manager, it is easy to get caught up in the base salary offered. As you continue to learn more about the forms of compensation available, it is important to remember that base salary isn’t everything. Rather, finding the right balance of salary, benefits, bonuses, and stock options to suit your needs in a holistic manner is the ultimate goal and through open and honest communication you can work with your new employer to meet those goals. 

As you progress through your career and move between companies, there will be variances in the total compensation package you receive and the composition of that package. Furthermore, your needs may progressively change over time depending on life’s situations, remember that it’s always possible to negotiate your compensation package as this unfolds. To learn more about negotiating the best compensation package for your needs, read our article: A Product Managers guide to Negotiating Your Salary.